The strategic role for AI in wholesale distribution operations

Historically, wholesale distributors have been slow to adopt innovative technology. Their core business revolved around maintaining proximity to their audience and managing inventory effectively. Success was driven by personal relationships and a deep understanding of customer needs rather than sophisticated systems. 

In the last decade — especially the past few years — I’ve witnessed a significant shift due to the pandemic’s impact on traditional business practices. The move away from in-person meetings and manual processes has underscored the need for you and other distributors to embrace automation and advanced software solutions.

Today, the wholesale distribution industry is on the brink of another transformative wave: artificial intelligence (AI). According to a recent Baird-MDM Distribution survey, 54% of distributors now use AI in various aspects of their operations, marking a nearly 40% increase from the previous year. In my opinion, this surge in adoption is primarily attributed to the proliferation of accessible, free generative AI (GenAI) technologies — like ChatGPT — which have been integrated into popular tools and software packages.

Going beyond GenAI

While GenAI has democratized access to AI technologies and facilitated initial experimentation, I believe it’s crucial to recognize that AI encompasses various techniques and includes tools that offer more strategic benefits tailored to your needs as a distributor.

Decisions, decisions, decisions

AI applications in wholesale distribution can be categorized into 3 primary areas: decision support, decision augmentation and decision automation.

1. Decision support
   Decision support allows humans to still make decisions while using AI to identify trends, forecast outcomes, and suggest optimal actions and recommendations.

• AI can help identify anomalies and send alerts, allowing you to act proactively. For example, sales reps can receive alerts if a customer is about to churn based on changing buying patterns. Similarly, AI can provide guardrails for pricing negotiations, ensuring compliance with pricing policies and alerting you if deviations occur.
• AI tools can monitor inventory levels in real time, alerting you to potential stockouts or overstock situations before they become problematic. This support helps you maintain optimal inventory levels and avoid costly disruptions.

2. Decision augmentation
   Decision augmentation involves using large language models and decision graphs to categorize and segment different aspects of your business and tailor strategies and actions for each segment.

• AI can analyze customer purchasing patterns to suggest relevant upsells and cross-sells. By examining historical transactions and comparing them with similar customers, AI can help you identify additional products your customers might need.
• AI integrates internal catalog information with external data sources such as competitor pricing and customer reviews. This augmentation supports more informed buying decisions and helps you stay competitive by adapting to market changes.
• AI-powered tools can guide customer interactions by suggesting personalized responses and solutions based on their needs and past behaviors. This approach improves customer service and strengthens relationships.

3. Decision automation
   Decision automation involves the use of AI to automatically make and implement decisions for repetitive, high-frequency and data-sensitive tasks without human intervention. This is what most people think of when they think about AI.

• AI-driven models can automate pricing decisions by analyzing data on market conditions, competitor prices and customer demand. This includes optimizing your list prices and promotional strategies to maximize profitability.
• Machine learning (ML) algorithms can optimize promotional offers and sales incentives by analyzing historical performance and customer response data. This ensures that your promotions are both effective and aligned with your business objectives.

7 best practices for your AI strategy

To successfully implement an AI strategy in wholesale distribution, I believe you should consider the following 7 best practices:

1. Clearly articulate the problems you aim to solve with AI. Whether improving inventory management, enhancing customer engagement or optimizing pricing, having well-defined goals will guide your AI implementation.
2. Choose AI tools that align with your specific needs. While GenAI offers valuable capabilities, depending on your objectives, tools such as ML models and NLP algorithms might provide more strategic advantages.
3. Invest in data cleansing and integration to create a robust foundation for AI models. Clean, accurate and up-to-date data is essential for meaningful insights and decision-making.
4. Encourage a business culture where data and AI insights drive decision-making. Train your employees to effectively interpret and leverage AI outputs, ensuring that AI solutions are integrated into daily operations.
5. Regularly monitor AI models to ensure they continue to meet your evolving business needs. Be prepared to adjust models and data inputs as market conditions and business requirements change.
6. Implement robust data privacy and security measures to protect sensitive information. Compliance with regulations and safeguarding data integrity are critical for successful AI adoption.
7. Include human oversight to interpret nuanced scenarios that algorithms may not fully grasp. Ensure that knowledgeable staff review and validate AI-driven decisions.

The growth engine that could

While it won’t completely save the world, AI is a powerful growth engine that can enhance decision-making, streamline operations, and, when used properly, take your wholesale distribution business to new heights. I firmly believe that by using AI technologies and following best practices, you can navigate the complexities of modern business with greater efficiency and agility. 

As the wholesale distribution industry evolves, staying abreast of AI advancements and integrating them with a clear purpose will be vital to maintaining a competitive edge and achieving long-term success.