Report: E-commerce disruption is coming for industrial distributors

Dive Brief:

E-commerce buying, along with changing buyer demographics, is rapidly disrupting industrial distributors’ traditional inventory-heavy model, according to a press release from UPS. Therefore, distributors must quickly adjust their methods and offer better stock online as well as improve customer service.
Millennials (aged 21-34) are the greatest drivers of this change. Along with their technical skill, they often have nontraditional shopping habits, going right to a manufacturer instead of through a middleman-distributor.
The UPS survey found 81% of buyers have purchased directly from manufacturers, up from 64% in 2015, while 75% of buyers shop at an e-marketplace, rising from 20% in 2013. Finally, 80% of buyers shifted toward web-friendly suppliers, an 8% increase since 2015.

Dive Insight:

Distributors are feeling the effects of shifting supply chains, where consumer trends and innovations in technology are facilitating direct relationships, over the long-favored middleman.

Distributors have long been in place in many markets, passing manufactured goods along to retailers for resale. Serving as the middleman between makers and sellers, they earn their profit by increasing the price of the product they purchased to sell to others, creating a markup. As a result, pushing aside the middleman when possible yields greater savings.

While the supply chain is still considered a relationship business, new e-commerce marketplaces are making it easier to go right to the source of manufacturing for products. An example is Amazon's potential foray into pharmaceutical sales. Pharmacies typically rely on their middlemen, pharmacy benefit manager, to procure drugs from manufacturers. While Amazon is still just selling periphery products like syringes to pharmacies, the company is not shy about its ambitions to disrupt the PBM market.

Another sign of a change in trend is Thomasnet.com. Previously the print Thomas Register, offers an online database of global suppliers. Slowly, e-commerce trends are infringing upon the business-to-business space in addition to the business-to-consumer markets.