If you're an enterprise leader in distribution, you already know the industry is massive. Within the last five years, the industry's total GDP impact was estimated at $4.583 trillion, nearly 20% of the U.S. economy. It’s the backbone of commerce, keeping supply chains moving and businesses stocked.
Though the industry has benefited from many tailwinds, headwinds are on the horizon. The old ways of doing business are under fire. Inflation is unpredictable. Tariffs keep shifting. Technology is evolving faster than most companies can keep up. And let’s not even get started on supply chain disruptions.
What does this mean for you?
The status quo isn’t sustainable. The enterprises winning in distribution are the ones embracing digital transformation and modernizing how they sell. The rest? They’re playing catch-up in an industry that won’t wait.
This guide is a starting point for distributors considering digital transformation and eCommerce evolution. Zaelab has worked with hundreds of distributors and seen a large spectrum of what leads to the success and failure of distribution commerce.
Key Segments of the U.S. Distribution Industry
- Wholesale Distribution: This sector, valued at approximately $10 trillion, connects manufacturers to retailers and provides essential services. Wholesale distributors play a crucial role in supplying consumables to convenience stores, dollar stores, and grocery stores.
- Industrial Distribution: In 2023, the U.S. industrial distribution market was valued at $2.84 trillion and is projected to reach around $4.09 trillion by 2033, with a compound annual growth rate (CAGR) of 3.71% from 2024 to 2033. This growth is driven by increased spending on supply chain logistics and investments in transportation.
- Foodservice Distribution: This segment delivers approximately 12 billion cases to professional kitchens annually, averaging 33 million cases per day. It operates a combined vehicle fleet of 168,300 and approximately 17,100 locations in the U.S., supporting 487,000 ancillary jobs through supply chain and employee spending.
What’s Driving Change in Distribution?
The U.S. distribution industry is a vital component of the economy, encompassing various sectors that collectively contribute significantly to GDP. While the industry has experienced substantial growth, it faces ongoing challenges:
- Economic Pressures: Persistent inflation has led to rising raw materials, transportation, and labor costs, pressuring profit margins. Distributors face higher operational expenses, which they must manage without significantly increasing customer prices.
- Supply Chain Disruptions: Global supply chain disruptions, initially triggered by the COVID-19 pandemic, continue to impact the distribution industry. Issues such as port congestion, container shortages, and geopolitical tensions have led to delays and increased shipping costs. Distributors must navigate these challenges to maintain inventory levels and meet customer demands. Threats of tariffs may only make this worse.
- Technological Advancements: The distribution industry is increasingly adopting digital commerce and automation to enhance efficiency and meet the expectations of digitally savvy business buyers. Distributors are accelerating their digital transformation efforts to cater to the growing demand for omnichannel purchasing options. However, most distributors are woefully unprepared for the speed of technological adoption.
So, where do you start? With a digital commerce strategy built for the complexities of B2B distribution.
Why Distribution eCommerce (B2B eCommerce) is so much harder than B2C eCommerce
B2B eCommerce isn’t plug-and-play like B2C. Distributors sell to businesses, not consumers. You’re managing highly complex product catalogs, contract pricing, bulk orders, negotiated quotes, and an offline sales team that still plays a crucial role. B2B eCommerce is considerably more complex and challenging than B2C eCommerce. That’s why mimicking B2C strategies is a misstep.
Let's dive into the key reasons why B2B eCommerce is so much harder and different than B2C eCommerce:
1. Larger and More Complex Catalogs
B2B businesses often deal with a wide variety of products, sometimes across different industries or sectors. These catalogs can include thousands, or even millions, of individual SKUs (stock-keeping units) with detailed specifications and configurations. The complexity increases further when products have different variations (size, color, material, or customizations). This is often less of an issue for B2C eCommerce, where catalogs are generally more standardized and simplified.
Additionally, B2B catalogs frequently include items that need to be paired with specific accessories, replacement parts, or software components. Managing these products and their interdependencies adds to the complexity.
Lastly and probably the most important is that this information may need to come from many different manufacturers who often have poor quality information. They also have different formats so unifying that data is not easy.
2. Complex Pricing and Quoting
B2B transactions are typically subject to highly customized pricing structures. Prices may vary depending on the quantity purchased, the relationship with the buyer, negotiated discounts, or special pricing based on contracts or agreements. This is very different from B2C, where prices are mostly fixed and publicly displayed.
In B2B, quotations are often required before an order is finalized, and the process for generating quotes can be lengthy and require a significant amount of back-and-forth between the buyer and the seller. B2B customers expect flexibility, and offering tailored quotes based on business-specific needs is a standard expectation.
Many B2B eCommerce platforms need to integrate quoting systems and have robust rules for managing pricing tiers, custom discounts, and volume-based pricing. Given how complex pricing and quotations can be, companies should invest into entire software dedicated to this, such as Logik.ai.
3. Alignment with Sales Reps
In B2B sales, the process is often relationship-driven, requiring the direct involvement of sales representatives. These sales reps play a crucial role in managing customer relationships, providing personalized service, and guiding customers through the buying process. This often means that B2B eCommerce platforms have to work seamlessly with the sales team, ensuring that human sales involvement is integrated smoothly with online transactions.
Unlike B2C, where the purchasing process is typically automated and self-service, in B2B eCommerce, there's often a balance between online purchasing and offline sales assistance. Maintaining this alignment can be tricky, as sales reps may need access to real-time pricing, inventory, and customer information that’s updated dynamically on the platform. There needs to be tools within eCommerce that facilitate these sales rep to client relationships.
4. Complex ERP Integration
Enterprise Resource Planning (ERP) systems are at the heart of many B2B businesses, as they manage everything from inventory to accounting, purchasing, supply chain logistics, and customer data. The integration of B2B eCommerce platforms with ERP systems is crucial for providing accurate and real-time information to customers and streamlining back-office operations.
ERP integration in B2B eCommerce is often much more complex than in B2C because of the need for synchronization across numerous departments, systems, and data sources. For example, sales orders need to be reflected in inventory and financial systems, which requires robust data synchronization.
Moreover, B2B eCommerce solutions must often integrate with additional systems like CRM (Customer Relationship Management) or PIM (Product Information Management) systems to create a seamless experience.
Lastly, information like pricing and inventory in an ERP is often so complex it cannot be replicated in an eCommerce platform. Therefore you have to pull this data in real time for the customer to review which can be very very challenging.
5. More Advanced Shipping and Payment Options
B2B buyers typically need more advanced shipping options due to the nature of their purchases. Large or bulk orders might require freight shipping, special delivery instructions, or the option to choose delivery windows that accommodate operational schedules. This is more complicated than the standard shipping options found in B2C, where consumers typically only need home delivery options.
Additionally, payment methods in B2B eCommerce can be more complicated, as they often involve purchase orders, invoicing, and credit terms (e.g., 30/60/90 days). Many B2B buyers will want to buy on credit or require complex payment terms based on their business cash flow. B2C transactions, by contrast, typically rely on credit cards or instant payment methods.
Most eCommerce platforms cannot support this complex logic out of the box and may require customizations or third party add ons like ShipperHQ. Examples of needs could be.
6. ROI is Not Just Increasing Sales
In B2B eCommerce, return on investment (ROI) isn't solely measured by the volume of transactions or the increase in sales. The decision-making process in B2B transactions involves multiple stakeholders and can be longer and more involved. Therefore, ROI may also be evaluated by how well the platform supports customer retention, improves operational efficiency, and streamlines complex processes.
Furthermore, B2B businesses often face higher customer lifetime value (CLV) but need to balance long-term gains with upfront costs. It's not just about closing a sale quickly, but about maintaining a profitable and sustainable relationship over time. Factors such as ease of repeat orders, pricing flexibility, and overall customer experience matter deeply in determining the true value of an eCommerce platform.
Additionally, customer satisfaction is harder to quantify in B2B since success isn't only about individual sales but also the improvement in overall service levels, operational efficiency, and collaboration between the customer and supplier.
The Takeaway: You Need a B2B Commerce Strategy
B2B eCommerce challenges stem from the nature of B2B business transactions, which are often more complex and require significant customization to meet business needs.
From managing large catalogs and complex pricing structures to maintaining alignment with sales teams and integrating advanced backend systems like ERP, B2B eCommerce requires a level of sophistication that goes far beyond the simplicity of B2C platforms.
For companies to succeed in B2B eCommerce, they need to not only focus on improving the customer experience but also consider how to integrate technology seamlessly with existing business processes and teams. It's about enabling streamlined, scalable solutions while maintaining the flexibility needed to meet the diverse needs of business customers.
This requires a healthy mix of cross department buy in and collaboration. We will cover this in the next chapter, Building An Effective Digital Team - Assembling The Avengers. Stay tuned.
If you're stuck with your digital transformation, speak with a Zaelab expert today to unlock new growth opportunities.
