Manufacturers acting as distributors

As manufacturers strive to get closer to the end users of their products, they find themselves competing with distributors. Here is a simple fact that manufacturers must confront: if a B2B customer has to buy multiple products to complete the job at hand, why hop from store to store collecting products when a distributor sells it all?

The rise of B2B ecommerce is pushing manufacturers to act as distributors. It’s really that simple–and that difficult.

The difficulty: Distribution is a new game for manufacturers

Smart manufacturers know that their own limited product line may not be enough. They know they need to offer the right related products (often from 3rd parties) that the customer needs to complete the job.

How can manufacturers start acting as distributors in smart ways? And how does that play out in SAP-integrated ecommerce?

Glad you asked. :) But before we start answering that question, I want to talk about priorities for a moment. Before we get bogged down in how, let’s talk about why.

In other words, let’s put the customer first and work backward from there. This method will give us the perspective we need to make smart choices about entering the distribution market.  

Putting the customer first (and working backward from there)

It’s easy to get bogged down in the how on this question. How do I acquire the ancillary products? How do I handle them in SAP and SAP-integrated ecommerce? Those questions are critical, but they’re not the most fundamental.

The first question is why. Why offer ancillary products?

The answer is simple. So you can define a shopping basket of related goods that’s relevant and attractive to the B2B buyer.

Do this, and you’ll achieve greater market share and greater customer satisfaction.

Refuse to do this as a manufacturer, and you’ll find yourself in dangerous territory. The customer will go to Amazon, and Amazon may substitute another manufacturer’s core product for yours. Then you’ve lost control.

You need control, and you need to get as close to the end user of your product as possible. That’s the business problem.

Our clients are solving this problem all the time. Generally, they take one of two paths to get into the distribution market.

Two paths to achieving hybrid manufacturing/distribution

There are two paths which manufacturers take to reach hybrid manufacturer/distributor ecommerce. Both lead to offering ancillary products accompanying the manufacturer’s main product line. Essentially, each path leads to the manufacturer becoming a specialized distributor with a slightly larger market footprint than the manufacturer would have without the ancillary products.

For the sake of data harmony (and sales), both paths should end with all products living in the same SAP system. More on that in a moment–but first, let’s look at each path.

Path 1: Acquire related product lines

Most manufacturers aren’t prepared to invest in the development of their own ancillary product lines to accompany their staple products. If you want to own the ancillary product line, it’s far more cost-effective to purchase a relevant product line from another company (rather than develop your own).

Many manufacturers take this path toward functioning as a distributor. But as acquisition follows acquisition, the manufacturer finds themselves selling more and more variety of products, and a new problem arises. What do you do about the legacy ERP systems of the acquired companies?

Multiple ERPs–the thorn in your side

From the perspective of product data, things can get out of hand when you acquire multiple related product lines. Are your acquired companies/product lines on SAP? If they are, you’re one step closer to consolidating them under your main SAP ERP instance. (It’s still a big project, of course.)

But what if your acquired companies/product lines aren’t on SAP, but rather Oracle, Microsoft Dynamics, or another ERP system? And what if you want to cross-sell/upsell products from those acquired lines in your SAP-integrated ecommerce store?

Oh boy.

Now the manufacturer has to figure out how to organize that large, disjointed, heterogeneous ERP landscape and make it easy for the customer to use.

That’s a big hurdle. And while ERP consolidation is expensive, ultimately, it will serve the manufacturer (and customers) best to get all those products into one SAP instance.

This makes life easier for everyone involved. Here’s how:

• This makes life easier for your IT department because there’s only one ERP system to maintain.
• It makes life easier for your customer because they can purchase all the related products they need in your SAP-integrated ecommerce store.
• It makes life easier for your Marketing department because they can run cross-sell/upsell promotions within the ecommerce store–pulling products from all your product lines to maximize the value of each account.

While it’s difficult, ERP consolidation remains the best way to handle product data in a company acquisition scenario. It also gets your company to behave more like a distributor, with all product data in ecommerce tied back to a single SAP instance.

Company acquisition is a complex path toward diversifying your offering. Now let’s look at the other path–simply selling 3rd party products as a distributor would.

Path 2: Sell 3rd party ancillary products as a distributor alongside your products

Buying ancillary product lines isn’t the only way manufacturers can enter the distribution game and get a larger share of customer dollar. Another strategy is simply offering different products during the transaction that logically add value to the B2B customer. You don’t own the manufacturing company for these ancillary products–you simply purchase them and sell them as a distributor would.

This is a huge value-add for your B2B customers. For example, if you offer flooring tiles, but you don’t offer molding, hammers, nails, or glue, you actually disincentivize the customer from buying those tiles through you. If you offer all of those ancillary products in addition to flooring tiles, you make yourself a one-stop shop for the customer’s flooring project. That makes it easy for them to come to you.

You don’t have to manufacture these products. You don’t have to acquire the company that manufactures them. You just have to buy and sell the products.  

The takeaway: However you choose to do it, offer ancillary products

Remember, whether you manufacture the ancillary products or just buy and sell them, it looks the same to the end user. They don’t care whether you bought the company that makes the ancillary products, or whether you buy from that company. They just need the products, and they want to buy them from you. That’s why it’s critical to put the customer first and work backward from that.

The main thing is simple: offer the ancillary products that your customers need to complete their project, maintain their major investment, etc. Meet their needs with SAP-integrated ecommerce, and you’ll keep them coming back.

Moving forward: Case study

What does SAP ecommerce look like when multiple stakeholders are involved? Download this case study on Oregon Tool for a fascinating look at this question. The company’s distributors, dealers, and division managers all wanted ecommerce. Here’s how Oregon Tool engaged Corevist Commerce to deliver on that need.

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