In the search for ways to make your company more efficient, you could do a lot worse than to start with the ERP system you already have.
Enterprise resource planning (ERP) computer systems for the electrical distribution market have taken huge leaps forward in power and functionality over recent years. The list of things these systems can do grows with every new release, and the ease of use and integration among the systems' functions continue to improve.
But it's also true that most electrical distributors use only a fraction of the information processing power their ERP systems provide. Built into these systems (or available as add-on modules) are functions for handling inventory management, warehouse management, profitability analysis, customer purchasing analysis, supplier profitability analysis, human resources, electronic commerce and a host of other critical business matters, most of it using logic built on best practices developed by some of the most advanced (and profitable) distributors in the business.
In most cases, you've already paid for the system (or are paying for it now). So why aren't you using it? Software vendors with a significant presence in the electrical distribution market have all seen this phenomenon, and they point to a number of different reasons that could help to explain it.
Learning stops at implementation
Many distributors are just focused on getting enough training to go live and get back to doing business, and they often stop there.
“People buying a new system try to get that first project out of the way — the switch-over,” says Mike Wentz, director of AD sales and national accounts for the wholesale distribution group at Activant Solutions Inc., Yardley, Pa. “They retrain their financial people and their operations people on the new system, they get through that first phase and they go back to doing business. They want to be out of the project phase of their lives, and they don't come back right away. It's a shame, because if they pushed forward, they'd find they can add more value and really get a better bang for the buck.”
Fear of the unfamiliar
Apparently distributors are often slow to change, and in the midst of even positive change, will reach out for the familiar.
Matt Peterson, who leads field services in the wholesale distribution market for SAP Labs, LLC, Downers Grove, Ill., has seen this comfort zone manifest in some odd ways. “We see people spending a lot of energy trying to make the new system work just like the old one,” he says. “They'll tell you they want you to make the statements produced by the new system look exactly the same as the statements produced by the old system. Where else in our lives do we do that? When you a buy a new car or TV, you buy it because it does something better than your old one. But with computers it's not the same.”
“There's a large community of independent consultants built-up around SAP, and they'll be glad to log billable hours configuring your system to work just like your old one, but that usually makes no sense,” he adds.
Lack of awareness
Many times, distributors just don't know what their systems can do. These systems can do so much that there's a lot of functionality that the distributor was never told about or that got lost in the information overload of training on a new system when it was installed. Clearly, the system vendors and their sales and training staffs must shoulder some of the blame for this part of the situation.
This can often lead to a waste of resources when one department decides it needs a system to handle a specific task and they go in search of a “point solution” or stand-alone program to address the need.
Some SAP clients, faced with departments going out and buying point solutions, have implemented a program called “Why Not SAP?” in which department managers have to go through a review process to see whether the SAP system already has that functionality, or if it can be added as a module, Peterson says.
“The ROI on the system you already own is probably going to be better if you have the licenses already in place,” he says.
The Hidden Gems
Regardless of how or why you may be leaving all this information-processing power unused, the point is that you can get in there and start using most it with a reasonable amount of effort. Here's a look at some of the functionality many distributors overlook.
This is huge. If you call yourself a distributor and you're not wringing everything you can out of your system's inventory management capabilities, you're putting yourself at a competitive disadvantage from the start. Nonetheless, many distributors only scratch the surface of what their systems can do to lower their inventory costs, improve turn rates and enhance customer service.
Even in this age of advanced analytics, when virtually all distributors have an inventory management system of some sort, most distributors' demand planning accuracy is pretty poor, says Gary Rippen, director of distribution industry and product marketing for Infor Global Solutions, Atlanta.
“There's a statistic out there that forecast accuracy is under 65 percent for most warehouse distributors,” Rippen says. “In other words, they just completely blow it day-in and day-out in terms of understanding because if there's too much inventory there's wasted time and wasted space, and if there's too little there's back-orders, cancellations and unsatisfied customers. The goal here is to find a product that gives them a far better tool for matching the amount of inventory to the amount of demand.”
A lot of the analytics that go into modern demand planning and replenishment systems are far more sophisticated than you may realize. Many distributors can't bring themselves to trust the system's recommendations regarding reorder points. It's akin to the lingering belief that the skill and judgment of a pilot or surgeon is necessarily better than an automated landing system or computer-guided laser. For some expert pilots and surgeons this may be true, but for other pilots and surgeons it's certainly not. Why take the chance when there's so much at stake? And the ongoing advances in the computer systems constantly move the bar higher. Despite the pride your seasoned purchasing staff may have in their highly disciplined and partly intuitive ability to fine-tune your inventory, modern inventory management systems can almost always do a better job.
Peterson of SAP cites repeated side-by-side studies that confirm this — you're almost always better off taking the system's advice regarding order points and such. “The system knows what the right thing to do is, but the people don't believe it,” says Peterson. “They'll use the human override because they assume, ‘the system doesn't know what I know.’ Distributors will spend a lot of money configuring the system to create a dashboard with all these bits of information, all these widgets and metrics, so their purchasing people can calculate the order points. But study after study has shown that they'll almost always achieve maximum efficiency when they let the system do it.”
Running the warehouse efficiently is almost equal to inventory management in importance at the core of a distributor's business, and yet many distributors — probably a majority — use little to no automation in their warehouses. In the electrical industry, this is particularly puzzling, says Wentz of Activant.
“The electrical industry has an advantage in the warehouse, with the widespread use of UPC and NEMA codes,” Wentz says. “Warehouse automation lowers costs over time, it improves quality, it improves customer service. Yet to some degree it's still the last frontier for distributors. Typically the distributor will have entry-level people in the warehouse, so there's a hesitancy to invest in technology in that area. With all those lower-wage people, they're not thinking they will get the payback. But the warehouse automation systems can reduce errors, and can allow you to have less sophisticated workers who are more productive. Somebody who speaks English as a second language, with the right automation technology it will allow them to be productive. They can scan the codes with a scanner and not even know the language.”
Wentz has seen a lot of larger distributors who have jumped on warehouse automation, but he says the size of the warehouse really doesn't affect the return you can get from automation. “Smaller distributors think it's cost-prohibitive, but the software is coming down to where it's priced very reasonably, hardware (such as radio-frequency scanners) is coming down in cost. This is an area that's a huge opportunity for the electrical industry. For us, warehouse automation is an elective module, but every major provider has a warehouse automation module, yet we don't see a high adoption rate.”
Surely there can no longer be any doubt that the Web has become the preferred way to gather information for buying decisions and, increasingly, for placing orders for all kinds of goods. Much is often made of how the “next generation” now rising through the ranks of every business will expect you to be available via the Web, and if you're not there you don't exist. The truth is that it hasn't taken a generational change. Old fogeys everywhere are becoming just as comfortable navigating, researching and purchasing online, and if anything they may be more demanding.
And yet, development of a useful online presence among distributors remains astonishingly low.
“A study by Pembroke (Pembroke Consulting, Philadelphia) said that by 2012 or 2013, all wholesale distributors should have an online presence. If you look at the statistics, 90 to 95 percent of all wholesale distributors under $25 million still don't have an online presence,” says Rippen of Infor. “There are benefits galore for the customer — 24/7 buying, reduced buying time, better buying decisions, less errors because they can pick a product and click on it. For the distributor, it means no overtime, less data entry errors, less labor costs. But a lot of people I think get scared of it, because when you think of setting it up and hooking it back to all your back-end systems, it can be a daunting task.”
Modern ERP systems in the electrical distribution market all have functionality for creating a very rich online purchasing environment for customers, including real-time inventory, customer-specific pricing and elaborate diagnostics for learning what your customers are interested in and how they use your site. These are often add-on modules to the system, but distributors who choose not to take advantage of them may be seriously jeopardizing the long-term viability of their companies.
Wentz of Activant points out that even those distributors with functional online storefronts often miss the benefits because they do a poor job of marketing the sites and driving more business to that system.
It may be time to get rid of all those dusty filing cabinets and let in some light. Go green and bring in a potted plant to replace them. All the packaged ERP systems have functionality to scan and store documents for future retrieval. Many have Google-type search functions that allow you to retrieve documents in a small fraction of the time it takes to find a piece of paper in even a well-organized filing system. They may or may not have optical character-recognition capabilities that could actually make the text of the document accessible, searchable, retrievable and reusable. But even if they just store images of the documents, they can save you a lot of time and square footage while also enhancing your responsiveness to customer inquiries.
“It's amazing how many distributors aren't using document imaging,” says Wentz. “Distributors are typically buried in paper, and it takes them a long time to retrieve something. The solution to that is already in place, and you get an instant return on it.”
Hurricanes Gustav and Ike's recent destruction along the Gulf Coast should be a reminder to distributors anywhere there's weather that secure off-site backups of system information and a detailed disaster-recovery plan are not really optional. Yet only a fraction of distributors have taken the necessary steps to make sure they can still conduct business when disaster strikes. The importance of electrical supplies in recovering from natural disasters makes this even more incomprehensible.
This article only scratches the surface of all the functionality and power available to you from that system staring at you from the screen on your desk right now. Add in support for mobile devices for sales management and signature capture on delivery, job management, automated invoicing, electronic funds transfers, automated submissions for supplier rebates and inventory sharing with allied distributors, and there's endless potential for cutting costs, improving efficiency and enhancing customer service right at your fingertips.
One more thought: If you've run through all those functions, there's a way you can get even more out of your system: Get friendly with your provider's user groups and developer groups. Send your IT people to the technical meetings and send yourself to the management meetings. The frustrations you have with your system are very likely the same frustrations others are having, and these meetings are the place to find solutions and workarounds. Plus, you can meet others who've found additional ways to exploit the same system you use to do a better job. The networking can help you find better solutions and influence future development of the systems.