Adding Value to Your Distribution Business How value-added services can increase revenue and differentiate your company from the competition Epicor White Paper i Adding Value to Your Distribution Business Introduction A fundamental principal of business operations is distinguishing your company from the competition. Since larger companies often have the advantage of scale, smaller companies must find ways to differentiate themselves to appeal to new customers, retain existing customers, and add new revenue streams. One way distributors can do this is by offering value-added services to their customers. In 2017, a joint study was conducted by Industrial Supply, Benfield Consulting, and Epicor Software to determine the annual percentage of distributor sales from value-added services1. The study found that: X 20% of firms have less than 5% of their sales represented by services X 19% of firms have between 6% and 10% of their sales represented by services X 31% of firms have between 11% and 25% of their sales represented by services X 12% of firms have between 26% and 50% of their sales represented by services X 18% of firms did not respond to the question Along with using value-added services to stand out from the competition, the research found that: X Customers who purchase services also purchase a wider range of products (27%) X Customers who purchase services are less likely to switch suppliers (23%) X Services are less price-sensitive than products (23%) X Services have higher gross margins than products (17%) X Vendors invest in services because it helps their product sales (10%) This white paper will help identify how to choose value-added services for your distribution business, as well as the areas that can be optimized to streamline the process. 1 “Value-Added Services in a Self-Service Culture,” Industrial Supply Magazine, Benfield Consulting, 2017. 1 Adding Value to Your Distribution Business Find Value-Added Services That Will Benefit Your Existing Customers Offering value-added services is nothing new for distributors—many have been providing kitting, assembly, and other services for some time. However, many distributors decide to offer a value-added service because it makes most sense to them—either from a revenue or product extension perspective—rather than their customers. While this is a good strategy from a business and operations perspective, it doesn’t take customer demand into consideration. It’s important to ensure that the service will actually benefit existing customers, lure new customers away from the competition, and is something you can deliver upon without a huge amount of rework or investment in order for the venture to be successful and profitable. How do you determine which services will most benefit your customers? Start by asking them. A quick survey can reveal insight into services that would benefit your customers and it may also help you gauge the price threshold they are willing to pay for these services. Since employees are the ones who are mostly interacting with customers, it’s also a good idea to ask them if they’ve received specific requests or have input on the ideas the business is considering. Value-added services can be implemented in many areas of your distribution business, including: X Production—Assembly, light manufacturing, and fabrication X Service—Field service and maintenance, in-house repair, solution design, and engineering X Products—Project staging, custom products It’s also vital to measure how much it will cost to implement the service—both with regards to capital investment and labor—and what your expected return on investment (ROI) and timeline is for recouping the costs associated with offering the service. If you’ve never offered value-added services before, we recommend that you attempt to incorporate something that can be achieved by existing human and equipment resources as much as possible—with a plan for continued development and investments to occur over time. Examine The Competitive Landscape To truly add value to your customers—and to your bottom line—distributors should identify value-added services that set them apart from the competition. Start by examining the competitive landscape to identify what types of services other distributors are offering—as well as services they are not providing. This will help you uncover areas of opportunity and help to determine what the market is willing to accept with regard to cost and service offerings. For example, you may find that a large percentage of your competitors are offering the same type of service you’re considering launching. Perhaps the service is a natural extension of your business and will be relatively simple and cost-effective to implement. In this scenario, you may decide to offer the service at a lesser price to entice new customers. However, unless you can really outperform the competition, increasing the opportunity for customers to obtain this service may erode its value to the point where customers no longer feel like they should have to pay for it. Conversely, you may discover a great opportunity to offer a service that no competitors currently provide. Before you dive in head first, determine if there’s a reason no one else is providing the service—you may find that other companies have tried and failed for reasons that may also plague your business. Similar to new product development, this is a great arena to learn from others’ mistakes. Ultimately, your goal should be to find a niche service that you can offer that very few competitors provide—and do it well. Another key to success is to ensure that the service is priced clearly and appropriately to avoid confusion from customers—and even internal sales personnel—with regard to what is included in the price of the service. Since customers have a tendency to ask for more services without incurring additional expense, it’s important that requirements are well defined and that the service is clearly outlined to avoid scope creep. Monitor Success and Measure ROI Perhaps one of the more challenging elements to implementing new value-added services to your distribution business is monitoring its success and measuring ROI on the program. Developing defined processes around the implementation, delivery, and utilization of the service is pivotal to its ultimate success. One of the ways to accomplish this is by developing a service team that can assess ongoing program performance and provide suggestions for improvements. This—in conjunction with the utilization of an enterprise resource planning (ERP) system to automate, track, and provide analytical data— can provide key insight on ROI. For example, ERP systems can be used to track and manage manufacturing, field service, maintenance fees, and consulting services. An online storefront may also be used to market and sell value-added services— alleviating time and effort from customer service, inside sales, and/or accounting that would otherwise be used to support ordering and payment. When eCommerce is rolled into an ERP system, it further assists with tracking ROI. 2 Adding Value to Your Distribution Business About Epicor Epicor Software Corporation drives business growth. We provide flexible, industry-specific software designed to fit the precise needs of our manufacturing, distribution, retail, and service industry customers. More than 45 years of experience with our customers’ unique business processes and operational requirements are built into every solution—in the cloud or on premises. With this deep understanding of your industry, Epicor solutions dramatically improve performance and profitability while easing complexity so you can focus on growth. For more information, connect with Epicor or visit www.epicor.com. Contact us today firstname.lastname@example.org www.epicor.com The contents of this document are for informational purposes only and are subject to change without notice. Epicor Software Corporation makes no guarantee, representations, or warranties with regard to the enclosed information and specifically disclaims, to the full extent of the law, any applicable implied warranties, such as fitness for a particular purpose, merchantability, satisfactory quality, or reason- able skill and care. 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All rights reserved. Summary Incorporating the right value-added services into your distribution business can have a tremendous impact on your bottom line, but it requires careful planning and thoughtful implementation. The upfront investment warranted by the services must not outweigh the long-term potential profitability of the program. Leveraging existing systems—including ERP software—as well as capital and personnel resources can help mitigate the risk and keep expenses in check. Modern business systems—like Epicor® ERP solutions—are designed to integrate processes and maximize productivity. Business systems from Epicor can also support the unique processes of a wholesale distributor like no other software provider. For more than 45 years, Epicor software solutions have enabled distributors to improve their productivity by eliminating or connecting disparate systems and streamlining tasks. Visit www.epicor.com/distribution to learn how Epicor ERP solutions can help you grow, thrive, and compete in the ever-changing distribution landscape.