Disruptive distribution

Disruptive distribution

Ecommerce—as a platform for doing business—has brought in revolutionary changes in the way distribution of products and consumables is done. The experience during pandemic only multiplied the number of users many fold. Many more changes are in the pipeline that are unstoppable.

Distribution channels are the conduits through which companies deliver products and services to customers and end users. Some businesses sell directly to their customers, while others might use a retailer or wholesaler to serve as an intermediary. Companies may also use agents or brokers to facilitate the movement of products to distributors that sell those products to the customer.

Product distribution is vital for company’s operations. A manufacturer wants to have the ability to analyse and improve relationships between manufacturers and customers. If there’s no way to do this, corporates won’t improve. When a company runs into bottleneck in the distribution, a lot of bad things can happen. When deliveries start to fall short, customers, retailers and your suppliers won’t be happy. If the company wants the product distribution to be successful, a feedback loop that allows making continuous improvements is necessary. If the company business in such situation has been digitalised, then all the problems can be addressed in an efficient manner.

The last decade has brought in many disruptions in our life and the way in which we buy items. Use of technology by both the distributors, retailers and product users is becoming common. As it pertains to customers’ buying products online, there’s a level of trust customers have on the distributor when they buy a product they can’t physically see and touch. For merchants, this is where accurate pictures and descriptions are extremely important.

It is interesting to see what cement distribution has to do with technological advancement. Cement being a routine, mundane product nobody ever thought where the technology can come in buying cement. But that is not correct; we draw attention of our readers to a company by the name Shankara Buildpro. It is the only stock listed company doing retail business of cement and related products. It calls itself as a leading building material retailer with more than 125 outlets across the country with 30,000 plus products. It is interesting to see the business model adopted by the said company. It has both brick and mortar stores as well as online store.

There has been the use of technology by the cement distributors but that is mainly pushed by the cement manufacturers. When large corporates like ACC, Ambuja, UltraTech and Shree Cement implemented enterprise solutions for their factory operations and logistics, it was obvious for them to extend it further to cement distribution.

We would to draw attention to a report prepared by Kanvic Consulting on the subject which has many contours connecting to the technology, logistics and distribution.

Drive digital @ scale

To realise the potential of digital for their bottom-line, cement companies should make four major changes. First, they need to make digital a priority for the top level management. Second, they need to replace the technology lens with a business outlook. Third, they must invest in digital talent. Fourth, they need to break down the silo mindset.

Make digital a priority

Kanvic Consulting study of Indian cement companies has revealed that digital is not yet a priority for top level management. In most cases, digital initiatives are usually left to lower levels of the organisation or the IT department, who are tasked with implementing new solutions like CRM. As a consequence, digital fails to become a strategic priority for the business.

To drive digital in a concerted way across the organisation; leaders need to place it firmly on the agenda of top management by discussing it alongside with other strategic decisions. Furthermore, it is essential that a digital champion is appointed at a senior level that has the authority to lead the process across functions and with direct accountability to the board. They also have the responsibility of creating firm-level awareness of digital and its importance to the organisation’s future. To kick-start this process one large manufacturing organisation conducted a workshop facilitated by external experts who brought an outside perspective on the opportunities and threats digital presented to their business. This helped foster a sense of urgency around digital and successfully brought it onto the board’s agenda. Only these endeavors will lead the distributors to go digital. If it is left to only digital fraternity then it may take its own time.

Go beyond technologies

Even in cement companies that have adopted progressive digital initiatives, there is a tendency to see them through the technology lens, which limits the field of vision to specific solutions, rather than looking at the all-encompassing impact of digital across the business.

With digital technologies advancing at a fast pace and customers—even in more conservative B2B organisations—rapidly adopting new buying behavior, a narrow view of digital will leave cement players exposed to the threat of digital disruption.

However, the real long-term benefits from digital will come when individual initiatives such as these are taken in line with a strategic roadmap to digitalise the business. This approach will help prioritise the areas to digitalise first for maximum business impact and provide a common infrastructure to realise synergies across the business.

The Indian cement industry is gradually shifting away from the traditionally dominant trade channel that retails cement bags to large numbers of small customers, and toward non-trade customers like large construction and ready mixed concrete (RMC) companies. This trend will accelerate further as sectors like infrastructure and low-cost housing increase their share of cement demand. For example, infrastructure share of demand is projected to rise from around 20 to 25 per cent by 2020. These segments will put greater pressure on price realisation through their desire to keep costs low and the high level of bargaining power that comes with a large scale of projects.

In terms of productivity, the industry has reached the best efficiency norms and there is very little scope for any further improvements in terms of operations of a plant. Therefore, the clear challenge for Indian cement companies today is to identify new sources of margin improvement. Logistics and distribution happens to be one. According to Kanvik, three key areas where Indian cement companies can drive margin improvement through achieving performance excellence. These areas are sales and marketing, supply chain and digital.

The long-term profit improvement in the Indian cement industry is the application of digital at scale. Today companies are adopting new hardware and software solutions on a piecemeal basis to address specific problems, but few players are viewing digital as a driver of overall business performance and all are struggling to adopt a truly digital culture. It is important to note however that since the cement industry is highly regional in nature, the supply-demand scenario will differ from region to region based on the competitive dynamic and price discipline exercised by the companies.

Key customers

It is a well-established concept in the industry that every corporate knows its key customers. Even at a distributor level it is a practice to keep track of key customers. A key customer is a person or a company who gives a substantial quantum of business to the organisation. These key customers some times are given special discounts like cash discount, trade discounts, turn over discounts, quantity discounts and other privileges according to the organisation’s policies. They may also be given a lenient payment facilities by the organisation. It is always much easier to keep the details of key customers if the company is on digital platform.

Credit score

Credit score is a statistical analysis performed by lenders and financial institutions to determine a firm’s or a small, owner-operated business’ creditworthiness. Any advance given as credit must be settled within stipulated time frame to have a worthy credit score. Credit scoring is used by lenders to help decide whether to extend or deny credit. A credit score can impact many financial transactions, including mortgages, private loans, further credits, etc.

Questions

In the cement trade business on credit and recovery of payment has been a challenge. Therefore the online models which always have a definite period for payments have not been successful in cement. As stated above cement being an age old product, users are more comfortable in sourcing it in a traditional way. Today the trading community is very watchful about the experiments like infra.market or Shankara Buildpro since success is yet to be established. However, we feel cement being a high volume and low margin item, the distributors and retailers will be under pressure in the years to come and some what a hybrid model, which is a blend of online plus using partly traditional business model may emerge as a compromise.

Acknowledgement: A report ‘Building a new India’ by Kanvic consulting

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