Quick Take: Re-intermediating distribution

Can distributors combat the threat of disintermediation with radical capabilities that turn ideas into sellable solutions?

The reinvented distributor

As intermediaries in the value chain, distributors are always at risk of being cut out by suppliers. It’s called disintermediation and it is a huge threat and a strategic challenge. Distributors counter it by hiding customers from suppliers and refusing to share customer information. Some distributors share point of sale data; others go further, aligning sales and marketing activities or conducting investigations designed to help suppliers understand who is buying their existing products, how the products are used, and whether or not the user experience leads to satisfaction and growth. But none of this adds up to system change, meaning new and radical manufacturer/distributor partnerships with the potential for new business models or exponential gains.

I’m looking for ideas for reinventing the future of distribution and was excited to hear John List talk about his new book on the Freakonomics podcast. List is a distinguished economist at the University of Chicago. He is a pioneer of natural field research, which I understand as an approach that favors gathering insights and data in the real world where people live and work over theoretical, abstract, and lab-focused investigations. His new book, The Voltage Effect: How to Make Good Ideas Great and Great Ideas Scale, is a common sense and actionable exploration of putting ideas to work and optimizing results. Just as voltage powers a motor or lightbulb, so can a different type of voltage power ideas.

List’s insights made me wonder if distributors might reinvent themselves. As manufacturers, suppliers are in the business of understanding customer needs, inventing products, and selling them. Distributors help suppliers close the deal with customers by offering solutions, taking orders, and delivering products. Manufacturers need this help, and when things go well, suppliers choose not to go it alone. But what if distributors could cut closer to the heart of every manufacturer’s purpose–the invention and commercialization of ideas as new products?

I propose that distributors might “reintermediate” themselves by offering radical new value from the center of the value chain. Doing so requires new mindsets, capabilities, and processes. It also means that existing frames for distributor agreements, channel pricing, and profit-sharing would change. Hard work lies ahead, but across all of List’s several chapters, three ideas stand out:

Policy-based evidence

In his book, List argues that “[Economists] need to move from a mentality of creating evidence-based policy to one of producing policy-based evidence.” He means that ideas must be tested in the real world with the people who will implement them. Distributors can fill this role by offering their people, facilities, and customer relationships for developing ideas, iterating solutions, and gathering evidence of fit, efficacy, and potential. Getting the correct facts from the field provides actual voltage for designing and launching ideas as new products.

Unscalable humans

Technology scales; humans don’t. Collaborative commercialization means working together through connected software, platforms, and artificial intelligence. Scalable technology may drive exponential benefits. The knowledge and effort of human employees may not be scalable, but it is complementary. A decade or two ago, distributors created voltage for suppliers by stocking local inventory for local conditions. Today, distributors create local voltage through human-to-human connections with customers.

In the digital age, human relationships do what technology cannot. They offer commitment and build communities. Critically, only humans can create relationships open to honest and deep conversations about innovative ideas. Distributor employees live and work where customers live and work, creating voltage through transparency and trust that may crank up the design and launch of new products.

Ingredients vs. chefs

Scaling ideas means understanding if a solution’s secret sauce is in the chef or in the ingredients. Top-tier restaurant experiences are built around the voltage of a chef’s ideas and personal brand, nearly impossible to replicate. Scaled restaurant voltage flows from freely available food ingredients, interior designs, food service equipment, and wait staff.

Manufacturers and distributors may create voltage from integrated, scalable experiences that include the product and service ingredients that define how the product works and how it is supported. In a way, the hyper-competent voltage of a world-class chef may be attempted by pooling both partners’ data to create connected experiences powered by analytics and artificial intelligence.

Your take?

My concept of “reintermediation” is itself an idea. Is it a good one? Could it be a great one? Will it scale? I suspect we will find out if a few radical B2B innovators run with it, executing List’s advice for creating voltage. In my dreams, I see distributors stepping up as a $7 trillion sector to reinvigorate the economy as discussed in this Quick Take. Am I crazy? Let’s talk. Please share your comments below or reach me at mark.dancer@n4bi.com.