54 THE DISTRIBUTOR’S LINK Nelson Valderrama Nelson Valderrama is the CEO of Intuilize, a software Service platform that specializes in helping mid-sized distributors transform data into profits. With more than 22 years’ experience as P&L manager executive for major PE firms and industrial distributors. Nelson has dedicated his career to help business uncover hidden competitive advantages and unleash the power of data in the new Digital Economy. For more information contact by email nelson@intuilize.com or visit www.intuilize.com ADAPTING YOUR DISTRIBUTION BUSINESS TO WEATHER THE STORM As I write this article in August 2021, we’re seeing hoards of distributors and manufacturers struggling to keep up with supercharged demand - and it’s still unclear when supply constraints will ease. Surely, Q4-2021 is going to be one of the busiest times ever for logistics in US history as B2B businesses are still trying to normalize supply chains and retailers prepare to take advantage of the Thanksgiving and Christmas rush. Materials, products and labor shortages, and shipping delays almost everywhere have led to outsized drawdowns in inventories as companies fight to meet one of the strongest paces of B2B and consumer spending since the 1950s. As a result, the government’s initial tally of second-quarter economic growth was missed by a long shot and price hikes and shortages of durable goods are unprecedented. So, Who Is To Blame And What Can We Do About It? Some analysts blame many of the recent supply shortages on the popular “just-in-time” theory of minimizing inventory levels in order to keep costs low. While this model is efficient in times of stability, volatility like what we’ve experienced over the past 18 months can quickly destroy businesses who adopt this philosophy. Conversely, there are a rare few companies that opted for a “just-in-case” model with higher reserves of safety stock. Toyota, for example, which pioneered the notion of JIT and “Lean” manufacturing supply chains, began stockpiling semiconductors 10 years ago. That’s why it’s the one major automaker that has enough supply on hand now. CONTRIBUTOR ARTICLE While neither model is perfect, it’s clear that distributors need better processes for black swan events, such as alternative suppliers or materials. Starbucks, for example, sources coffee from multiple areas in case one has a poor harvest. Likewise, aluminum replaced copper during price spikes. Perhaps even more importantly, companies need flexible supply chains. When lockdowns began last spring, there were instances of milk shortages while milk was being dumped. Produce rotted in fields while shelves were sparse. These shortages were not caused by a lack of inventory, but by inflexible processes. As demand shifted to supermarkets from restaurants and schools, these producers lacked flexibility to switch to different labels and packaging types required for retail markets. They had plenty, but of the “wrong stuff.” Today those distributors with deep inventory levels of the “good stuff” are realizing gains for years of hard/ smart work; the end of government stimulus programs, both for businesses and individuals, is likely to create some speed bumps on the road to recovery. What Can You Do If You Don’t Have “Good Stuff” To Sell? While it may seem daunting finding yourself in this position, I firmly believe that for many organizations, this is the best situation that could have happened. Being cornered by something so catastrophic and unpredictable forces us to re-evaluate our role as a leader, the talent we have, and our business model at large. For those of us that make it through this, I promise you’ll emerge stronger than ever and more prepared for what comes your way. CONTINUED ON PAGE 136
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