In today’s rapidly evolving market, commodity suppliers face various critical challenges as global competition intensifies and market dynamics shift. They must increasingly prioritize innovation, operational efficiency, and customer-centric approaches to stay competitive. But what strategic options do they have? For many, the transition to Solution Provider is no longer optional but essential. In this article, I share insights into who should consider this transformation, why it matters, and how to navigate the journey successfully.
While the demand for integrated solutions and efficient market access is not new, it is now reaching the commodity suppliers. Commodities play a crucial role in the value chain, which is unlikely to change in the foreseeable future. However, the expectation for them to be delivered more efficiently is growing. Traditional methods create operational challenges for customers and do not align with their strategic goals of enhancing supply chain efficiency and sustainability. This puts commodity suppliers under enormous pressure, and in light of that, solution provider transformation seems inevitable.
Transition to Solution Provider: Why would you do that?
With unpredictable markets, rising operational costs, and aggressive pricing from competitors in low-cost countries, the pressure on European and American companies to stay competitive has never been more significant. This strain is passed down the supply chain, eventually impacting commodity suppliers.
So, when your sales teams express concerns about high prices – as they often do – it might be time to rethink the approach and move away from price competition altogether. If competing on price is no longer viable, commodity suppliers must add more value to their offerings to stay competitive or even to survive. While adding value and charging a premium is a well-established strategy higher up the supply chain, it remains underdeveloped among commodity suppliers.
Solution Provider transformation appears to be the most viable option, if not the only one. Although the definition of a Solution Provider seems straightforward, our discussions with both internal (customers) and external (their customers) stakeholders during the implementation of this strategy revealed differences in priorities and interpretations. These differences depend primarily on each party’s position within the supply chain, highlighting the complexity of the transformation process.
Market challenges for commodity suppliers: Do you recognize them?
As highlighted in the introduction, today’s market presents several critical market challenges for commodity suppliers. Let’s examine these obstacles in more detail.
Challenge 1: Price competition pressure
Suppliers from low-cost regions frequently offer cheaper products, creating significant pressure to lower prices. Moreover, commodity prices are highly volatile, influenced by factors like geopolitical events, supply chain disruptions, and sudden changes in demand. This pattern has been especially evident since the onset of the COVID-19 pandemic.
Challenge 2: Operational efficiency in commodity supply
Rising labor, energy, transportation, and raw materials costs have been putting pressure on commodity suppliers’ margins. Balancing profitability while managing these increasing expenses is an ongoing challenge.
Challenge 3: Sustainability in commodity supply
Governments are enforcing stricter environmental and sustainability regulations, raising operational costs. At the same time, buyers – especially in Western markets – demand sustainable sourcing and ethical practices. Commodity suppliers must meet these expectations while still staying competitive on price.
Challenge 4: Commodity supply chain disruptions
COVID-19, geopolitical tensions, and logistical bottlenecks have exposed the fragility of global supply chains. Suppliers often face difficulties in sourcing materials or shipping products reliably, resulting in delays, higher costs, and customer dissatisfaction.
Challenge 5: Evolving customer expectations in commodity supply
Customers increasingly seek customized solutions and flexibility, even from standard commodity suppliers. They expect more than just products; they want suppliers to help them stay competitive by addressing their own customers’ challenges.
Given these circumstances, competing solely on price is no longer sustainable for many commodity suppliers. If this applies to you, it’s time to break free from the cycle of price competition pressure by adding value to your offerings. While adding value is crucial, the real challenge lies in convincing customers to pay a premium for something that was once seen as a basic commodity.
Solution provider transformation: What are your next steps?
Before the transition to Solution Provider role, it’s essential for your organization first to establish itself as a reliable Supplier. For many of your customers, factors such as consistent product performance, dependable supply, and other foundational elements are often prioritized over price in their decision-making process. While price is a consideration, it’s far from the only factor, even in commodity-focused, transactional relationships.
Once you’re determined to enter the path of the transformation, start by gathering critical insights about your business environment, covering three main areas:
- Your Customers and Potential Customers: Understand their markets, needs, purchasing behaviors, and challenges. Identify the primary stakeholders, their selection criteria for commodity suppliers, and any specific requirements they might have.
- Your Current and Future Competitors: Analyze competitor strengths and weaknesses, pinpoint their unique selling points, understand the reasons for their successes or failures, and assess their progress towards becoming Solution Providers. Knowing how the market perceives them will inform your own strategic approach.
- Your Own Organization: Evaluate what works well and needs improvement, identifying ways to leverage your strengths and address gaps across all levels.
Additionally, clarify the meaning of a Solution Provider in your organization, considering the transformation’s scope, complexity, and resource demands. Armed with this knowledge, you’re ready to proceed with the Solution Provider transformation.
Step 1: Align internally on the Solution Provider definition.
The first step is ensuring that the entire organization is aligned on the definition of a Solution Provider. It’s vital that everyone, from leadership to frontline teams, has a shared understanding of what this transformation means for the business. The definition should be clear, simple, and effectively communicated across all levels. Keep in mind that different interpretations may arise. My advice: focus on the definition provided by your current and desired customers rather than internal stakeholders, as their perspective ultimately matters.
Step 2: Prepare a roadmap.
Once alignment is achieved, developing a comprehensive roadmap is next. This roadmap should outline the key milestones, required resources, and specific actions to move the transformation forward. Prioritize by identifying the most critical process improvements and, if needed, map current processes to uncover bottlenecks. The roadmap should also include clear timelines, assigned responsibilities, and measurable goals to track progress. This document will act as a strategic guide, helping to navigate the solution provider transformation efficiently and ensuring everyone knows their role in the process.
Step 3: Execute with regular monitoring.
Execution is where the plan becomes action. Regular check-ins and feedback loops are essential to ensure the solution provider transformation stays on course and adapts to any challenges that arise. These check-ins should be structured, allowing teams to provide updates, address obstacles, and adjust strategies as needed. Incorporating a continuous improvement system ensures that the solution provider transformation is dynamic, responsive, and aligned with both internal objectives and evolving customer needs. Staying flexible and open to adjustments is key to successful execution.
Wrapping up
Based on the discussion with our clients and the number of Solution Provider projects we have executed in the past few years, the need to transition to Solution Provider is undeniable. The focus should be on something other than whether to embrace this transformation, but rather on how to execute it effectively.
Given that this shift represents a strategic change, it must be data-driven. Creating a strategic plan to transition to Solution Provider should draw insights from customers, potential customers, and competition. Contrasting external market perspectives with internal employee viewpoints can also identify additional opportunities for quick wins. This alignment can enhance awareness of unmet needs and address barriers to market communication and customer service efficiency.
If the challenge of transitioning from a commodity supplier to a Solution Provider resonates with you, reach out to me. Let’s discuss how our market intelligence and advisory solutions can help you become a trusted, long-term partner for your customers.
You can also download the extended version of this article, where I outline key universal components for a successful transformation. I’ve summarized them into five steps, accompanied by 25 essential questions to guide you on your journey to becoming a Solution Provider.
