by Larry Wine, President and CEO, Paymetric Inc.
Today, it’s expected that most merchants will have an online component to their sales channel. Certainly, for wholesalers, Internet sales of durable goods have opened up an entirely new revenue stream that requires very little overhead. Because they already stock a large inventory of products, distributors are in a strong position to sell products beyond their traditional market. Over the past five years, many distributors and manufacturers have moved more of their business online, from offering product catalogs to selling a broad range of items through electronic storefronts. And it’s proved valuable. Online selling is not just a way for manufacturers to sell more products and increase revenues, but also a way to form a direct connection with customers. In general, Forrester Research estimates that online sales will reach 12% of the total retail market by 2012, up from 6% today. Some believe e-commerce could even account for as much as 50% of all retail sales by the end of this decade.
However, despite the obvious advantages of Internet selling, adoption within the manufacturing industry has been slow. Although many distributors use a website for marketing, most present only a limited ability for customers to place orders online. The reality, however, is that today’s customers expect to be able to shop online. Not offering this service could turn them to other sources.
We understand that one of the challenges of an online product catalog is the ability to keep the catalog updated and current. That’s no small challenge. But once you solve that issue and have a functioning product catalog online, many manufacturers then experience challenges with the order-to-cash process. The greatest difficulty is integrating electronic payment and order information from the Web store back into the company’s ERP in an integrated fashion, requiring the company to create “work-arounds” and introducing manual steps. This critical integration issue has often hindered wholesalers from broadening their sales channel and taking true advantage of e-commerce.
As the wholesale industry turns to e-commerce to boost profits, any well-seasoned CIO and CFO understand that the online sales channel needs to leverage the investments already made in existing enterprise systems to ensure accounts receivables processes remain streamlined and automated. But what’s the most effective way to do this? How does an enterprise integrate an entirely new electronic payment system, while also ensuring a new level of payment security it previously did not need?
We believe having an online presence to your distribution business is no longer optional. It’s a necessity from a competitive standpoint. And there are solutions out there to help.
First things first: Integration
Few companies have fulfillment, integrated ordering, inventory tracking, marketing and customer service working in harmony. Disconnected systems lead to inefficiencies, high transaction costs, fees, risks and dissatisfied customers. From the human resource perspective, integration requires concerted effort within the company. Most companies choose to experiment with stop-gap solutions which further hinder full electronic commerce development. Without a fully integrated solution, organizations suffer the ramifications that come from manual, error-prone processes.
Distributors need to better leverage third party applications that integrate payment processing capabilities with existing ERP workflows. Why build from scratch or create manual steps?
For example, if a Wholesale Distributor is going to have an online sales component, credit card sales need to be accepted. But most Web stores do not have the ability to integrate with the order-to-cash process that companies have in existence today. So what is a CIO/CFO to do? As stated, some create a work-around for accounting procedures that are correlated with their web-based orders. This is not an efficient way to go about it.
Instead, wholesalers need to find an integrated payments solution that simply assimilates payments coming from the web store with enterprise systems like an ERP or CRM. This will not be invasive to the order to cash process, and allow companies to leverage the investments they have already made in their enterprise software.
The great news is, all of this can be accomplished via a Software as a Service (SaaS) model. Let someone else shoulder the work. In today’s economy, a SaaS model is more cost effective, and doesn’t require large capital expenditures, so distributors can worry about inventory investments, not IT expenditures. Plus an integrated payments solution delivered via a SaaS model provides the following benefits:
1. No need to worry about updates or upgrades (the credit card associations make at least two updates per year)
2. No costly maintenance, it’s all taken care of offsite.
3. No capital expenditures for purchases of licenses, hardware and servers, just a monthly transaction fee
4. Lower TCO of payment acceptance
5. Quick upstart, less time to deploy the solution vs. doing it in-house
6. Reduce downtime costs – if something goes wrong the vendor is “on it” immediately to fix the issue
7. Reduce support costs
8. The solution is scalable, particularly when opening new sources of revenue.
9. The solution affords companies the opportunity to offer customers top-level card security by removing cardholder data from their systems entirely, utilizing tokenization technology. (Look for a detailed article on tokenization technology later this month in the Industrial Distribution Mid-Week Report)
In the end, companies must work with someone with a proven reputation for a SaaS model. IDC research suggests that the following are key attributes to look for in a SaaS delivery model:
- The solution is provided by an offsite, third-party provider.
- It is accessed via the Internet.
- The offering requires minimal IT skills for implementation.
- Provisioning is near real time, self-service, and dynamic.
- Pricing model is fine grained and frequently usage based.
- The user interface is browser/portal based.
- System interfaces comply with Web services APIs.
- Resources and common versions are shared across customers.
Once integrated, a distributor has opened up an entirely new and lucrative revenue stream for the company. But don’t forget that e-commerce systems need to address security. Data security breaches represent a real threat to any business conducting electronic payment transactions. We’ll address that in a later post.
Larry Wine is the president and CEO of Paymetric Inc, a provider of integrated and secure electronic payment acceptance solutions. Wine is also an electronic payments industry subject matter expert with more than 20 years of top-level, global executive leadership experience.
