We are living through epic times. Digital technologies are transforming everything about how we live, connect, learn, work, and play as humans. At the same time, the COVID-19 pandemic, talent crunch, and geopolitical conflicts are all creating an uncertain future even as they usher in a new normal.
Supply chain professionals are working to strengthen the supply chain, making it more resilient and able to withstand future shocks. But we can do more. The supply chain can also be responsive to the needs and aspirations of its customers, helping them today and tomorrow. And the supply chain can work to regenerate communities by creating new value for workers, managers, and leaders—and the organizations that employ them.
Making the supply chain resilient, responsive, and regenerative is a huge task, requiring a great deal of innovation and transformation, but supply chain professionals don’t have to go it alone. Distributors can help. As an $8 trillion industry, distributors serve every company in every sector, working in local communities, side-by-side with customers in the real world where business happens. Distributors are innovating, creating new customer experiences, leveraging digital tools, and helping companies and communities thrive. Working together with supply chain professionals, they can build an integrated and innovative supply chain that can help create unprecedented value for every person and business.
But there's a problem. As incumbent intermediaries, distribution (and supply chain) leaders often rely too heavily on best practices and continuous improvement to guide innovations. While these approaches can yield meaningful results, they will not lead to system-changing outcomes. That’s because adopting best practices is, at its fundamental level, about copying what has been done before, and continuous improvement is about gradually getting better at what is already being done. Forging a new supply chain requires a mindset that explores radical change, imagines new outcomes, and knocks down barriers. Foresight is essential, with actions and investments guided by purpose and commitment.
I first shared distribution’s vision for a bright and bold future of the supply chain at CSCMP EDGE 2022, the Council of Supply Chain Management's annual industry conference. Since then, I have discussed and debated ideas with business leaders, innovators, startups, and industry associations. We’ve generated new possibilities for the future of distribution and explored how a future-focused collaboration with supply chain professionals might happen.
In this article, I share three “North Stars,” or guiding principles, that I believe can transform distribution’s role in the supply chain: proximity, flourishing, and generational transfer. But first, a quick review of traditional distributor roles and how they are changing is necessary to provide a foundation for designing and building a supply chain worthy of our times.
Sensing change
Traditionally, distributors have acted as product intermediaries, stocking inventory, breaking bulk, and delivering solutions from nearby and faraway manufacturers. They have created economic efficiencies by expertly managing warehouse inventory, local logistics, and customer payments. In this frame, distributors act as the last mile of a global supply chain.
Yet distributors are more than that. Manufacturers embrace distributors as marketing channels, assigning them territories for serving customers and offering incentives to encourage sales. But distributors are also independent actors operating business models designed to help customers solve problems. Distributors help customers find, evaluate, buy, receive, and use products, offering financing through payment terms and customized delivery to streamline operations. They provide solution advice based on what works, sharing knowledge gained across a wide range of product brands and customer applications.
In many ways, the future of distribution is data. Distributor information systems contain essential data for predicting demand and intelligently sourcing products. Increasingly, distributors are adding to those systems data gathered from sensors installed on products operating at customer locations as well as environmental data, including labor costs, weather, and market conditions that define the competitive environment and growth possibilities for customers. In the not-to-distant future, the ability to manage and leverage data will be more important for solving customer problems than a distributor’s ability to stock and deliver products.
And there’s more. Even as they implement state-of-the-art e-commerce platforms to conduct virtual business, distributors remain hyper-local organizations deeply embedded in the communities they serve. Distributors solve problems by helping customers do their work better, acting on the empathy of employees that work side by side with customers, as humans, in the real world. In this way, distributors are on the leading edge of change and may become the sensing end of the supply chain, offering insights about the human needs and business strategies of customers. At the same time, they can provide data to predict demand, spot trends, uncover opportunities. Distributors may not be the most important customers of the global supply chain, but they can become its essential partner for identifying opportunities, carving out new roles, and guiding radical change.
Innovating proximity
Distributors in every industry are working to apply digital technologies to manage the supply chain, create new value for customers, and update their business models. But historically, innovations to a distributor’s own operations often flow more from ad hoc and seat-of-the-pants decisions than from strategic intent and disciplined planning. This is to be expected. In my research, I have found that the vast majority of practices designed to achieve disruptive or system-changing outcomes are intended for technology or product innovation. Very little help is offered specifically for innovating distribution’s business models, leaving distributors to feel their way, on their own, proceeding slowly, and making progress in fits and starts. Distributors can accelerate progress and achieve more consequential outcomes by selecting and following a “North Star”—or a guiding principle that provides a consistent direction, aligning people and investments, and achieving a purpose that is right for our times.
I believe that the concept of “proximity” is a powerful North Star for collaboratively innovating distribution and the supply chain. Proximity is the use of technology to shorten the time between the emergence of a need and its fulfillment, with solutions created as close as possible to the physical location where the need exists. Proximity is system-changing because it gives back that most indispensable of values: time. Proximity is also a unifying concept because it creates value for every company up and down the supply chain, all the way through to customers and consumers.I first learned about proximity from Robert Wolcott, chair and co-founder of the World Innovation Network (TWIN Global), a community of leading-edge innovators representing business, science, government, arts, and philanthropy. Wolcott offers the following guidance for innovators: “Proximity means creating and providing value at the moment of demand in time and space. Here is an exercise to help envision proximity for your business. First, ignore current industry models. Second, select a product or service you currently provide. What value do your customers receive from that offering? Not the product or service characteristics, but the value they pay for. Now, imagine it's 20 years in the future. How might that value be produced and provided immediately onsite, co-located with the demand? How does the world look different? Now, work backward from that to today. How can your company lead the path to more proximate value creation?”
3D printing, also known as additive manufacturing, offers an example. 3D printing is a technology for making three-dimensional objects by building them layer-by-layer from digital designs, creating custom, complicated, and lightweight solutions, including repair parts, turbine blades, jewelry, circuit boards, and more. In construction, 3D technology is gaining traction for making homes and other structures at the location where a building is needed and at speeds that are faster than traditional construction methods. 3D homebuilding requires fewer workers and materials, reducing labor and warehousing costs. Sustainable building materials replace traditional lumber, bricks, and tiles, lowering environmental impact and allowing for more creative and sophisticated building designs. From a value perspective, 3D-printed homes offer what customers pay for—modern, comfortable, and sustainable habitats—achieved through methods that disrupt incumbent construction practices and redefining—not eliminating—, incumbent roles for distributors and the supply chain.
By following proximity as a North Star for guiding innovations, distributors and supply chain professionals can collaborate around a shared purpose, gaining momentum as lessons learned in every project combine to improve future projects. Individual companies will compete on their differentiated innovation prowess, while the cumulative impact builds an overall reputation for working as an industry to achieve social and economic goods. By nurturing an ecosystem of technology vendors, startups, educators, skilled workers, and policy makers, the distributor/supply chain partnership may transform and thrive, gaining respect by solving problems.
Flourishing business
When distributors and supply chain professionals are looking to transform their internal operations, they often turn to digital technologies. It makes sense: Big data, machine learning, and artificial intelligence can all enable better decisions and deliver exponential returns measured as productivity, growth, and profits. But in my work as a National Association of Wholesaler-Distributors (NAW) Fellow, I am reminded every day that the most consequential and lasting innovations flow from leaning in to help customers innovate, then working back to innovate the distributor’s business model. By doing so, a wider lens of possibilities are imagined. And by committing to help customers innovate, distributors help customers thrive, creating deeper relationships marked by continuing collaboration and integrated business practices.
Here’s an example. A few years ago, I was invited by a distributor to help design a modern, platform-based education capability using the principles of mobile learning. At the time, mobile learning was defined as an inventory of short, easily digestible learning content, delivered on smartphones as video, audio, or written content. Each session is followed by a quick test. Over time, a student can build deep knowledge for complicated and technical subjects. My project stemmed from the distributor’s commitment to conducting annual assessments for participating customers.
At the start, customers trusted the distributor to implement innovations aligned with traditional distributor roles—a program for handling obsolete inventory, another for developing point-of-sale material, and a third for building a purchasing application for optimizing customer buying decisions and monitoring supply chain performance. Over time, customers became more transparent, sharing opportunities that could not be met by the distributor’s people, or their suppliers’. But armed with a deep understanding of the customer’s operations, culture, and strategies, the distributor brought third-party expertise, technology vendors, and service providers to bear and managed an innovation process to create customer solutions—always working to add new capabilities and upgraded processes for locking in business, building an industry-wide reputation, and of course, capturing new sales, share, and profits.
All of this points to a second North Star for guiding synergistic innovations and building a supply chain-centric innovation process. Leaning in to help customers innovate is to help them flourish. Flourishing is about optimizing human potential. Flourishing is relevant for mutual innovations because the most fundamental goal of distribution and the supply chain is to help customers do their work and, through work, live better lives. But distributors serve businesses, and some translation is needed.
For help, I turned to Irwin Kula, an expert on human flourishing and President Emeritus at the Center for Leadership and Learning. We discussed distribution's opportunities and challenges, and Kula offered this: “Distributors, as all people, must nurture individuals in order to better flourish. But, because of their role at the intersection of just about everyone in the modern marketplace, distributors may have the unique ability to help cultivate solutions that create value for our society and economy. Leaders must be curious, looking for questions rather than answers. Relationships must be human and digital—only human networks can restore trust in each other and our institutions. And we must build spaces—places we can gather to unlock our knowledge and assets.”
As a term, flourishing sounds like another buzzword, pointing to high-minded ideas but lacking in practical implications. But I would offer that flourishing is what distributors have always done. Back before the internet focused attention on virtual connections, distributors prided themselves as local businesses that understood local needs and stocked inventory for local access. Today, that definition of localness is disrupted in concept if not fully in practice. Distributors still thrive, but Amazon has taught us all that demand and delivery can be managed from afar, by tech-heavy marketplaces that are anything but local.
Distributors have yet to define what it means to be local in the digital age, but a commitment to helping customers and communities flourish is an excellent start. The same is true for supply chain professionals. In ages past, innovation happened where cultures and societies came together on overland trade routes, in ports, on ships and trains. Global trade was as much an exchange of ideas and practices, as it was for products and currency. The global supply chain was a source for innovations that strengthened societies and economies. And it can be again as distributors and the supply chain work together for the betterment of workers, companies, and communities.
Generating transfer
My third North Star for innovating distribution and forging a collaboration with supply chain professionals is about embracing the younger generations, those among us that are most motivated to create the future of distribution and the supply chain because they will live and work in that future.
We are in the midst of a generational transfer unlike any that has come before, moving from an analog world to one shaped by the power of data, digital technologies, and the internet. Generation X, Millennials, and Generation Z are all masters of digital technology. But Generation Z is the first generation born into a world dominated by the internet. From the book Gen Z, Explained: The Art of Living in the Digital Age, I’ve learned that Gen Zers are masters of the internet as a source of knowledge, solutions, connections, and communities. Members of Generation Z want to work for companies driven by a principled purpose, but they are practical problem solvers, aiming to leave the world better than they found it.
Incumbent leaders must look to the behaviors and values of younger generations, anticipate their needs and preferences, and, to the maximum extent possible, put them in charge of innovations, holding them accountable for results. This must happen because business is defined by the values and behaviors of the people who do business. Younger generations are the future. Failure to incorporate their skills, insights, and preferences is a failure to build the future. It’s as simple as that.
As a member of the senior generation, I sense hesitation and resistance. We baby boomers want to be in charge, but we can’t be, not for much longer. It’s time for us to share our knowledge, mentor our successors, and leave the stage. Julia Klein, a corporate director and advisor, draws on her deep experience as a distributor executive and offers this reflection: “The challenge comes from the liminal space between generations as new thinkers and doers move into established organizations. More porous boundaries across value chains and more frequent, high-skill feedback will be the vehicles and results of Gen Z rising.”
Let’s take a moment and unpack Klein’s insights. The word “liminal” implies a threshold of change, or an entrance to a new future, and enjoins a beginning or first stage of a process. It’s a call to action for finding and enabling the “new thinkers and doers” that are moving into “established organizations” and are changing them for the future. Klein sees the generational transfer as inevitable, and happening now, even before the new generations take the reins.
Klein says the value chain is “porous” because roles are fluid and there are no mechanisms for enforcing traditional responsibilities. Manufacturers and distributors, who have been longtime partners, are now using technology to encroach on each other’s business models. Manufacturers are creating digital relationships with customers, selling around distributors. Distributors are discovering that data is more important than products for solving customer problems. Both partners are acting rationally and in their own interest, but they are disrupting the value chain, nonetheless. And more is coming.
As I write this article, ChatGPT has earned its place as the fastest growing app in the history of web applications, reportedly gaining 100 million users in two months. Generative AI, the technology powering ChatGPT and perhaps thousands of new startups, is stressing our leaders because they can see it’s unbounded potential but can’t control what it might do. But it isn’t up to them. Our younger generations own the future, they will make the decisions, good and bad, pursuing opportunities and dealing with consequences, innovating all the while. Klein’s advice is an admonishment to embrace the younger generations and to conscientiously construct new partnerships as a remodeled supply chain emerges.
Catalyzing change
I have offered three North Stars for guiding collaborative innovations by distributors and supply chain professionals—proximity, flourishing, and generational transfer. In practice, every innovator may follow one, two, or all three, or something else, driven by ideas and a commitment to make them happen. I’ve suggested that the future of the supply chain is to become resilient in its ability to withstand shocks, responsive to the needs and aspirations of customers, and regenerative for workers, organizations, and communities. Armed with purpose and a plan, many things are possible, but a catalyst is needed.
Distributors can be that catalyst. Distribution is one-third of the economy. Distributors serve every business in every industry. Distributors exist to solve problems, creating value for customers and manufacturers alike. This is all true, but at the same time, distributors are an unknown entity, working mostly behind the scenes, outside of debates about the future of everything, and seldom included in research or predictions by leading business papers, academic journals, or thought-leading consultants. Change is coming.
Distributors are waking up to the power of acting as a modern intermediary, not as middlemen adding costs, marking up products sold to customers that would buy direct if only they knew how. (If that unseemly middleman role was ever true, it is in the past, disrupted by online marketplaces and the transparency created by operating as a connected business in a digital economy.) No. Distributors are emerging as a new kind of intermediary, a role that is right for our times and essential for doing business in the digital age.
Distributors have a superpower. As intermediaries, distributors are assemblers, a business model designed to bring solutions together, in combinations that create value. In simpler times, distributors brought customers a portfolio of products, without bias, to help customers make the best possible decisions, judged only by their ability to create a positive outcome. But in today’s complicated, conflicted, and changing business environment, customers need more than products; customers need:
- Services so they can outsource what they can’t master while focusing on their core capabilities,
- Data and digital technologies, including generative AI,
- Knowledge and labor from workers that are not their employees so that they can move fast and amplify their strategies,
- New science, technology, and early-stage companies incubated from educational institutions and the venture capital ecosystem,
- Help from startups focused on supply chain and distribution applications, and
- Financing to act on all-of-the-above because pay-as-you-go funding is too slow and risky when everything is changing.
Distributors, acting as modern intermediaries, are catalysts. That’s their superpower. In chemistry, a catalyst is any substance that increases the rate of reactions without being consumed itself. Distributors create innovations for customers by bringing them what they need—products, services, data, knowledge, labor, technology, startups, and financing. And if distributors are waking up, they are waking up to a role that already exists. In innovation circles outside distribution, an “innovation intermediary” is defined as “any organization that acts as an agent or broker in any aspect of the innovation process between two or more parties.” That’s distribution. Distributors are innovation intermediaries for the modern age by helping the supply chain create inspired and unimagined innovations for customers.
This article is a call for radical collaboration—leaders from two disciplines, distribution and supply chain, working together to accomplish what neither can accomplish alone, to build a supply chain that is resilient, responsive, and regenerative. (The sidebar provides some actions that we all can take to create this change.) Our shared goal must be to achieve system-changing results to fix what ails us in the digital age and to establish a new standard for innovation and doing business in a global, connected, digital, and very human world.
Call to action
Drawing on a framework suggested in a Hoover Institution paper, "Reinvigorating Economic Governance: Advancing a New Framework for Economic Prosperity," I suggest that winning the future requires collaborative work on four fronts:
- Gather outside voices. Distributors and the supply chain serve every business and every industry worldwide. We can inspire and support innovations from both perspectives. The best future for distribution and the supply chain will not emerge from inside-thinking or by pulling ourselves up by our bootstraps. Leaders and innovators must seek out, and hear from, outside voices—customer needs and aspirations, innovation successes and failures, the application of digital technologies, and the accelerating power of the internet.
- Respect and foster ideas. Ideas are the lifeblood of innovation. In distribution, an emphasis on best practices means innovators wait for proof that technology works. That’s putting the cart before the horse. To achieve system-changing innovations, leaders and innovators must put forth big ideas centered on creating new value for customers and wealth for us all, invite debate, and ask for solutions. Technology must be in the service of innovation, not its master.
- Find and support innovators. Ideas are useless without people to implement them. Generation Z is entering the workforce wanting to do work differently and pushing for change. Today's leaders must recruit them, managers must empower them, and workers accept them. Collaboration is essential within a company, between distribution and supply chain organizations, and especially with customers. Our new innovators need an identity and a place together, in person and online. Gen Zers are self-starters, and we mustn't hold them down.
- Deploy institutional power. "The quality of a nation's institutions is more important than natural resource endowments," according to the Hoover paper’s authors. By this, they mean both public and private institutions. Distribution's institutions, and the supply chain's, can do much by themselves to help their members build a better future. But they can do more together, fostering ideas, encouraging innovators, and marshaling knowledge and resources from academicians, incubators, thought leaders, policymakers, vendors, and more. Doing so may stretch their business model, but these institutions must lean in.
