July 3, 2022

Article 8.14


Dotcom companies have amassed billions to insert themselves into traditional business-to-business (B2B) distribution channels. The most common entry point for these newcomers has been the channel end-userís desktop offering them "B2B buy-side solutions." Their underlying assumptions have been one or more of the following: 1) The internet is shifting power to channel end-users. 2) If you control the end-user eyeballs, perhaps with "content and community" offerings first, then their "commerce" will follow. 3) Automated shopping tools and "neutral" exchanges will help end users find new, lower priced suppliers. 4) The traditional channel players will eventually be forced to recast themselves to sell through the toll collecting, dotcomís - portal, exchange or catalog. And, 5) "supply chains" originally invented and shaped by producers will turn into "value-chains"customized by end-users.

These assumptions over estimate, however, the power shift to end-users in most B2B channels. Just because an end-user could be perfectly informed and will always want more, now and for free doesnít dissolve the underlying, hidden economics of physical distribution or make manufacturers with unique total offerings sell in more flexible, but compromising ways. And, lower price quotes from strangers on the net do not equate to co-created, lowest, total cost supply relationships with local distributors.

Consider the apparently hidden value and power of regional distribution centers. In most mature, consolidating distribution channels, 85% + of channel revenues involve repeat purchases of mature items by experienced customers. Well-shopped, contracted and semi-automated buy-sell relationships are typical for all large accounts. Surviving distribution centers are the fittest, lowest total cost replenishment solutions for both manufacturers and end-users to use. The one-stop-shop assortment of items assembled for end-users within a trading area are: freight, time, transaction consolidation and custom service sensitive. While distributor marketing and paper processing activities will be transformed by web applications over the next few years, core replenishment/fulfillment activities will largely persist.

"Special orders" that distributors have dropped shipped from manufacturers to end-users will also continue. The traditional paper-based processes could, however, use a lot of "B2B sell side solution" help. Some vertical dotcoms are trying to wedge into the drop ship business by assembling global product catalogs. They get ready interest and cooperation from producers that donít have channel partners doing replenishment volume for established, best selling items. But, the largest manufacturers with significant replenishment volume going through channel partners will not sell the dotcoms for fear of channel retaliation. They know that the immediate loss of commodity sales to other distributor suppliers would exceed any incremental volume that might eventually come from dotcom, drop-shipping activity.

Even when dotcoms might successfully drop ship new items from new suppliers to end-users, they wonít be able to count on repeat orders. Local distributors will quickly stock the new selling items and deliver them along with the regular service items achieving better economics for both themselves and the customers than what dotcoms can do with less than 1% of the channel throughput. Distribution centers have a low-cost lock on replenishment volume whether the centers are captive ones like Wal-Martís or independent entities serving arrays of complementary manufacturers and end-users.

Although manufacturers may worry about channel retaliation, the good ones still have lots of channel power. Because nothing really happens until someone invents an item and sells it, manufacturers have and always will be the first and biggest inventors and re-inventors of "supply chains." Because customers donít want to pay for advice from buyersí agents, the producers are also the underwriters of educating both channel partners and end-users about old and new offerings. And, even when manufactured goods seem to be commodities, they are wrapped in many differentiating basic, extra and extended channel service capabilities.

What will the B2B buy-side oriented Dotcoms do when their initial models fizzle, because the rest of the channel doesnít want to or have to play along. They could buy or start-up distribution centers, or they could re-deploy their technical talent into partnering the existing channel, especially the powerful producers that will spend the most money on B2B sell side solutions to give the end-users more of what they want.

The final digital networked channels will be a combination of old and new - clicks and bricks. The most successful initial applications will be ones that address old inefficiencies between traditional supply chain players. These "partner relationship management" (PRM) applications will, however, also create new communication platforms and e-standards from which revolutionary new developments will then spring. With Dotcom help or not, progressive manufacturers are already plotting their B2B Sell Side initiatives for e-channel advantage which will in turn be the biggest catalysts for the emergence of the eventual digital networked channels.

Merrifield Consulting Group, Inc. Article # 8.14