E-commerce ordering and using marketing analytics from online transactions to grow sales are an ever-growing part of wholesale-distribution operations. For example, Forrester Research estimates that B2B e-commerce will cross the $1 trillion in sales in a few years. The growth of online orders is at 8 percent per year with typical wholesale markets, via sales-handled orders, growing at 2 percent per annum. The MRO/Institutional/Industrial sector has 25 percent or so of sales online with contractors related to the segment purchasing approximately 17 percent online for 2015.

Other segments served by PHCP wholesalers likely have fewer sales online today; however, our forecasts at Benfield Consulting predict online growth in all segments of wholesale distribution – even for capital equipment. Online transactions are expected to peak at 70 percent of demand for most B2B sectors and wholesalers who sell more than 10 percent of their demand online are in the top 40 percent of their respective industries.
The software platform to compete online includes what I refer to as an “e-commerce bundle,” a combination of four different types of software and integrated into the ERP system. It includes a B2B transaction platform, PIM (Product Information Management), Faceted Search and Punch-Out or customer order management.

In any digital strategy, these programs work together to provide customers an online experience where they can self-serve and have confidence that their order is correct, can be changed as needed and will be delivered with minimal error. Such an e-commerce bundle is found in a substantial number of wholesalers who transact 25 percent or more of their sales online and a full-cost including integration and personnel to manage the software is upwards of $2 million for a mid-size wholesale firm.  

Spending millions with nothing to show for it

To have a digital strategy, however, requires a digital transformation –— getting the firm to support the digital strategy. Unfortunately, there is a growing list of wholesalers who have built out their digital strategies with the latest and best-in-class software, but have few online sales.
The online sales failure of the digital transformation is what I call the “digital washout,” and some two-thirds of washouts are management-related.
Since B2B e-commerce software became specialized and widespread, a growing list of washouts and their causes have been identified through our fieldwork and research.

Here are some of the common causes of digital washouts:

Top management doesn’t like or believe in e-commerce:

• As simple as it may sound, the upper crust of management doesn’t support e-commerce after the digital strategy has been completed.
• Often the scenario is one where the CEO drives the strategy and subordinating execs nod their heads in approval and do as they are told. After the software build out is complete, the executive suite can’t and or won’t come together to drive sales online. Hence, the project crashes and the CEO is left with infighting or, worse, blames the software for the problem.

The moral of this story is if key members of the executive suite (marketing, sales, operations) aren’t behind e-commerce, it won’t succeed.

Sales has no account migration plan, and there’s no preplanning on territory and account changes:

• We often find this the case where sales feels threatened by e-commerce. Hence, they are prone to offer the technology as little support as possible.
• Sales management must be responsible for making strategy changes to the sales effort before the technology is finalized. Accounts to be taken out of the territory and migrated online and subsequent realignment of territories is fundamental.
• If sales management is against the technology, it is a sure bet that sellers will be also. If there is to be a reduction in the sales effort, territory boundaries, call frequencies, account prioritization and realignment, it should all be done well before the software build out is completed.

Marketing is weak with no or limited segmentation, no or limited product management, and little understanding of how digital marketing will supplant existing efforts:

• Good market segmentation is essential to maximization of e-commerce. Different segments have different buying experiences; in fact, segment-based design of e-commerce is, currently, one of the best means to get customers online and perpetuate their usage.
• Product management is essential for developing product taxonomies, designing search technology, and maintaining the content management system. Product managers also work with vendors on content updates since reliable, accurate and current product content is essential to online customer confidence.
• Finally, if marketing doesn’t have a plan on how digital capabilities will be used to enhance existing efforts, chances for successful e-commerce are greatly diminished.

Services aren’t updated to support customer self-service:

• Customers often use e-commerce because it is convenient. E-commerce operates well beyond the confines of 9-5. In customer interviews, we have found that many buyers order supplies, check on account activity, or search for products after-hours.
• If key operations and financial information are not available to customers or services are not up to expectations, the online experience is not competitive. For instance, if a shipping window is next-day 24 hours, the firm needs to have a solution in place. Or if branch inventory status is essential for customer satisfaction, there needs to be on-hand SKU detail available and branch stock levels adjusted to meet expectations.
• Too often, we find these details are omitted in the rollout, and the firm’s operations rush to put solutions in place. Unfortunately, operation changes take time and online buyers grow impatient as suppliers get it right the second time.

The digital washout can, in large measure, be avoided but the task cannot be left to IT or the e-commerce team. Top executives in marketing, sales and operations must come together, develop an implementation plan and hold each other accountable for the growth of online sales.   

Your vendors are watching and can’t afford to wait

Our recent research of 115 manufacturers who sell through distributor/dealer networks finds that half believe their channel partners are slow to engage e-commerce, and channel conflict will increase because of the online “slows.”

B2B e-commerce has a CAGR of 8 percent per year. Vendors who don’t have channel partners that are online-capable are losing potential sales and may be losing existing sales. We expect a growing number of vendors to develop alternative channels, including direct sales and sales with outside e-commerce specialists.

Today, vendors sell 13 percent of their total orders online with 22 percent of the orders going direct to end-users, 6 percent going to outside e-commerce specialists and slightly over 70 percent coming from channel partners.

The problem, with channel partner online activity, is a Pareto distribution where 20 percent of wholesalers are placing 80 percent of online orders. The upshot of this “Pareto of Online Excellence” is that many vendors are losing online sales since their distributors are not online to any appreciable extent.

For the manufacturers, there are limited options for recovery and time is running out.  

Product tech vs. sales culture

Wholesalers are, primarily, sales cultures. Existing product selling is, increasingly, less relevant as customers can adequately and more efficiently search and order online. Successful wholesale sellers are expanding customer relationships by moving forward into the value chain with consultative selling, process consulting, light manufacturing and after-sales service.

Executives who understand the need for the sales culture to change and support online technology are less apt to waste their software investment, avoid a digital washout and maintain vendor support. But this change is not easy and requires detailed plans and combined efforts of functional executives who develop sales, marketing and operating organizations that support the online expectations of the customer.