Investing in technology
Distributors look for an edge by implementing new technologies
By John R Johnson -- Industrial Distribution, 2/1/1998
It's becoming apparent that as the end of the decade draws nearer, distribution executives are showing a greater willingness to invest in technology to help solve business problems while bettering their bottom line.According to a recent study conducted by the Wholesale Distribution Industry segment of IBM, an overwhelming majority of re-spondents cited as their key business concerns the need to improve customer service levels while controlling costs. Many distributors indicated that technology is the route to accomplishing both.
The survey interviewed 1,103 distribution executives, mostly chief financial officers and chief executive officers who indicate they have been or plan to invest in application solutions such as business intelligence, supply chain management, and electronic commerce.
Perhaps the biggest surprise in the survey was in the area of the Internet, where well over half of those polled have or expect to have electronic commerce offerings, with 61 percent accepting online product information or catalogs, and 59 percent offering a home page.
"The only new news [out of the report] was that [distributors] have started thinking more about the Internet, but everyone is thinking about that," says Pat McNabb, global segment executive for the Wholesale Distribution Industry at IBM. "But there's so much information on the Internet, the whole world is getting smarter on it.''
Executives polled in the survey were asked to rate several business issues in terms of importance. The greatest concerns were improving customer service levels, overall cost control, finding new customers, partnering with customers, inventory cost control, specializing to remain competitive, and identifying new products/services. According to McNabb, "respondents acknowledged they are using technology to provide assistance in dealing with these business concerns.''
Business intelligence solutions such as sales automation and activity-based costing permit distributors to view business conditions with greater clarity by using data they already have access to within their company. Nearly half (48 percent) of distributors currently have the ability to assess the profitability of their product lines and customers, but 53 percent do not have, or don't intend to invest in activity-based costing.
However, more than two thirds (68 percent) have invested in sales force automation systems, or plan to do so soon, in order to identify new opportunities, enhance productivity tools, measure penetration of existing customer bases, and help with territory management.
Dave Witwer, general manager of Reserve Motion Control Systems, a power transmission distributorship based in Cleveland, Ohio, implemented sales automation at his company three years ago. He says the result is that sales have grown significantly, "particularly in terms of profitability. When it comes to activity-based costing, sales force automation provides some real good insight on tracing field sales activities and how much time your sales people spend with the customer,'' he says.
Witwer emphasizes that because his firm has more information about its customers, inside and outside sales groups work together much more smoothly. A recent example occurred when an inside salesperson noticed that both he and an outside seller were working on similar applications with the same customer, but with different people. The pair then worked together to solve the customer's problem, and Witwer says, "we were shoe-ins for the business. But that's the kind of [business] you used to miss [without sales force automation.]''
McNabb warns that distributors should be cautious about jumping into sales automation too quickly. For example, he notes that efficiency-enhancing programs like data warehousing, activity-based costing and customer profitability analysis should be applied before sales force automation systems, in order to prevent the risk of selling "more unprofitable products to more unprofitable customers.''
In an encouraging development, the IBM survey reveals that nearly 20 percent of distributors plan to invest in the four sectors of supply chain management -- logistics management, inventory management, warehouse management, and vendor managed inventory. Half of the respondents have already implemented warehouse management and logistics management solutions.
"Too often branch managers are walking their warehouse aisles trying to figure out what items they need to replace," says McNabb. "We see others guessing their needs and finding their inventory levels much higher than necessary. The warehouse is the key. It is the tightest tangle in the supply chain. Static inventory is a cost collector and it does not increase revenue. Distributors who streamline their inventory and warehouse operations by using technology solutions have an edge.''
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