MRO Magazine

Survey predicts five key trends in the industrial supply chain for 2002

Philadelphia, PA -- Dec. 18, 2001 -- A list of five key trends to watch in the supply chain during 2002 has been is...


Industry

December 18, 2001
By MRO Magazine


Industries

Philadelphia, PA — Dec. 18, 2001 — A list of five key trends to watch in the supply chain during 2002 has been issued by Pembroke Consulting. The firm produced the list after conducting extensive research associated with a study titled Facing the Forces of Change: Future Scenarios for Wholesale Distribution, conducted for the National Association of Wholesaler Distributors, and its own market research.

1. Consolidation continues

While distributor consolidation has slowed in recent months, look for a pick-up in the coming year. “The fundamental drivers are still present,” said Pembroke Consulting president Adam Fein, who authored two books on the topic. “We see distributor consolidation accelerating in electrical products, floor covering products, foodservice, and industrial supplies.”

2. Suppliers fight reverse auctions

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Corporate buyers are using online reverse auctions to procure everything from raw materials to highly engineered components. However, sellers are feeling exploited because most of the benefit accrues to the buyer. “We see savvy suppliers either opting out of reverse auctions or developing counter strategies like alliances, market differentiation, and bundling value-added services,” said Fein. “We see these counter strategies being successful enough to slow the growth of online auctions by year end.”

3. Partnership software booms but hype may exceed reality

Pembroke forecasts a boom in the Partner Relationship Management (PRM) software market. However, PRM may prove to be overhyped and oversold as users discover that the net effect turns out to be lower than anticipated in many situations. “PRM systems have the greatest value in channels selling branded products requiring up-to-date technical or configuration information,” says Fein. “As a result, these systems will largely be ineffective and too costly for many installations. Initial investment, integration, and ongoing maintenance costs substantially reduce the ROI as well. This will be compounded further since suppliers will likely underestimate the amount of change required in their channel management policies.”

4. E-procurement initiatives stall

According to Pembroke’s research, the past 24 months have seen large, sustained investments in e-procurement software. In 2002, major corporate buyers will find e-procurement systems do not deliver the target process savings unless coupled with a more strategic approach to purchasing. As a result, buyers will increasingly concentrate purchases with fewer suppliers, apply stringent supplier selection criteria, and increase efforts to enforce internal compliance with the national supplier agreements.

5. The Internet’s impact on distribution channels begins to clear

“Conventional wisdom about the Internet in 2002 will focus on ways to enhance existing distribution channels,” says Fein. “Online ordering will continue growing at the expense of phone and fax orders. However, we estimate online orders will still represent less than 15% of transaction volume in most distribution channels. In our estimates, more than 50% of buyers in B2B supply chains will primarily use the Internet to communicate with existing suppliers for self service such as order tracking, inventory management, product information, and order accuracy.”

Philadelphia-based Pembroke Consulting provides strategic management consulting about distribution channels and marketing strategy to manufacturers, distributors and technology companies. Visit www.pembrokeconsulting.com, or www.nawpubs.org to order Facing the Forces of Change.

By Bill Roebuck, Editor