Distribution and logistics companies have a crucial role to play in society. Without them, our access to luxury and essential goods is fraught with problems.
Many other types of industries are dependent or interdependent on distribution firms to survive.
During the pandemic, it was revealed to many who had not considered it before just how vital distribution companies were to our societal structures. Logistics, distribution, and delivery were key to survival for many people and businesses during lockdowns.
Now all sectors are facing a new challenge in the form of a looming recession and huge economic upheaval.
Owing to their important role, a recession presents an interesting set of circumstances for distribution companies.
Rising costs will put added pressure on all businesses by squeezing resources and budgets. However, for distribution companies, there is the chance to push the competition to the fringes, and actually scale up during a recession to become even more profitable.
Recession periods are exceptionally competitive in the distribution sector, so let’s analyse strategies to ensure thriving at this difficult juncture.
Types of Distribution Companies
Classic distribution firms buy from manufacturers and distribute to retailers.
Manufacturer-distributor/retail distributor – sells directly to consumers. Manufacturer-distributors are selling their own goods.
Wholesale distributors resell to end-users.
Logistics companies are distribution firms but more than that because they handle storage, planning and organisation around the entire movement of goods. We can consider them the same for the purposes of advising on scale up strategies in the recession.
Causes of recession
Legal changes in Brexit caused a multitude of complications for distribution firms that exported or imported outside the UK. The pandemic then wildly increased demand and now businesses are looking at rising costs. This goes for all goods, due to inflation, but because of the war in Ukraine, we are also looking at spiralling energy and fuel prices. This is of great concern to distribution businesses.
The next few years will likely bring more volatility to that market and supply chains could be affected, as well as labour shortages.
We must acknowledge that the current circumstances are uniquely difficult. Yet we can still look back to previous recessions to see why certain distribution firms were able to thrive and scale while others floundered.
There are several strategies that successful distribution companies enacted early to gain the upper hand and come out of recession already scaling up.
Strategies For Scaling Up Your Distribution Company In A Recession
Before employing any strategy at all, the best tactic is to ensure that your plan is flexible. If you rigidly stick to one or several plans that clearly aren’t yielding results, then you won’t scale. You need to be able to pivot quickly to the changing circumstances. Your customers’ behaviour can be a largely unknown factor in a recession, as can the length of the recession. Preparing for the unknown requires a large degree of flexibility.
A Step-By-Step Expansion Plan
You must have a clearly laid out expansion road map. Ensure strong balance sheets going into the pandemic and access to cash. Review your cashflow and see how you can improve it. Can you save money by renegotiating deals by providing or accessing more funding from new investors? The following strategies should give you some good scaling ideas, but you must choose which are feasible with your current budget at the start of the pandemic, and how you can bring in more funds to make them achievable. Most importantly identify the strategies that are most important to you and in what order you will carry them out.
We say this a lot, but one of the best tactics you can employ for any industry in a recession is to diversify.
In a recession, with high costs and customers being more money conscious, you need to explore multiple avenues. This can apply to so many aspects of the business, e.g., where you source your goods, your supply chains, your channels of distribution and marketing, your funding, your service offering, and your revenue streams.
Explore new ways to source, market, and distribute your products. The vital point is not to keep all your eggs in one basket because things can change quickly in a recession. Do not be dependent on one supplier, or channel.
Offer clients subscriptions to your services to improve cashflow and consider them for all the services you use as well as to spread costs, including digital hardware.
If you have the funds, now could even be a good time to diversify locations.
Eliminate Unnecessary Costs
That being said, do not overstretch. Diversifying is one of the best ways to add scale as it opens up new opportunities you have not yet explored. However, it does not come without risk. To mitigate this, you need to make decisions quickly.
While you try new sources and channels, be quick to cut experiments that don’t pan out. You must eliminate unnecessary costs in every corner of the business. Consider closing operations in underperforming locations and reducing low-turning inventory levels.
Highly Targeted Customer Acquisition Plan
Clearly identify those customers that you would ideally like to add to your portfolio and set yourself a time target. Concentrate your marketing to be personalised and targeted towards those businesses and their needs with persona mapping.
Prioritise A Fantastic Customer Experience
Don’t wait to make improvements to your offering that you know would be a boon to your customers. Real-time tracking, better delivery speeds and greater sustainability are all valuable attributes.
Become More Digital
This isn’t just about marketing but about how technology can improve all aspects of our business. Internal communications, automation and delegating tasks can all become easier with the right hardware and software.
There is also the obvious case for digital marketing as well, with a digital presence and strong e-commerce infrastructure making the experience more streamlined for customers. Look to develop an omnichannel offering and customer communication methods to meet them on their terms with the perfect offering.
Use Programmatic M&A
Programmatic M&A can cover various different strategies like tuck-in, roll-up, or serial techniques but ultimately it is all about optimising deals and best utilising the power of partnerships in a continual and tactical way. While it is time consuming, it has many benefits when carried out correctly, such as higher shareholder returns. It has also yielded greater stability and growth for many companies, specifically during economic downturns. Some say it outperforms organic growth strategies.
Sell Strong To Existing Customers
Focus on cross selling and upselling to existing customers.
Refresh Investment Pipelines
Consider whether you need additional funding from new investors and sources.
Use Financial Software
Using financial analysis software, you can recognise areas of the distribution business that may need immediate change or attention.
Prioritising Stock By Value Customers
Who are your most financially valuable customers and what are they ordering? You should prioritise your stock allocations based on this and their desired delivery times.
Clear Customer Communication
The bedrock of success during a recession is ultra-clear and transparent communication with customers. In distribution, many of them will be totally reliant on your service for the success of their own firm.
Open communication allows them to give feedback, so you can learn and grow while helping you manage expectations and engendering a positive relationship of customer loyalty. Always check in if they are happy with their current orders and if they’d accept any changes.
Anticipate And Plan For Supply Chain Issues Before They Happen
We’ve seen the disruption to supply chains that both Brexit and Covid caused. While the recession is a different animal, staff shortages in the distribution sector and rising costs due to inflation could affect supply chains in various ways.
If you know that your supplies from abroad could be affected in a recession, then it is sensible to communicate early with your suppliers to have a clear picture and so you can manoeuvre ahead of any disruption.
Reviewing your most value-adding customers and their usual and expected stock orders can allow you to think ahead and secure that stock before a crisis hits. You should also think back to our diversify advice; can you look at multiple different suppliers for these products?
Map Out Your Entire Supply Chain
While thinking ahead and communicating with suppliers is a good way to get ahead of supply chain woes, an even better strategy is to map out your entire supply chain now, prior to the recession hitting your bottom line.
Having a detailed understanding of your supply chain is one of the strongest strategies for scaling up in a recession or otherwise. It can reveal numerous issues and missed opportunities for growth.
In order to successfully map your supply chain, you must create a team that covers all your various department heads. They can give each other invaluable insights.
They will help you identify any products or systems that have similar processes in the company. Grouping these into more streamlined processes is an excellent first step.
Don’t just talk to heads of department though. You should create a map of all current processes and use that data to make decisions. This should include communicating with those workers that actually carry out the tasks.
After that, you can look towards future plans by seeing what can be improved. Keep an eye out for slow, redundant, or bottlenecked processes.
Most importantly, map out how you will make those changes and improvements.
The above are all strategies that have been employed by the most successful distribution companies. In times of economic crisis, this combination of approaches can ensure that you stay in the race at a competitive time for the distribution sector. These strategies can help you to successfully push out rivals and add scale to your growth even in a recession.
Carissa Parnell has been with HardSoft for over 10 years, she is a content writer and helps us with blogging. She is highly experienced in copywriting for SEO strategies, web copy, email marketing and article writing.
Carissa’s interests include Gaming, Sci-fi, fantasy and fashion.
LinkedIn: Carissa Parnell