Commoditizing Creativity | Charity Gibson
I had a conversation yesterday. I've had this conversation twice, only to once again end up at an impasse. In an effort to finish this conversation, or at least keep it moving forward, I'd like to hear what you have to say on the subject.
A supplier's role in the supply chain involves importing products, manufacturing them, or sometimes both, and then decorating and delivering to a distributor's end-buyer clients. What most distributors don't know is that products you are seeing in catalogs today took many months to procure. There is sourcing involved and inventory that needs to be ordered. In addition, suppliers are ordering products into their warehouses en mass based on empirical data and sometimes this inventory is millions of dollars deep. So just how much planning, work, and money is involved in having product ready in order to give distributors 24-hour or even 5 to 7 day production on catalog items? You can do the math.
In any well-run business efficient systems and processes are key to the long-term viability of the company. Given the information above and because supplier profit margins are traditionally much lower than distributor companies, the need for efficiency is even greater with industry supplier companies. Suppliers are left rely on volume to make up the difference, and in order to do volume business one of the key words is speed. It's basic economics at this point: Inefficiencies in the production process leads to the slowing of production and in this fast paced, we need it now economy, lack of speed can be deadly. To increase speed and efficiency, we automate.
A distributor's role in the supply chain is to integrate tangible product into end-buyer marketing efforts as a means of generating measurable return on investment. While there are a number of distributors that are surviving by simply peddling promos and relying on the collective wisdom of others around them to generate product ideas, most of the major players have figured out that the key to thriving rather than just surviving lies in transforming your promotional products dealership into a creative agency. More than simply having a business license and a SAGE subscription, the agency model requires product knowledge, sales and leadership skills, and a lions share of creativity. Why? Because end-buyers are busy trying to differentiate with their brands and historically they have looked to us as distributors in this $5 billion-bigger-than-the-music-recording-industry industry to do it. Clients want products that are retail inspired, on-trend, and occasionally personalized. They want out-of-the-box and has-never-been-done.
Enter the disconnect.
In this conversation my colleague and I we're having, it came down to this: His argument is that the supplier's main role is to print and deliver product, and past that, it's the distributor's job to sell creativity. I agree with that statement.
So where did we hit a road block? Differentiation is what customers are demanding from distributors, yet as it stands, one can only sell what is available. It's difficult to sell the creative products client's are demanding when the majority of the supply available is commodity. The supply doesn't exactly line up with demand, so it's my argument that as suppliers it's our job to figure out a way to sell distributors what they need. His argument is that differentiation is great and all, but it leads to variables and variables are inefficient. Long story short? You just can't automate creativity. Suppliers don't have enough margin to run inefficiently, therefore short of custom sourcing, creativity has no choice but to succumb to the limitations of the supply chain.
In some ways, that's a great thing. The distributors that are creative enough to think up these out-of-the-box ideas are typically also creative enough to source the right partner to help bring the project to fruition. Call it competitive advantage, we don't really want to commoditize creativity. This is why agency modeled distributors are winning and will continue to do so. However, this creates new problems on the supplier side of the fence. One, suppliers are starting to lose business because as more and more distributors chase creativity they have started sourcing their products outside of the industry supply chain. Two, small to mid-sized suppliers are diversifying their niche product lines and expanding their offering to carry products that the larger suppliers also offer. This results in deeper inventory needs and higher overhead, plus it leads to price wars and drives the already-too-low supplier margin even lower. When suppliers go this route of adding existing products into their lines rather than focusing on innovation generating activities, distributors are left with nothing but hundreds of suppliers to choose from that all carry the same items. These items offer the same imprint options and most often than not, a similar service experience, so the supplier that ends up with the order is usually the one that is geographically closest to the delivery destination or the lowest cost. As you know, or should know, price is not a sustainable competitive advantage, so even if in the immediate it seems like you've won because you got the order based on having the lowest price, long term, you've lost.
So how do we fix it?
I say that as they say in the start-up world, we pivot.
Part of what it boils down to is that I personally just don't like to hear the word no. As a distributor-turned-supplier, and a life-long rule breaker that was born with marketplace disruption hard coded into my DNA, I left this conversation determined to find a way that creativity and efficiency and co-exist. There has to be a way to marry the two. How can we as an industry be more on-pace with the trends that exist in the retail environment, and how do we go to market with these products in our space more quickly so that as an industry we aren't selling to the trend after the wave has already hit the shore? Larger supplier companies are at an obvious disadvantage when it comes to innovation and their ability, or more so inability, to pivot quickly because even though they may have the capital resource to procure products or technology, they typically have too much invested in systems, processes, and inventory to be bendy. What does this mean exactly? To me it means leave the big guys to their robotic methods and let them do their thing. Small to mid-size companies, however - coax your minds out of the 'that's how it's always been done' mentality, listen much more closely to end-buyer needs, and take a few big, yet well calculated risks. Find products that no one else has, but end-buyers want, and imprint in ways that no one else does. Do things differently. It's these companies that, if service is on point and focus is kept on innovation and differentiation, are poised to claim significant market share in the new economy.
What do you say though? Seasoned suppliers - Is my comment above nothing more than my naivete speaking? Am I setting myself up for a lesson is disappointment? Distributors – Where do you see the industry headed and what are your thoughts? How would it benefit you if the door to what's possible with both product and imprint method was opened a bit more? Would it make a difference to you or your clients?
Which method will win in the end - steadfast and true to existing systems and processes, or the progressive pioneer? I don't know. But, with the way the industry is changing, something tells me that we're about to find out.