As we begin 2022, many distributors are looking ahead to what the new year will bring. In the last couple of years, distributors have had to adapt to cope with COVID, supply shortages, labor challenges, rising energy costs, product price increases and more. So, what trends and challenges are we likely to see in 2022?
The COVID Pandemic
COVID is likely to remain a challenge in 2022. Look for more variants and related disruptions to effect supply chains and labor in 2022. Companies should prepare to continue allowing those who can work remotely to do so, equipping them with technology that allows easy and secure access to the business-critical systems they need to do their jobs. The adoption of remote work practices has driven the adoption of cloud solutions and companies that are operating in the cloud may gain a competitive advantage.
Expect more malware and ransomware attacks aimed at hijacking a company’s systems and data and potentially bringing operations to a halt. Look for bad actors who continue using email to phish to gain access to systems and your customers’ sensitive data. Many North American distributors have turned to cloud solutions that provide world class infrastructure, resilience and security to reduce business risks.
Expectations are evolving rapidly. Distributors need to provide customers and employees with a user experience that not only meets the user’s needs, but also differentiates itself by providing more streamlined and better service. In addition to servicing customer ordering needs, software needs to support innovative new business models and connect the order process with inventory optimization and supply chain management to ensure that customer expectations are met so orders are fulfilled on time and in full. Modern software user experiences and industry 4.0 technologies will assist distributors in accomplishing these needs and delivering a superior experience to build loyalty.
Supply Chain Events
2021 saw the blockage in the Suez and a shortage of capacity at ports. Congestion in the ports will likely continue well into 2022. Although the number of ships waiting in the ports is going down, it does not mean the supply and availability of goods is catching up. Cargo ships are often now anchored 150 miles off the coast while they wait their turn to come into dock. As of early December 2021, the backlog is higher now than ever before.
Mergers and acquisitions hit record highs in 2021, partially driven by the pandemic creating new needs and opportunities. Companies are looking to increase market share, buy technology expertise and bring more talent into their organizations. M&A activity is likely to stay strong in 2022 as companies evolve, acquire and are acquired.
Competition will be fierce with manufacturers looking to bypass distributors through selling directly to consumers. Additionally, large e-Commerce platforms are grabbing market share. This will force distributors to differentiate themselves by offering value added services like vendor managed inventory (VMI), rental and repair, kitting and more.
According to Lindsey Piegza, Ph.D., Chief Economist – Stifel inflation will remain high in 2022, driving up wages and, in turn, product costs. Distributors will need to keep tight control on their costs and margins if they are to remain profitable. This requires strong financial and cost management capabilities, as well as analytics that can provide valuable insights into which customers and products are profitable and which are not.
A combination of labor shortages and rising wages will continue to drive advances and deployment of artificial intelligence, robotics and the IoT, as well as the applications, data fabric and cloud services to run them. More distribution companies will begin, and others will continue their digital transformation journey to the cloud.
Control and Agility
Distributors will need to have greater digital control of their supply chain. They will also need greater agility to quickly absorb, integrate and support new acquisitions, new locations, new product ranges and new business models. To accomplish this, IT will need to be agile and responsive to keep up with a rapidly evolving business strategy as well us unforeseen supply chain events. A cloud service that offers industry-specific distribution capabilities can help provide that agility and speed. Distributors who do not upgrade their digital footprint will lose their competitive advantage.