According to Adam J. Fein, president of Pembroke Consulting, management consultants to the distribution industry, the wholesale distribution sector these days is in a dicey situation. That said, the industry is still enormous and economically powerful – over 300,000 wholesale distributors in the U.S. employ one in every 20 American workers.
Beyond that, these companies account for one in every five dollars spent on IT business hardware and software in the U.S. Per employee, says Fein, this spending is at a higher level than in any other industry except financial services and telecommunications. Perhaps most startling is that one quarter of the economy’s total productivity growth in the country comes from the application of IT to distribution companies.
By its very nature, distribution must remain local, he points out. “Since the basic work and the jobs can’t be exported, it remains a relatively steady force in the economy.”
Does that then mean the wholesale distribution sector is secure? Far from it, indicates Fein. Pulling material from a soon-to-be-released Pembroke report titled “Facing the Forces of Change,” he uncovers a litany of problems facing the industry through 2008. First of all, customers are now demanding real-time service and immediate information from distributors. Second, they are pushing down distributor margins through such confrontational sourcing moves as online reverse auctions. And distributors are starting to face new levels of competition from logistics companies going head-to-head for control of the supply chain.
The good news is that distributors are responding by moving toward becoming service providers. The report indicates that while today wholesale distributors handle only 5-10 percent of orders online, this share will jump to 35-40 percent by 2008. The best news concerns the place of small and midsize businesses (SMBs) in the mix. Reacting to customer pressure to provide online and real-time services, SMB distributors plan to increase their investment in technology at a faster rate than larger companies. In fact, a Pembroke study of 1,000 distribution companies shows that even the smallest will have instituted online ordering within five years. “I think this presents a phenomenal opportunity for SAP’s offering to the SMB space,” says Fein.
IBM Wholesale Distribution
What Fein is specifically referring to is the IBM Wholesale Distribution Solution, a prepackaged and qualified mySAP All-in-One solution, designed to give SMBs access to basic IT capabilities now available to larger companies – such as integrated electronic data interchange (EDI) and complex warehouse and inventory management. The IBM-SAP solution was the subject of a recent webinar, hosted by IBM and presented by Kathy Colyar-Piontek, partner, SAP Practice, IBM Business Consulting Services.
The IBM Wholesale Distribution Solution provides templates for wholesalers in the electrical apparatus and equipment, hardware, plumbing and heating, and industrial supplies sectors, said Colyar-Piontek. Since the solution delivers preconfigured functionality, it lowers risk and reduces the size and price of an implementation. IBM Wholesale Distribution can be implemented in as little as eight weeks, starting at $300,000 and doesn’t require intensive user training, she explained.
The solution is fully scalable, she added, and enables companies to optimize inventories, forecast inventory demand, beef up customer service, streamline operations and improve collaboration with customers and suppliers. It is built on mySAP Business Suite and SAP Best Practices and supported by IBM.
Echoing Fein, Colyar-Piontek described wholesale distribution as an industry facing increased competition and growing customer pressure to improve quality and timeliness of service. And as in any industry, a customer with an aging IT infrastructure and a collection of disparate legacy systems may find itself with redundant processes and clouded demand visibility. Resulting problems can include excessive inventory shrinkage, stock outages, inefficient logistics and lowered customer service.
The whys and wherefores
Outlining the benefits of IBM involvement in the solution, Colyar-Piontek stressed the firm’s 30 years of experience in the SMB market and its past six years spent developing industry-based solutions. Providing a mySAP All-in-One solution further cements IBM’s commitment to SMBs, she noted, as well as extending its existing alliances with SAP in training, hosting and implementation of services.
For its presentations to customers, IBM has developed a free one-day Quick-Scan workshop, working with the potential client to determine company objectives and priorities and explaining the solution’s preconfiguration and project tools. IBM also details its approach to rollout, change management and training. The presentation includes a full demo to show how the solution works out of the box, she said. For a given industry, she added, 90 percent of the solution comes prepackaged and ready to roll; 10 percent can be tailored by IBM to specific company needs.
The solution includes training materials for both the implementation team and users, as well as complete documentation on all processes. Testing, business scenarios, data guides, predefined forms and reports based on KPIs are all part of the package.
Colyar-Piontek noted that the functionality integrates financial management, inventory management, procurement, and sales and distribution, and is especially strong in electronic data interchange (EDI) Among prime benefits, she listed accurate forecast of inventory demand, improved customer service, integration with SAP R/3, complete information to promote efficient operations and improved collaboration with suppliers and customers.
An answer to industry woes
As Fein points out, “The wholesale mySAP All-in-One solution brings two large, significant, stable companies to the distributor market. Currently, SMB distributors choose from over 200 distributor software companies, most very small, with no upgrade path and likely to be shaken out over the next five years. Here, there’s the strength of a platform that’s able to grow with the company.”
The SAP Best Practices embedded in IBM Wholesale Distribution, he adds, can help SMB distributors “kick their game up a notch, to get better back-office functionality, for example. This software gives them a quick way to optimize the parts of their business that are not core activities – from accounts receivable to order entry.” Many of these distribution firms are already running SAP solutions or have systems that would benefit from connecting to an SAP platform, he concluded.
To listen to a replay of the IBM-hosted webinar, go to www.sap.com/solutions/smb/allinone/newsevents/partnerwebconferences.asp.