UPS study reveals eCommerce disrupting industrial distribution

The latest UPS survey of industrial buyers in Europe, the U.S. and China shows further evidence that online commerce is disrupting industrial buying. With buying direct-from-manufacturer and from e-marketplaces on the rise, the industrial value chain in Europe is evolving and traditional distributors are under pressure to retain market share.

Based on a polling of 800 purchasing professionals in France, Germany, Italy, and the UK, the UPS 2017 Industrial Buying Dynamics Study shows that in 2017 over 90% of industrial buyers are purchasing directly from manufacturers – a 27% increase over 2015, when UPS last surveyed these buyers. The study also shows buyers are now spending more of their budget with manufacturers: direct-from-manufacturer sales now account for 44% of customer spend in Europe.

“The story of industrial buying in 2017 is a story of disruption: direct and online models of commerce are supplanting old established buyer-distributor relationships,” said Kiel Harkness, marketing manager, UPS UK. “Whether it is buying direct-from-manufacturers or e-marketplaces, the traditional intermediary is under pressure everywhere – and online information and transaction capability are the great drivers of this change.”

How can industrial sellers capture this shifting demand? The single biggest factor, according to the UPS study, is improving post-sales services as 86% of industrial buyers now expect post-sales services from their supplier, an 8% increase from 2015. While an effective returns process is the most important post-sales service, buyers also expect a much wider range of services, with on-site maintenance and repairs being the most important for 70% of respondents. In fact, post-sales services help suppliers increase their customer loyalty and profitability, as 55% of respondents indicated a willingness to switch suppliers due to post-sales services.

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

The study also highlights the rising importance of insurance as part of what their supplier offers and the growth in cross-border sales. Half of all European buyers in the study said they would switch to suppliers offering better insurance.  As for cross-border sales, the study shows 33% of respondents are sourcing their products outside of their domestic market primarily from other European countries. The U.S. and China are the next most important sources for buyers.

UK industrial buyers are the least likely in Europe to use traditional sales channels, and 87% of companies buy direct from manufacturers. In 2017, they spent 60% of their budget online compared to 47% in 2015. However, 67% use e-marketplaces, compared to the European average of 75%. Respondents in the UK have the lowest expectations for on-site post sales service (74%) compared to a European average of 86%.

“Those companies that recognise the changing patterns of industrial distribution will retain customers and expand into new markets,” said Kiel Harkness. “That means offering user-friendly sales channels, investing in their supply chains, and recognising the importance of post-sales services.”