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Supply chains have been disrupted due to the coronavirus, greatly impacting wholesale distribution. Josephine Monberg interviews Magnus Meier, Global Head of Wholesale Distribution at SAP, in this episode of Industry Insights by SAP. Magnus provides expert vision to how the wholesale industry can respond during this crisis and prepare for the future.
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Josie: (00:03)
Welcome to the industry insights by SAP podcast series. My name is Josephine Mon Berg and I am your host. You are now listening to the Cobra 19 special edition of our show. Welcome to our podcast.
Josie: (00:18)
Hi everyone and welcome to this episode of our podcast where we are focusing on how different industries are being impacted and impacted by our current real booth pandemic COVID 19 and today we are looking at wholesale distribution and seeing how that industry is being impacted, what's going to happen in the future and so on. And to do this, I have with me in the, in his home studio and his virtual home studio, Magnus Meier. So Magnus, you are the head of wholesale distribution at SAP and you are the perfect person to talk to all of our listeners about this industry. But before we do that, what does it mean to be the head of wholesale distribution at SAP?
Magnus: (01:06)
Uh, thank you Josie for the introduction here. Um, that's a, that's a good question. And um, I think it might make sense to spend a couple of seconds on that. So as the head of wholesale distribution at SAP, uh, what we manage is what we call the road to market as well as the road to product. So road to market means we um, try to understand, um, the solution capabilities that we have in depth and then filter those out. That makes sense most for customers, you know, so they don't need to sift through a whole range of SAP products that are out there, but they really can home in on the items that make a difference for them. And then the road, the product means that we are working closely with institutions, with our customers around the globe to understand where they see the industry going. So we can filter down the trends, understand whether the solution capabilities that they will need in the future and then translate those for our development and solution partner teams.
Josie: (02:09)
Okay. Makes sense. So you're really narrowing things down for the customer and it can be a little bit confusing navigating SAP products. So that's probably a very important role. And then also figuring out where the industry is heading. So this is really a perfect time to talk about your industry because I'm sure that it's seeing some big, big changes in terms of where it was heading before the pandemic and now where it is heading. And just to ensure that we all know that where we are in the world. I mean we're on very, very different time zones. I can reveal that to everyone listening. I am right now in Denmark, in Copenhagen and Magnus, where in the world are you? Uh,
Magnus: (02:49)
I'm sitting here in the suburbs of Chicago. Yeah. And uh, we don't expect any more snow outside, so that is good. Um, but we are here in the middle of North America and have really our fingers on the pulse on what's happening in the moment.
Josie: (03:04)
And you just said you guys had snow.
Magnus: (03:07)
No, we don't have snow anymore. We had snow last week, uh, for one, one and a half days. Yeah. But I hope we're done with that.
Josie: (03:15)
Yeah. Fingers, fingers crossed. Uh, I definitely think that a time where the best activity we have is walking outside. It's better to do it in the sun versus in the snow. So fingers crossed. Um, okay. So now let's talk about wholesale distribution. What's going on right now? What are you seeing in terms of the impact of COVID 19?
Magnus: (03:38)
So wholesale distribution is um, interesting because it is kind of in first responder in at least the logistics supply chain that we are seeing. Yeah. Because all the essential and also the non essential goods that are required by our healthcare providers that are required by the grocery stores. Wholesale distributors really play a critical role. And honestly, a lot of people do not even know what wholesale distribution does. Yeah. But for example, if I look at the US just to name a couple of facts here, uh, we have around 6 million people working in wholesale and it's around 5% of the overall US workforce. We have several hundred thousand wholesale distributors in the US and globally. We see North of a million companies in that space. So you can see that the industry lays an important part in every economy in the supply chain, uh, pre production and post production. And therefore is also heavily impacted by that.
Josie: (04:38)
So it's a huge, so it's a huge industry and huge impacts and but what's changing, like what's different now? I mean, I know there's big course, there's a lot of differences, but what's different now from before COVID hit? Um, wholesale distribution.
Magnus: (04:53)
Yeah. Unfortunately we can't give you a, it's the same for all holds to distribute us across the board. Yeah. But what we see is that depending on the country you're in and whether they put an emphasis on health of business or health of employees, the sub segments are reacting completely different. Overall. There's a need though for all distributors to ensure that operations are safely continuing, that their workforce, whether it's in the warehouse and on the fulfillment side or in the back office is safe and can, they can deliver on their core function in the supply chain. Um, when we talk a little bit about, uh, sub-segments. Yeah. Um, you saw in, in most economies that restaurant operations are shut down, that colleges and schools are shut down and you can already see them. That food service distributors and they are institutional kitchen and restaurant customers are heavily, heavily impacted by that. On the healthcare side you also a split picture where um, veterinary and dental operations are not considered essential, but medical like in hospitals are considered essential. So, um, you have to really look in detail into the different sub segments and see how they're reacting in the current situation. If you want, they can share a couple of examples.
Josie: (06:18)
Yeah, that might be good to give a little bit more. Um, concrete example. It's interesting. I did an episode with our head of retail too and he also kind of divided into the two the essentials and more of like the luxury side of the house. And of course those are very differently impacted. But yeah, if you have any examples you could share that would also be really helpful.
Magnus: (06:39)
Yeah. So for example, on the food service side, um, when you see luxury and essential yeah. Or non luxury, um, if you are a distributor on the side of um, high end seafood for example, yeah. Your markets might've broken down completely. Yeah. But you still have four chefs in your warehouse, you know, what are you going to do with it? You have to look for new channels. Yeah. And in that case there's really a crisis situation. You might need to um, sell your, your lobster or other items for a few cents on the dollar. Yeah. And, and move them through. Um, for example, the pet food supply chain. Yeah. Just to make sure that you have a little bit of a revenue stream. But on the other hand, if you are a food service distributor in the essential items category, you might look for new channels. So we see for example, companies working together with restaurants to transform those restaurants into corner stores where they then can sell toilet paper, um, gloves, they can sell hand sanitizer if they are still available with a food service distributor because those are regular items that are being used in restaurant business as well. And with that they can establish themselves as a solid part of the local community now.
Josie: (08:06)
Yeah. It's so interesting, a common theme for all podcasts that I do with the industry leaders is this, how industries are reimagining themselves, sort of businesses and industries are reimagining themselves and they kind of have to take on new opportunities to better respond and cope in our crisis. And another thing that I also hear a lot is the role that technology plays in all of this and that COVID 19 is really accelerating digital transformation for businesses in wholesale distribution. What do you see in terms of the role that technology plays in all of this and maybe even more longterm and helping to reimagine the industry?
Magnus: (08:47)
Technology comes in in many different ways actually. Yeah. So in the mid market, unfortunately e-commerce has not had a, did not have a good breakthrough yet, particularly in the mid market. Yeah. All the companies that invested in e-commerce. Yeah. They have really now a solid sales channel. The other ones that are still on that still were relying on relationships that were relying on, um, their customer sales representatives going out to their customers. They have now a much, much harder time. Yeah. So if you invest it in this kind of sales channels in the past, that puts you now in a stronger position. The other thing that we see is that in the future moving forward, we will have a very strong consolidation in the market. With Amazon coming into the B2B marketplace, we anticipated that over three to five years we will have a really strong shakeout where we will separate the winners from the losers in wholesale distribution. But with this crisis going on currently, we see this shakeout happening now within three to nine months. So there's a huge compression on what it means to transform your business model and to even being forced to depart from the market. And those that have technology in place or are running currently project to stay ahead of the crowd, they will emerge as the clear winners out of this.
Josie: (10:20)
Okay. So what kind of technology should they be betting on or more so maybe what should they be doing to reimagine and improve their own business models to better cope and maybe even survive? Because what, from what I can hear from you, it sounds like the future is looking a little dark and gloomy. So can you give any advice to any maybe wholesale distribution distributors that are listening to this podcast right now?
Magnus: (10:47)
And Josie, I wouldn't say necessarily that everything is dark and gloomy. I think the inevitable that we have seen over longer time horizon, it's just now being compressed. So reality is something that we have to face. There are opportunities out there even in a time of crisis. Um, so for example, if we look on the high tech side, what we see there is that high tech distributors are bundling up their offerings that they have around work from home packages. So you can find that they bundle up equipment, enablement, networking, they even handle licensing for applications. They offer security and it support. That is a revenue channel that's all of a sudden has grown significantly in importance. And it is really key for the distributors not to treat this as a one off situation, but really to look at what changes had to be made and to evaluate if those changes are worth carrying forward. If you, uh, um, for example that high tech distributor, you might want to leverage relationships that you've established, the bundles that you build up and offer these solutions moving forward as a key part of your portfolio.
Josie: (12:03)
Okay. That makes total sense. So I might've been a little too pessimistic there. Sorry about that. But that's good that there's a silver lining and I know at SAP we are doing our fair share to help. So we're trying to help our customers through this crisis. Have you seen anything that's happened so far in terms of how we're helping or maybe just what we can offer to wholesale distributors to help them through this crisis?
Magnus: (12:31)
We have a variety of, um, offerings that wholesale distributors can leverage. We can talk a little bit about the pulse checks, the pulse checks. That definitely makes sense. Is on the supplier side where you can reach out to your supply chain partners to see or to better understand where they have challenges. Is it really in the availability of items? Is it maybe in their own cash position? So you might need to consider prepaying them. What is it maybe around, um, quality issues that they're facing when they are trying to, uh, procure critical items. And, um, with the pulse check, we allow Holter distributors to get a qualitative improved picture on what is happening on the supply side of the operation. And they can then react in different ways. They can look into alternative sources of supply. They can see if they can help them with, um, additional, um, credit support them, prepare items, as I said before. Um, they can see if they can, um, connect them with supply chain partners to, um, accelerate, uh, customs and duty handling there to get access to the items we can imagine similar service to be run on the customer side as well as on the employee side, um, to get good feedback from there as well. That allows you to react. Um, according to what is required in the current time.
Josie: (13:58)
All right, so lots of help to get if, uh, if you're looking for that from our side. Magnus, you were an amazing guest. Thank you so much for being on the show and making us smarter about what's going on in wholesale distribution and what we're doing to help, what's going to happen, how technology is going to impact this. Um, thank you for being on the show.
Magnus: (14:23)
Thank you very much, Josie.
Josie: (14:25)
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