Unlocking the Potential of AI in the Industrial Distribution Industry

In its latest Industrials Insider, the Industrial Distribution investment banking team at BGL examines several key trends impacting the industry, including:

• The key growth sectors benefiting from investments to repair, upgrade, and expand aging infrastructure.
• Where corporate and private equity buyers, investors, and lenders will seek to deploy capital in 2024.
• The factors that are expected to spur growth and industrials M&A activity in currently more stagnant general industrial end markets.

The excerpt below takes a closer look at one of the trends shaping the industry – the role artificial intelligence is expected to play as adoption increases, processes become more refined, and results become more impactful.

Artificial Intelligence and its Role in Industrial Distribution

Artificial Intelligence (“AI”) continues to be an omnipresent topic and source of great promise across industrial distribution. Implementations have been slow; however, adoption and usage are expected to increase and grow quickly as test cases are completed, internal processes and best practices are developed and refined, and productivity and service enhancement successes are realized.

Findings from a recent McKinsey study revealed a surge in AI adoption globally in 2024, with 72% of respondents reporting adoption in at least one business function. For the past six years, AI adoption by respondents’ organizations has hovered at about 50%. Further, most (67%) participating global organizations anticipate increased investment in AI over the next three years.

According to a 2024 Distribution Strategy Group (DSG) study, the use of AI appears to be largely still in the infancy stages within distribution; however, most industry participants agree that it will provide a competitive advantage over the next three years, with the greatest opportunities in streamlining and improving website/digital, customer service, sales, marketing, IT and cybersecurity, purchasing, supply chain management, and warehousing. From lowering costs and improving productivity to enhancing customer service, opportunities abound to seize the competitive edge that AI offers, says DSG, advising businesses to start now to reap the benefits afforded to the early adopters.

Progress Deploying AI

In a recent June 2023 white paper, Modern Distribution Management (MDM) surveyed organizations on AI use in improving the customer experience, revealing that nearly half (49.6%) of the respondent pool was leveraging AI and automation within their operations, most often in CRM (31.6%), inventory management (24.1%), and sales order automation (21.8%). Other frequently cited areas where the tools were used include warehouse automation, product information management, and pricing intelligence. Nearly one-quarter of respondents began to see results from AI and automation in as early as three months from implementation, with 75% gaining valuable insights within a year.

Progress Deploying AI

W.W. Grainger has made AI an organizational priority, according to Chief Product Officer Brian Walker, who recently shared insights into the company’s approach with participants attending DSG’s Applied AI for Distributors conference held in June 2024, reported Digital Commerce 360. In support of digital transformation, the company’s investments are aiming to facilitate more enterprise AI, which include the formation of Grainger Technology Group and a four-fold increase in AI development staff over three years. Grainger sees AI as a competitive advantage for enhancing product information management, learning customer behavior, and increasing operating efficiency.

“I am very positive about it. AI elevates businesses’ ability to differentiate more effectively,” said Tom Gale, MDM CEO, in a May 2024 MDM podcast. “Going forward, it is a critical tool for businesses to not only optimize their efficiency but also to enable their ability to innovate.” In the podcast, Gale was joined by Justin King, Principal Analyst for B2B eCommerce Association and an author on B2B digital innovation, who echoed Gale’s positive sentiment, advising distributors to use AI as a tool to help them become more efficient. King shared multiple AI use cases, one involving a building materials distributor that used generative AI to screen supplier bids—typically a manually intensive process—realizing a 90% reduction in time to review supplier bid documentation.

DSG stands by the “transformative potential” of AI, calling the technology industry-shaping for the distribution industry in the coming years. While there is no “one-size-fits-all” software, businesses can start small, targeting high-impact areas such as sales, customer service, or logistics with smaller-scale investments in pilot projects to begin the AI journey and build organizational AI.

For more information on the latest industry trends in the Industrial Distribution space, we encourage you to download our full 22-page Insider here.

Contact Our Industrial Distribution Group

Led by Kevin H. Sargent and Andrew K. Petryk, BGL’s Industrial Distribution investment banking team leverages its industry knowledge and global relationships to execute highly effective and efficient transactions on behalf of our middle-market clients. Please reach out via our contact form below to learn more.