Today's wholesalers face considerable challenges. The industry remains vulnerable to one of the most enduring trends of the last decade—fierce resistance to price increases and the winnowing out of suppliers who are not adding value based on cost and quality. Progressive wholesalers constantly watch for better ways to meet the changing needs of their suppliers and target customers. They recognize that, in the long run, their only reason for existence comes from adding value by increasing the efficiency and effectiveness of the entire marketing channel. As with other types of marketers, the goal is to build value-adding customer relationships. For example, Grainger succeeds by making life easier and more efficient for the commercial and institutional buyers and sellers it serves:
Beyond making it easier for customers to find the products they need, Grainger also helps them streamline their acquisition processes. For most companies, acquiring MRO supplies is a very costly process. In fact, 40 percent of the cost of MRO supplies stems from the purchase process, including finding a supplier, negotiating the best deal, placing the order, receiving the order, and paying the invoice. Grainger constantly seeks ways to reduce the costs associated with MRO supplies acquisition, both internally and externally. One company found that working with Grainger cut MRO requisition time by more than 60 percent; lead times went from days to hours. Its supply chain dropped from 12,000 suppliers to 560—significantly reducing expenses. Similarly, a large timber and paper-products company has come to appreciate Grainger's selection and streamlined ordering process. It orders two-thirds of its supplies from Grainger's Web site at an annual acquisition cost of only $300,000. By comparison, for the remainder of its needs, this company deals with more than 1,300 small distributors at an acquisition cost of $2.4 million each year—eight times the cost of dealing with Grainger for half of the volume. The company is now looking for ways to buy all of its MRO supplies from Grainger. As one Grainger branch manager puts it, "If we don't save [customers] time and money every time they come [to us], they won't come back."33
AMcKesson, a major wholesaler of pharmaceuticals, health and beauty care, home health care, and medical supply and equipment products, provides another example of progressive, value-adding wholesaling. To survive, McKesson has to remain more cost effective than manufacturers' sales branches. Thus, the company has built efficient automated warehouses, established direct computer links with drug manufacturers, and set up extensive online supply management and accounts receivable systems for customers. It offers retail pharmacists a wide range of online resources, including supply-management assistance, catalog searches, real-time order tracking, and an account-management system. It has also created solutions such as automated pharmaceutical-dispensing machines that assist pharmacists by reducing costs and improving accuracy. Retailers can even use the McKesson system to maintain medical profiles on their customers.
McKesson's medical-surgical supply and equipment customers receive a rich assortment of online solutions and supply management tools, including an online order management system and real-time information on products and pricing, inventory availability, and order status. According to McKesson, it adds value in the channel by providing "supply, information, and health care management products and services designed to reduce costs and improve quality across healthcare."34
The distinction between large retailers and large wholesalers continues to blur. Many retailers now operate formats such as wholesale clubs and supercenters that perform many wholesale functions. In return, many large wholesalers are setting up their own retailing operations. For example, until recently, SuperValu was classified as a food wholesaler, with a majority of its business derived from supplying grocery products to independent grocery retailers. However, over the past decade, SuperValu has started or acquired several retail food chains of its own—including Albertsons, Jewel-Osco, Save-A-Lot, Cub Foods, Acme, and others—to become the third-largest food retailer in the United States. Thus, even though it remains the country's largest food wholesaler, SuperValu is now classified as a retailer because 75 percent of its $37 billion in sales come from retailing.35
Wholesalers will continue to increase the services they provide to retailers—retail pricing, cooperative advertising, marketing and management information reports, accounting services, online transactions, and others. Rising costs on the one hand, and the demand for increased services on the other, will put the squeeze on wholesaler profits. Wholesalers who do not find efficient ways to deliver value to their customers will soon drop by the wayside. However, the increased use of computerized, automated, and Web-based systems will help wholesalers to contain the costs of ordering, shipping, and inventory holding, boosting their productivity.
Finally, facing slow growth in their domestic markets and such developments as free trade agreements, many large wholesalers are now going global. For example, McKesson now derives more than 7 percent of its revenues from Canadian and other international operations, up 28 percent in just the past two years. Its Information Solutions group operates widely throughout North America, the United Kingdom, and other European countries.36
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