Business Transformation Imperative in Wholesale Distribution Industry

October 15, 2008 by Neetin Datar, SAP AG

Three fundamental market requirements are key to future success:

  • Optimize business processes across the enterprise
    Distributors are forced to become much more responsive, agile and innovative while keeping a close watch on costs. They thus need to automate and standardize their business processes across the entire enterprise. Technology helps making the transition to a real-time enterprise, which improves operations and helps boost customer satisfaction and loyalty.
  • Transform business model to stay ahead
    The core services provided by wholesalers – such as carrying local inventory, breaking bulk or handling credit for customers – have become commoditized. To stay ahead, wholesalers have to be innovative in adopting new profit models (for example, retailer services, fee-based value-add services, and private label products) thereby ensuring their value-add role in the supply chain remains intact and enables higher margins.
  • Collaborate with your business network, deliver higher value
    The days of the supply-driven strategy are numbered: The demand-driven strategy is becoming increasingly important, as it can help cut inventory and costs for all participants in the network. Information sharing is critical when following this strategy, as is the need to embrace the Internet – the key service tool for the always-online customers going forward.

That’s why SAP believes distributors need to transform themselves step by step – and eventually move up the enterprise maturity curve. That way, they can deliver higher customer value, differentiate themselves better in the marketplace, and gain competitive advantage.

  • Stage 1 – Siloed Enterprises
    – often have fragmented, redundant, and manual processes that are error-prone, inefficient, and costly.
    – are reactive and depend on heroics of individuals holding it all together, resulting in inconsistent levels of customer satisfaction and lower operational scalability.
  • Stage 2 – Integrated Enterprises
    – utilize systems automating and standardizing business processes across the company.
    – better able to leverage the system to plan, source, store, sell, and service while improving overall visibility and productivity.
    – are proactive and able to keep their customers happy with on-time shipments and minimal errors.
  • Stage 3 – Extended Enterprises
    – have extended their internal integration to inter-enterprise business partners, leading to better information sharing and higher demand visibility across the network.
    – able to gain higher trust and confidence of customers which in turn drives more business
  • Stage 4 – Networked Enterprises
    – have interoperable supply chains within business network.
    – participants focus on their core and offload non-differentiating work to partners. They also form alliances in a loosely coupled way with network partners to deliver maximum value to their customers while achieving profitable growth.

SAP’s research indicates that most companies are in Stage 1 and currently moving up to Stage 2, with a lot of progressive distributors starting to push into Stage 3.

Helping companies moving up the curve

Neetin Datar, SAP AG


U.S.-based Tallard Technologies, a $220 million wholesale distributor, is one example how to successfully move up the enterprise maturity curve. The company is using the SAP for Wholesale Distribution solution to streamline its previously siloed functions. The solution provides out-of-the-box, integrated business processes that maximize performance in finance, sales, services, warehouse and logistics, planning and procurement. It has helped Tallard cut in half both the sales order processing time and the inventory. On top of that, inventory turns were boosted by nearly 60%. Tallard’s improved supply chain visibility has led to higher customer satisfaction and more business.

Enabling business transformation now and in the future

SAP is committed to investments in wholesale distribution, service-oriented architecture (SOA) and business process platforms. Thus, distributors can benefit now and into the future to modernize their systems and be able to seamlessly plug into their business network, meet changing business model requirements, and develop a deeper and more mutually profitable relationship with their trading partners.

Moving to Stage 4 to stay ahead

SAP believes distributors need to ultimately move up to Stage 4 to establish a distinct and differentiated role for themselves within the industry and stay ahead of competitors. Stage 4 focuses not on the distributor and its direct competitor, but rather on the distributor’s network pinned against its competitor’s network. Wholesale distributors reaching Stage 4 earlier will ultimately emerge as the big winners.

Neetin Datar is the Senior Director of Solution Marketing for Wholesale Distribution Industry at SAP. He has over 18 years of enterprise business-software experience in ERP, Global Trade, Warehouse Management and Distribution markets. He has been with SAP since 1994 and is a frequent speaker at industry events, including SAPPHIRE, ASUG and Logistics and Supply Chain Management conferences.

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