In his survey research paper, Technology in Distribution: Trends and Future Challenges, Fein reported that eight out of 10 of the 159 executive respondents from diverse distribution companies - 33 percent of which were from the construction sector, which includes the HVACR industry - planned to maintain or increase their spending. Surprisingly, the smaller companies studied were actually intending more significant increases as they endeavor to technologically “catch up” to some of the larger companies.
Conducted late in 2008, the survey takes into account the current economic climate and its effect on the American distribution landscape.
“The distribution industry in general has been a very productive part of the U.S. economy. Wholesale distribution employs approximately one out of every 20 private sector U.S. workers,” said Fein. “It is also really helping to grow the U.S. economy’s productivity far in excess of its actual size, partially because distribution can benefit from productivity enhancing technology investments.”
Having proven this point in the countless research projects he has participated in and conducted, Fein confidently reported, “productivity is fundamental to long run economic growth, both in the U.S. economy and in an individual company.
“The only way you can really grow is by producing more goods and more services, and distribute them more efficiently over time,” he said. “It’s not simply adding more people, it’s actually becoming more productive - improving the output per input.”
Implementing technology in the distribution industry improves productivity on multiple platforms, especially when it comes to improving the output per input ratio.
“Approximately 60-70 percent of operating expenses are tied to employee compensations - salaries, commissions, benefits, etc. - so anything you do to make that more efficient is going to have a direct bottom line impact,” Fein pointed out as one example of a business area that could be improved with technology. “Implementing technology for technology’s sake, however, is not the solution - it is to achieve a business outcome. Technology can neither remedy customer satisfaction problems nor replace a clear business strategy.”
TOP FIVE TECHNOLOGIES
In a subsequent Webinar, also sponsored by Lawson Software, Bob Peterson, global marketing director for distribution at Lawson, and Fein outlined the five most common software technology applications used to improve distributor productivity and the research results pertaining to each, including: Enterprise Resource Planning (ERP), Warehouse Management Systems (WMS), Internet Storefront/Web-Based Ordering, Customer Relationship Management (CRM), and Business Intelligence (BI) systems.Breaking the respondents into four annual revenue categories - less than $50 million, $50 to 99.9 million, $100 to 999.9 million, and $1 billion or more - Fein uncovered facts about current and planned technology spending.
“For the most part, the companies that are in the more than $50 million in revenue have a much higher adoption rate of technologies,” he said as he began discussing ERP spending.
According to pcmag.com, ERP is an integrated, software based, information system used for planning and managing order entry, accounts receivable/payable, general ledger, purchasing, warehousing, transportation, and human resources across the company.
In Fein’s study, on average, only 57 percent of distribution companies making less than $50 million are currently using ERP technology as compared to an average 73 percent of all the other companies that responded. The $1 billion or more respondents category registered at a 77 percent adoption rate. During the Webinar, he explained that some of the gap could be attributed to larger companies having multiple locations, which is when an ERP application is more warranted.
“The need to have an integrated business system is what drives the adoption of ERPs,” said Fein. “A solid ERP technology platform removes barriers to growth by helping wholesale distributors to understand, attract, and keep their most profitable customers.
OVERCOMING HUMAN ERROR
WMS is essentially the brains of the warehouse.“In some sense, the warehouse management system is the purest application of technology in distribution you can see,” said Fein. “In essence you are trying to automate decisions about the movement of product and people. Most of the productivity enhancements from a warehouse management system are really substituting technology for the things that humans might make a mistake at - order processing, inventory control, picking, stock locations, things like that.”
This application, beneficial to distributors despite size, has found greater popularity in the larger companies surveyed. One hundred percent of the $1 billion companies surveyed are currently using (93 percent) or planning to implement (7 percent) a WMS in 2009. The less than $50 million companies only registered a 49 percent adoption rate.
“I am surprised that the smaller companies aren’t adopting this,” noted Fein. “When a WMS is coupled with some type of automated information gathering - such as handheld scanners, fixed scanners, things like that - you actually have some major productivity improvements.”
GOODBYE SALES FORCE?
Internet storefront and Web-based ordering systems were the fastest growing among the five technologies studied and the saving grace of the smaller companies surveyed.“This is an area where small distributors have lagged, but they are now essentially going to be catching up,” said Fein. “Those that plan to use it is quite high even though they aren’t currently using it.”
According to the results of the survey, by the end of 2009, approximately 76 percent of small distributors surveyed and 100 percent of larger businesses surveyed should be using this technology. Primarily described within its title, giving customers the option to shop and order online is another technological step that some are still greatly concerned about how self-service will affect their business and the landscape of distribution long-term.
“We haven’t moved to the world of complete self service and I don’t think we ever will. The phone, the fax, the in-person salesperson, they’re not going away, but the Web has emerged and is now a credible, additional channel for distributors to be investing in,” reassured Fein. “It’s an additional sales channel, it’s an additional communication channel, and if you have been following any of the developments in technology, this has really not been sensitive to the economic cycle at all. Adding this doesn’t mean you are going to unplug your fax machine or shut off your phones, but it is one more way your customers can interact with their distributors.”
CRM follows on the heels of the Internet storefront. It is another customer service application and it primarily manages the flow of internal and external relationships between the company and its clients. It is an add-on tool to increase relationship efficiency, not a replacement for the sales force.
Although the 27 percent current CRM usage gap between the smaller and larger companies surveyed is rather large, for those planning to purchase a CRM system in 2009, the smaller companies edged out the larger ones surveyed at 29 percent compared to 23 percent.
“There is no evidence that the Internet is going to replace or eliminate the distribution sales force, but what it is doing is forcing the distribution sales force to evolve,” pointed out Fein. “What I think the investment in CRM is showing is the evolving role of the salesperson. There is less need for order taking, answering basic questions, and providing stuff that’s readily available, but there is a greater need to think about how to interact with customers and how to solve their problems.”
NEW TECH, SLOWER ADOPTION
BI systems aren’t as well known in the industry yet. The primary goal of these systems is to deliver the information that has been gathered to the right person at the right time. It allows the business manager, the sales rep, and the owner the ability to wield the information in a useful format instead of just storing it in a massive unusable database.The disparity between the smaller and larger respondents surveyed stands at approximately 28 percent. Seventy-seven percent of the larger companies surveyed are currently using some sort of BI system. Even with the 19 percent of the smaller companies surveyed planning to implement a BI system in 2009, there will still only be 42 percent of the smaller companies using it with 24 percent having no intention of ever using.
“The survey called out the surprising lack of awareness and penetration of business intelligence solutions,” said Peterson. “It’s clearly an issue.”
Within the survey results, one out of every four smaller distributors are employing the technology compared to three out of four of the larger companies.
“One of things we are talking about with BI software is superior marketing execution,” said Fein. “How do you identify add-on sales opportunities, how do you actually find the facts to sell?”
ATTITUDE IS EVERYTHING
One of the more interesting finds of this online survey was the general attitude toward technology of the less than $50 million companies compared to those of the $1 billion or more. When considering the percentage figures of the five technologies, Fein included in his questions the options of “Not familiar with” and “Never plan to use.” Overall, the average percent of the smaller companies surveyed that were not familiar with or never planned to use the five technologies totaled 36 percent as compared to 11 percent of the larger companies surveyed.At the end of his Webinar, Fein offered some distribution food for thought.
“I want to challenge you to reflect on your own business and really think about the following types of questions. What are the most important business outcomes for your company? What is it that your company is trying to achieve with technology?” he asked. “Where is your company? How do you benchmark against some of these other companies employing technologies?”
For more information, contact Adam Fein at afein@pembrokeconsulting.com or visit www.lawson.com.
Publication date:04/06/2009
