Mar 11, 2023
Why manufacturers and distributors must digitize their business
In today’s ever-changing digital world (particularly after recovering from a global pandemic), ignoring digitization is no longer an option for manufacturers and distributors. The benefits of digitization are varied and far-reaching, from increased customer satisfaction to cost savings to streamlined processes. Sounds good right?
According to a study by Bain & Co., investment in a digital supply chain can make your logistics more resilient and can increase customer satisfaction by 30% while delivering a 15-25% increase in plant output.
In addition, a flexible supply chain resulting from digital transformation can cut costs and improve cash flow, in part through a 10% to 40% increase in inventory turnover.
So, you might be wondering:
- What is it about digital transformation that can significantly impact the manufacturing business?
- What are the key factors driving the transformation?
- What are the benefits of digitization?
- And most importantly, why should manufacturers, wholesalers, and distributors digitize their business to stay ahead of the curve?
We will cover all the answers in this guide.
Factors driving digital transformation in manufacturing
The biggest factor is the shift in customer expectations with online shopping. B2B buyers, who are also consumers when they personally shop online, now expect a similar hassle-free online experience for their business purchases. This is a major reason behind the rise of online [B2B marketplaces[(https://resolvepay.com/blog/post/exploring-the-pros-and-cons-of-B2B-marketplaces/) like Alibaba Business, Amazon Business, and more.
This also explains why there is rise in technology solutions to help B2B business improve their B2B commerce digital payments experience. There is no shortage of solutions that offer B2B BNPL platforms, B2B credit management, or B2B payments. The truth is: businesses want the same, simplified experience when it comes to their purchasing and payments. That’s why digital solutions like Resolve’s B2B payments have becoming increasingly popular. Resolves helps companies offer net terms as a service so they can offer streamlined payment terms while digitizing tasks like credit checks, credit enrollment, AR collections, and payments.
The second factor is the pure advancement of technology. Over the past few years, digital technologies like IoT (internet of things), production automation, augmented reality, and other technologies, have become mainstream. As early as 2016, McKinsey had reported that B2B digital commerce leaders were driving 5X times more revenue than their peers who hadn’t yet embraced new solutions.
Additionally, the need for resilience and agility in the evolution of shopping due to covid also led to digitization. The post-pandemic industrial world continues to grapple with supply-chain bottlenecks and shipping delays while facing an uncertain economic environment. Digitization of many processes and having a digital strategy to leverage technology can reduce manufacturers' dependency on external factors beyond their control.
For example, 3D printing or additive manufacturing has made it possible to make spare parts in-house at a faster rate without external suppliers. As a result, it has made automotive manufacturing businesses faster and more agile.
Digital transformation in manufacturing: what does it actually mean?
Digital transformation refers to the enhancement of all traditional processes, people (workforce), and products in manufacturing. These three parameters, people, processes, and products, form the trifecta of any supply chain of a manufacturing business.
A traditional manufacturing supply chain is a linear workflow. It is a series of steps through marketing, product development, manufacturing, distribution, and sales. This linear value chain broadly contains the following steps:
- Assessing and forecasting consumer demand
- Purchasing raw materials from suppliers
- Planning production in the factory
- Maintaining inventory of the finished goods
- Distributing goods to wholesalers and resellers
- Demand fulfillment for the end customer
Currently, this process typically happens in a silo. There is usually minimum visibility of the entire cycle from various process touchpoints.
For example, the inventory might be compromised if there was an unplanned shutdown in the factory. But there is no way for distributors and customers to know about this so they do not receive timely communication about the delay in their goods. Similarly, suppose there is a shipping delay of raw materials and finished goods. In that case, adjusting the production and logistics in real-time is difficult, leading to wasted time and resources.
A complete digital transformation of this supply chain, also termed ‘digital supply chain’, breaks down these siloes. It transforms the linear chain into an integrated ecosystem that is transparent to all stakeholders involved.
A digital supply chain will combine technologies like smart procurement, integrated planning and forecasting, advanced analytics, smart warehousing, autonomous logistics, and automated production. This will enable businesses to become responsive and resilient to external supply chain shocks. They can adjust the different components of the supply chain in real-time based on a change in one component. In fact, by using advanced AI and digital twins, they can even predict many of these changes in advance to plan and set expectations accordingly.
A major innovation to make a digital supply chain a reality would happen on the customer side of things: marketing, sales, and customer service. This is because B2B buyers are shifting expectations, seeking a smooth online experience, faster shipping, and real-time order tracking.
Benefits of digitization for manufacturers
1. Increased efficiency and reduced costs
Digitization helps increase efficiency across multiple steps in the manufacturing workflow.
For example, quoting is one of the important business processes in manufacturing. However, most B2B manufacturers still follow manual quoting which is cumbersome and time-consuming due to multiple approvals, slow processes, and a lack of pricing transparency.
By digitizing this process, manufacturers can speed up order fulfillment, reduce costs, and even offer self-service functionality for a seamless customer experience.
Similarly, by investing in automation systems, they can cut down costs and save time in production, leading to an increase in operational efficiency.
For example, a study by Boston Consulting Group reported that by implementing advanced logistics automation systems, manufacturers could reduce in-plant logistics and warehousing costs by approximately 30%.
The initial cost of implementing these technologies can be higher, but the long-term ROI would justify the upfront investment.
2. New sales opportunities
Historically, traditional B2B sales focus on big accounts at the expense of small customers.
When you move to omnichannel sales and take your B2B sales online, say via a B2B ecommerce marketplace of your own or listing on Alibaba, you can reach out to millions of people worldwide.
A B2B customer (buyer) in any part of the world can look at your online brochure and place an order. You can even offer net terms online to these customers by using a solution like Resolve’s net terms as a service at B2B checkout, making the entire process frictionless.
This is also what a modern B2B buyer expects, as a McKinsey survey showed, 66% of B2B customers preferred digital self-service or remote human interaction. In fact, 80% of B2B leaders said that omnichannel sales is "as or more effective than traditional methods."
3. Speed and flexibility
The modern B2B buyer has grown to expect the speed and fulfillment of Amazon when purchasing anything.
Digitizing your manufacturing operations, especially around sales and marketing, helps you stand apart from other manufacturers who are slow to adapt to changing customer preferences.
Moreover, with the help of data from an integrated supply chain, you are more agile and responsive to ever-changing external factors. If there is a sudden surge in consumer demand, you can immediately take action on the planning and manufacturing side of things to respond.
This speed, flexibility, and resilience in a dynamic supply-chain environment become your competitive advantage.
4. Enhanced user experience
Digitization has a direct impact on the user experience, be it the end customer or the intermediate users in the supply chain like vendors or distributors.
All modern B2B buyers expect a better B2B customer experience, including a seamless ordering process, fast shipping, and easy returns. With digitization, manufacturers and distributors can track inventory, process orders, and expedite shipping.
They can also use advanced data analytics to provide customers with personalized recommendations and tailor products and services to meet their needs.
For example, you can offer your customers immediate credit and net terms online through a solution Resolve during the checkout process on the website. Resolve can do a 'quiet' business credit check on your buyers and help you offer the right net terms based on their creditworthiness. This results in a faster and more satisfying customer experience.
With Resolve, you also get the option to get paid up to 90% of the invoice upfront, as they take the responsibility to follow-up with your customers for payment in a professional manner. This is much better than invoice factoring which can lead to a negative perception with your customers.
5. Better decision-making
The high availability of data in a digital supply chain unlocks numerous opportunities for manufacturers.
This is made possible with the increase in the adoption of IIoT (industrial IoT) and 5G in manufacturing. So, manufacturers can have data from all points in their supply chain and analyze it for patterns using machine learning and advanced analytics. What’s more, there are even accounting platforms built just for manufacturers.
With high transparency at every level of production , manufacturers can make better decisions to optimize the planning, production, and distribution process. Simply put, this leads to better business decisions.
6. Increased innovation and new product development
The data availability and insights are not only helpful in optimizing production efficiency, it also helps in developing new products thereby increasing the pace of innovation.
With IoT sensors on industrial equipment, manufacturers can stay up to date on the product's performance. They can also help manufacturers get product usage insights to understand customer behavior and uncover new product development opportunities.
Another example of enhanced innovation is when you can integrate smart factory initiatives on the floor with your ERP to get deeper insights about your supply chain and use them to streamline your business workflows and performance.
Why is digitization a must for distributors?
So far, we have covered digital transformation in manufacturing and how it can open new doors for manufacturers.
But, digitization is equally relevant, perhaps more critical, for distributors and wholesalers.
Industrial distributors occupied an important role in the traditional supply-chain and B2B business model. But, B2B ecommerce for manufacturers, wholesalers, and resellers has disrupted this model as the gap between the producer (manufacturer), and the consumer (end-user) has narrowed in the digital world.
This is especially true post-pandemic when many manufacturers and distributors survived a phase of extreme disruption to supply-chain. This disruption caused a renewed shift to digital platforms to meet the ever-increasing consumer demand amidst the pandemic.
Additionally, there are two major reasons why digitization matters:
1. Rise of Amazon and Alibaba
There has been no bigger threat to traditional wholesalers and distributors than the rise of Amazon Business (the wholesale arm of Amazon) and Alibaba.
Even before the pandemic in 2017, 92% of wholesale distributors had cited Amazon as a competitor. These business marketplaces have played a major role in shifting the entire B2B buying landscape from offline to online. They not only offer a massive catalog of products across industries but also offer faster and smoother shipping experiences to B2B buyers.
Traditional distributors, especially for commoditized products like printing supplies and paper, cannot keep up with this pace and online experience unless they digitize their business.
2. Growth of D2C businesses
Another cause of concern for the traditional distributor business is the rise of the direct-to-consumer business model.
Many manufacturers are open to investing in creating their own online stores and taking direct orders from customers to preserve profit margins by removing the middle chain of distributors.
For example, a prominent manufacturer of plumbing products, Kohler, built an e-commerce platform despite having an extensive network of retailers and distributors. This also helps them establish direct relationships with the end consumers by giving them add-on services at a reduced cost. Another example of a B2B commerce company is DocShop Pro.
These two factors combined with the increased adoption of technology by key players and changing customer needs threaten the existence of distributors who don't adopt digitization. They are at risk of becoming irrelevant and serve merely as links in the channel instead of partners with manufacturers who add business value.
Starting with a simple B2B ecommerce solution could be the first step towards digitization for distributors or wholesalers. In the beginning, the website can only focus on enabling product discovery.
Over time, the goal should be to offer a digital shopping portal like B2C with features like easy net terms options, self-service portals, and hyper-personalized experience for the entire customer journey.
Examples of digital transformation in B2B businesses
Digital transformation can sound overwhelming at first. But you don’t need to transform your entire workflow in one go. In most cases, it begins by identifying the most critical pain point for your business and improving it with the help of new systems and technology.
Here are a few examples of digital transformation in manufacturing that can inspire you to take the first step toward digitization.
1. Online marketplace: Docshop Pro offers net terms online with an embedded payment solution
Docshop Pro is an ideal example of an archaic B2B business going digital. They transformed the way medical practices order supplies by building a true online marketplace while offering net terms without friction.
Previously, doctors, clinics, and medical practices relied primarily on door-to-door sales. Now, Docshop Pro has emerged as the Amazon of the medical marketplace world.
But, building the online marketplace was not a key challenge. In the B2B selling environment, they struggled with offering net terms as they could not afford to manage the float and hire an internal accounting team.
So, they achieved their objective by integrating Resolve with their ecommerce platform, Magento. By using an embedded marketplace payment solution by Resolve, they offer a seamless checkout experience while offering immediate net terms enrollment to new customers.
2. Predictive maintenance at Tetrapak that saved $30,000
Tetrapak, as a leading dairy packaging company, had a critical challenge of ensuring that their machines always run properly to prevent the spoiling of gallons of milk.
They connected their 11 packaging lines to the Microsoft Azure Cloud and collected operational data to help predict informed maintenance timing. Within 6 months, they were able to predict future breakdowns in 5 of those lines, carried predictive maintenance, and saved more than $30,000.
They also adopted Microsoft Hololens devices (built on Microsoft's mixed reality technology) for their service engineers. This enabled remote expert assistance during the repair work, cutting the time needed to fix the problem.
3. Big data and analytics: Prima Frutta enhanced production by 50%
Prima Frutta is a California-based fruit supplier that invested in the “largest cherry production line”.
They were able to increase production by 50% through an automation system.
The system involved historical data analysis and Big Data reporting enhancements to leverage production metrics and help employees on the plant floor with quality control.
They also invested in a New Zealand-based Compac sorter and a proprietary vision system to grade the fruit upstream. This system detected quality-control information and made it available to 900 plant floor workers.
The result was a 50% increase in production without hiring extra labor.
4. Automated credit checks: Archipelago tripled revenue with improved credit decision technology
Archipelago is a lighting manufacturing company that specializes in LED lighting. They had challenges in long processing times in approving net terms and higher risk associated with manual credit checks.
They used Resolve to automate their net terms and decrease their turnaround time credit checking from 10 business days to just 24 hours. They were even able to offer 20X higher credit lines to their customers by eliminating the human subjectivity to make credit decisions.
As a result, they could close and retain new customers by speeding up the purchase cycle.
5. Additive manufacturing: Ford uses polymer spare parts for faster production
Ford is one of the pioneers in 3D printing and additive manufacturing. They had purchased one of the first 3D printers ever made back in 1988. Now, many automotive manufacturers rely on 3D printing and additive manufacturing
By using additive manufacturing (a process where parts are built on top of one another instead of traditional subtractive processes), Ford can produce polymer spare parts for its vehicles faster than traditional molding processes.
In this way, they are not dependent on the external supply chain to get spare parts and, therefore, are not subject to any delays caused due to disruption to the supply chain.
The bottom line: How manufacturers, wholesalers, distributors should approach digital transformation
Digitization can provide greater visibility into the supply chain, enabling manufacturers and distributors to identify and solve problems quickly. Over time, they increase sales, reduce operational costs, improve customer service, and gain a competitive edge.
But at the same time, it is not a silver bullet. Don't expect to see changes overnight by jumping into investing in new technologies.
The best way to start with digital transformation and take the first step towards a digital supply chain is to ask a simple question: how can you use data to improve a specific business problem?
Articulate the problem clearly and focus on the customer journey. You can ask questions such as, what is the potential impact on your customer’s experience? What are their pain points?
You cannot transform your entire operations and organizations in one go. Create a roadmap to digitization while prioritizing customer-facing experiences like sales and marketing.
Starting with a transforming your B2B commerce experience can help to enable your customers to place orders online seamlessly. You can also offer them credit terms seamlessly with a service like Resolve that can do faster, embedded credit checks and approvals within a day.
It also gives you insights on customer demand and over time, you can begin integrating your backend processes with the frontend for better pricing transparency, order forecasting, tracking shipment, and a superior customer experience.
If you are a manufacturer, wholesaler, or distributor looking for an efficient way to digitize your B2B commerce and financial operations, learn more about Resolve’s net terms solution.
