Distributor enterprise resource planning (ERP) software systems are the nervous system of any modern distributorship, but a recent study by Growth Wizards, a collaboration of Shamrock Growth Associates and Allen Ray Associates, shows that distributor executives are plenty nervous about those systems. Here, Allen Ray and Neil Gillespie summarize their findings.

Growth Wizards conducted this survey of distributor executives in Oct. 2011. The survey results indicate that distributors definitely want ERP providers to improve functional performance in specific areas while adding some leading edge capabilities.

The biggest issue, however is uneasiness among a significant number of users about the future of their business systems. They are highly concerned about future support and development, given their system may not be the “flagship” product among many in the developer's acquired portfolio. Some have expressed lack of responsiveness from support personnel already and are clearly agitated. They are not sure their system providers are listening.

The results also suggest that ERP system providers are selling technology rather than business process productivity. Based on distributor responses, they fail to communicate the productivity and the financial returns to automating different processes and may fail to adequately educate distributors on how to automate processes. In short, they fail to communicate their potential value to distributors. This is important if a system provider is to overcome the distributor's number one fear factor about conversions: disruption to their business.

Regarding support and development, half don't trust their ERP providers to support their packages as in the past with technical support, training and leading edge development. That results in half of the respondents considering conversion to a different brand of ERP system in the next three years. You can't extend that percentage to the whole industry, we realize, but we believe it does merit close attention. In some offices that sounds like opportunity. In others, an alarm, if you're listening, that is.

Figure 1

Just over 100 industrial and electrical distributor respondents, half of them CEOs answered our survey, representing a broad range of distributors with $20 million or more in annual revenues. The other half was mostly IT or operations executives. They hailed from all regions.

Distributors were not very aggressive with their growth strategies in these industries. They preferred to attempt selling more to existing customers and growing share at competitors' customers. Judging from the overall contraction, not many were all that successful. But they want to do these things. This ties directly to answers to a question asked later in the survey. Distributors want system providers to analyze customer-purchasing behavior for additional profitable sales opportunities. They also want the system to provide better connectivity to customer systems and website technology that rivals the look, feel and performance of Grainger or Amazon.

Distributors are still focused on managing inventory and purchasing as their primary method to improve productivity. There it is: the stuff we sell again. From our experience in the industry, we're pretty sure that focus on inventory and purchasing is misapplied in most cases. Distributors tend to focus on the bloated or inadequate assets instead of the processes and mathematics that created them, which are the root causes. We think distributors would do well to familiarize themselves with the math driving their purchasing algorithms and with alternate ways to set up logistical configurations of CDCs and branches or hub-and-spoke arrangements as well.

The distributor's most important role in the supply chain is getting products from the supplier to the customer. Hence, distributors should become experts at the forecasting and order-quantity calculation capabilities of their business systems for every product line in every branch. That's the math of your business and it's the key to distributor productivity and performance for the customer.

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