The Middleman’s Digital Dilemma

Europe’s industrial supply sector may be undergoing changes, but smart players can adapt and win

Digital innovation revolutionized everything from how we make phone calls to how we select whom to date. Now, it is reshaping how factories acquire the everyday wares essential to keeping their business running.

Savvy industrial buyers are increasingly purchasing through digital channels.

Over the last few years, UPS has tracked these developments with its Industrial Buying Dynamics studies, which have found a consistent pattern of migration from traditional industrial supplier relationships to one more diverse and dynamic. Savvy industrial buyers are increasingly purchasing through digital channels.

Digitization is reshaping the industrial supplies business to make it faster,  leaner and more efficient. The 2017 European UPS study found that traditional industrial distributors continue to lose market share to e-marketplaces and to direct-from-manufacturer sales. In 2017, more than 90 percent of industrial customers were buying directly from manufacturers, up sharply from just 65 percent in 2015.  The amount they spend in these direct channels is also rising: Direct-from-manufacturer sales now account for 44 percent of industrial spend across Europe.  

Today’s buyers expect faster delivery. Two-in-five buyers need same-day  delivery for at least a quarter of their industrial orders, and 60 percent say they typically need delivery for all orders within 48 hours or less.  

Moreover, buyers now expect an increased level of service to come with a product, including training and on-site maintenance and repair, often with short response times. In 2015, 78 percent of respondents expected post-sales services from industrial suppliers; this year, that number jumped to 86 percent, driven especially by significant rises in expectations among UK and German respondents. 

Today’s buyers expect faster delivery and an increased level of service to come with a product.

The study also highlights the rising importance of insurance as part of what the suppliers need to offer. Half of European buyers said that a better insurance offer would make them likely to switch to a different supplier.  

All of this is creating a huge challenge for distributor logistics systems. Distributing from point A to point B may seem easy, but when you distribute from multiple locations to multiple customers, logistics complexity increases exponentially. This is often the reason that service suffers – and the reason why UPS has been busy helping clients restructure their logistics operations using a combination of warehousing, express delivery, and the UPS Access Point network.  

The rate of change is unlikely to slow down. When asked about their future intentions, a third of all respondents said they are either very or extremely likely to start buying directly from the manufacturer in the next three to five years, and 27 percent said the same about buying from e-marketplaces.

It’s another example of how digital changes everything. You may not see it, but it is happening – even in more traditional industry segments such as industrial manufacturing.