Last month’s positive employment news has many a pundit’s predicting the end of the long recession in the US soon. In fact, Dr. Adam Fein a noted expert in wholesale-distribution industry in one of his latest blog posts has gone as far as recommending wholesale distributors to start to plan for growth again.
There is no doubt the market conditions remain intense and extremely challenging for wholesale distributors. However, smart distributors are looking at this new reality as an opportunity to outmaneuver their rivals. In short, they are:
- Protecting their financial house – for example, by closely monitoring and maximizing their cash flow, managing customer credit risk and optimizing their working capital.
- Streamlining their existing business operations – for example, by automating and optimizing their core business processes and wringing costs out of their operations across their enterprise.
- Seizing opportunities to set themselves apart – for example, by extending their brand via sustainability initiatives or by extending business models beyond the traditional wholesale domain.
Here are six focused technology investment ideas:
1. Optimize working capital
A distributor’s working capital is a measure of its operational efficiency and short-term financial health. As a result, the optimization of working capital is top of mind for most finance chiefs. In the current economy, distributors are challenged to maintain desired profit margins and generate adequate cash and liquidity to fund their operations. By using SAP and applying the best practices pre-built into our software, distributors are able to accelerate cash flow, improve days sales outstanding (DSO), and make better decisions when extending credit to customers in the first place, thus reducing the risk of bad debt.
2. Accelerate vendor cost recovery process
Distributors are anxious to ensure that they recoup every penny that is owed to them by their suppliers as it impacts their profitability significantly. This cost recovery can get challenging as distributors need to track every agreement and sales order items – leaving lots of money on the table as they don’t have adequate automation in place. Industry trends point to more proliferation of special pricing to customers, so it is only going to increase the pain for distributors who don’t automate this process. Distributors such as Summit Electric who have automated their vendor cost-recovery processes using SAP have very quickly experienced significant positive financial impacts to their bottom line.
3. Become a more intelligent enterprise
Wholesale Distributors need to have more effective decision-making process in place based on real-time visibility of their enterprise. Executives can then quickly adapt to changing business conditions and respond with confidence while ensuring alignment with corporate objectives. Technology advances have now made it possible to have easy access to executive-dashboards that reflect the key performance metrics in all aspects of their business i.e. finance, sales & service, procurement, planning, logistic operations and human resources. With visibility and actionable insight, distributors can quickly capitalize and add true value to their business networks.
4. Drive efficiencies by integrating warehouse operations
Customers and suppliers are placing huge demands on wholesale distributors today. It is imperative that distributors coordinate their warehouse processes, activities, associates, and equipment with increased precision. By integrating warehouse operations with planning, sales, finance and procurement processes distributors are able to significantly trim costs, drive efficiencies and meet high customer service levels. Such automation is also helping distributors provide differentiating value-added services and carve out a niche for themselves in their respective business networks.
A case in point is a $100 Million distributor of industrial products in the U.S. It integrated its warehouse operations with SAP and was able to grow sales by 24%, reduce sales-person’s time on administrative activities by 10% and also increase warehouse space by 14%. The ROI on this project was achieved in less than 18 months.
5. Proactively managing price and margins
Price and margin management is a real challenge for distributors especially in today’s tough economic environment. They face unique pricing pressures as they play a critical intermediary role in the supply chain. Distributors usually have very thin margins, earned across a large number of individual transactions, customers and SKUs. Due to their current pricing practices distributors are leaving a lot of money on the table.
SAP can help distributors gain visibility and control of their entire end-to-end pricing process – enabling improvements in every stage of their pricing process for dramatic improvements in profitability. It is not uncommon for wholesale-distributors to realize profit improvement of up to 1% of sales i.e. $1 million in profits for every $100 million in sales.
6. Meet sustainability objectives while driving brand differentiation
There is heightened awareness mounting on sustainability issues and the environmental impact companies can have. This is putting pressure on even wholesale distributors as they play the critical middleman role in the supply chain.
Some of the leading wholesale-distributors have taken on a more proactive role and are starting to make sustainability an integral part of their strategy and operations. They see this as an opportunity to reduce waste, cut costs and importantly protect their brands while differentiating themselves in the marketplace. SAP offers a broad range of solutions to help wholesale distributors meet their sustainability objectives in health & safety, product compliance and stewardship, Green IT and carbon management and reporting requirements.
Strategic technology investment is key to any distributor’s success in the new reality. SAP is seeing prudent investments by distributors that are helping them drive tangible business results and readying them for the upturn.