Emerging Technologies in Wholesale Distribution

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Inc. Material may not be reproduced in whole or in part in any form whatsoever without permission from the publisher. To request permission to copy, republish, or quote material, please call 303-443-5060.

MDM Special Report:

Emerging Technologies

in Wholesale Distribution

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Gale Media, Inc. Material may not be reproduced in whole or in part in any form whatsoever without permission from the publisher. To request permission to copy, republish, or quote material, please call 303-443-5060. ISSN 0544-6538 MODERN DISTRIBUTION MANAGEMENT Founded in 1967 by J. Van Ness Philip

Publisher Thomas P. Gale [email protected] Editor Lindsay Konzak [email protected] Associate Publisher Craig Riley [email protected] Associate Editor Jenel Stelton-Holtmeier [email protected]

Editorial Advisory Board John Allenbach

SVP, Professional Sales, Apex Tool Group

Kevin Boyle

President of Industrial Distribution Consulting LLC

Ted Cowie

Safety distribution industry

Larry Davis

President, ORS Nasco

Larry Goode

President of Goode Advisors Inc.

Julia Klein

President and CEO, C.H. Briggs Company

Stuart Mechlin

SVP, Industrial Supply Division, Affi liated Distributors

Doug Savage

President and CEO, Bearing Service Inc.

Burt Schraga

CEO, Bell Electrical Supply Dear Reader:

This MDM Special Report looks at fi ve areas where distribution companies have started to take advantage of newer technologies to run their businesses better.

The fi rst, cloud computing, provides a cost-effective, effi cient way for distributors to imple-ment technology in their businesses. The cloud has advanced to a point where it’s a viable alternative to client-server ERP, according to some experts, and more distributors are using cloud-based services to gain competitive advantages.

Next, we look at tools that are helping distributors optimize their pricing practices. Pricing continues to be an area ripe for improvement, and advanced technologies now make data-based decisions on pricing much easier for distributors of all sizes.

Mobile technologies, the third area we examine in this report, is playing a growing role in

how distributors do business and in the services they are able to offer their customers.

Business intelligence tools - delivered over a number of platforms, including mobile - are

providing actionable data for distributors to be more strategic about their next moves in their markets.

And fi nally, e-commerce has evolved beyond what many think of as a B-to-C approach. More and more distributors are using online platforms with a B-to-B mindset to complement their sales and marketing efforts.

These articles were originally published in the second half of 2011. Enjoy,

Lindsay Konzak Editor

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This article looks at cloud computing, which contin-ues to grow in popularity as a way to deliver business processes over the Web.

By Nissa LaPoint

Software as a service (SaaS) is anticipated to grow 20 percent to $12 billion in revenue this year, according to IT research company Gartner.

Yet in an industry with tight margins and a reluctance to invest in new technologies, SaaS, a variation of cloud computing that is the use of Web-based services to support business processes, is viewed with a critical eye among distributors.

But as more companies adopt cloud technol-ogy for their business, the service is becoming diffi cult to ignore.

Gartner forecasts the cloud will reach $21.2 billion in business in 2015. Gartner contends that the growth is partly due to companies with tighter budgets looking for leaner alternatives. In addition, the delivery of software services via the Web has become more accepted.

“I think at the end of the day, cloud comput-ing will impact everyone whether they want it or not,” says Henrik Billgren, vice president of product management at Lawson Software.

Although the concept of cloud computing is not new, the technology has advanced and improved to the point where it’s considered a viable alternative to client-server ERP and niche applications. The cloud doesn’t require buying and installing applications on-site and can be rapidly deployed. Depending on your choice of cloud deployment, it is also typically a service with no fi xed commitment or start-up costs and includes automatic updates.

Experts in the fi eld suggest distributors weigh the advantages and disadvantages of adopting technologies delivered via cloud computing and consider the resulting benefi ts to their bottom lines.

Ease and Access

One of the top benefi ts companies cite after using cloud computing for more than a year is that “it frees up their resources to concentrate on development and it helps enhance resources,” Billgren says.

Lawson Software serves about 100

cus-tomers with its cloud computing solution. “In general, the benefi ts I’m told when I talk to cloud customers, is it’s there when they need it,” Billgren says.

The cloud enables employees to work remotely via a browser and have access to live updates and company data. In fact, a company could be managed from anywhere in the world thanks to the Internet, which has changed the defi nition of geography, says Steve Epner, founder of Brown Smith Wallace Consulting Group, which provides advice on software selec-tion for distributors.

“Think about a company that can be run from anywhere,” Epner says. “You can run the business as if sitting down the hall.”

This is made possible with the cloud when properly built and set on servers in multiple cit-ies with multiple ways to access it, he says.

“If your computing is based in one location in one city using one power grid, there are a half-dozen things that could put you out of busi-ness before you could snap your fi ngers,” Epner says. “There’s much greater potential to stay in business with the cloud.”

Not only is access greater and data backed up, the cloud is also safer, he says. This is what provides peace of mind to Howard Williams III, co-owner of Johnstone Supply of Montgomery, AL.

“Since our servers are located off-site, we don’t have to worry about running daily back-ups, managing our servers or applying software updates,” Williams says about using Epicor’s Eclipse SaaS model. “With the ever-present threat of natural disasters, fi re or catastrophic failure, this gives us the peace of mind that our data is safe.”

Security Concerns

Distributors have mixed feelings about using servers located off-site, citing increased liability and risk issues, Epner says.

“One of the misconceptions is it’s safer if you can control it yourself,” he says. “But there is no distributor reading this that can protect themselves 100 percent. Part of me says ‘get over it.’ Security is a constant threat and something to worry about whether cloud or not as long as you’re signed up for the Internet.”

A distributor may take extra steps to ensure

The Growth of Cloud Computing

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security by enlisting a third-party audit service. The American Institute of Certifi ed Public Ac-countants developed a new reporting standard called Statement on Standards for Attestation Engagements, or SSAE 16. Companies may feel more secure knowing the cloud environment is certifi ed and approved from an outside source, Epner says.

Epner would argue that data on the cloud is more secure. A company that maintains cloud services for a distributor will make fi xes and updates more quickly and employ top security measures.

Companies that provide cloud services and support “are more advanced and focused on re-covery and use much more protection than you could ever invest in yourself,” Billgren says.

Williams says Johnstone Supply runs its en-tire business using the cloud and has confi dence in its data security.

“You don’t have to worry about computer hardware or updates, and that is real-time sav-ings,” Williams says. “We just close up the door and go home.”

Cloud Costs

An external cloud system, which would be

installed and maintained by a third party off-site, removes the hassle of paying IT staff to run the cloud and is more cost-effi cient in the short term, says Doug Johnson, vice president of mar-keting and sales for Acumatica, which has devel-oped Web-based cloud ERP software to support business management.

A company that makes $10 million to $50 million in business will be charged about $18,000 a year for an external cloud system, Johnson says as an example. This includes up-dates and security.

“It’s really nice for companies that don’t have an IT department,” Johnson says. “The big guys can get some functionality out of the cloud, but typically they are slower to adopt it because they already have software solutions.”

If a company wants to own its cloud and house it internally (see graphic on page 2), the cost would reach $22,500 with an additional 18 percent charged per year for updates, he says. In some cases, a larger upfront cost may be offset by lower long-term costs of operations, Epner says.

The best choice depends on the expected length of time a cloud will be used, as data mi-gration to an internal cloud can cost a signifi cant The Different Flavors of the Cloud

Managed by V endor Y ou Manage Private (on-premises) Infrastructure (as a service) Platform (as a service) Software (as a service)

Source: MDM Webcast: Cloud Computing: Reality vs. Theory, www.mdm.com/cloud-webcast

Many options exist, and your choice depends on your company’s needs and cost structure. The following chart shows different uses of the “cloud.” Grey indicates vendor-managed, and black indicates company-managed.

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amount, Johnson says.

Costs of cloud services are expected to change as the industry is still young, Epner says.

For Johnstone Supply, not only were the costs of using an external cloud signifi cantly less - about a quarter of the hundreds of thousands of dollars it would take to install an internal cloud - but it makes the possibility of expanding beyond their one branch a snap, Williams says.

“Because we’re in the cloud it’s easier for us to grow,” Williams says. “If we were to have more branches you just have to plug-in to access the business.”

Joe Bennett, industry segment manager for Epicor Software Corp., suggests that distributors wade into cloud computing by using an external service for some applications.

“I don’t believe a truly purist cloud comput-ing environment is right,” Bennett says. “I don’t

think the browser experience is appropriate for a high-transaction business. I don’t think that’s the way distributors need to move.”

Some cloud providers even offer companies a chance to test the service before adopting and using for a myriad of applications from accounts payable, tax management and human resources to purchasing, e-commerce and inventory. Making the Decision

As a fi rst step, Johnson recommends distributors identify the top 10 things their company needs to have its software accomplish. Then contact a few SaaS vendors and see if they can handle those needs, he says.

“Cloud computing is not a binary decision,” Epner says. “It’s like anything else you have to do in business - there are pros and cons, and it depends on an individual’s desire.”

Demand Booms for Pricing Analytics, Tools

Experts: More interest than ever in strategic pricing technologies, services

This article examines the growing interest in tech-nologies that help distributors optimize their pricing practices.

By Lindsay Konzak

Using technology to improve pricing is slowly – but surely – gaining a strong foothold in the distribution industry. In fact, some experts have gone so far as to say that using technology to optimize pricing may no longer be a differentia-tor for distribudifferentia-tors in fi ve years. Instead, what’s called strategic pricing may be expected, much as more advanced inventory management tools are now.

In the 2010 Facing the Forces of Change study by the National Association of Wholesaler Distributors, a majority of distributors surveyed across sectors said they recognized pricing optimization as important, but a disconnect remains. Roughly a third of distributors in the survey said their pricing optimization efforts were “excellent.”

A recent MDM survey with Robert W. Baird & Co. found similar results. About 35 percent of respondents – including distributors and manu-facturers – said they had implemented pricing optimization software in their organization. Nearly 20 percent said they had plans to.

The bottom line for many distributors who

are adopting technology tools for better pric-ing is this: providpric-ing better information to their salespeople and other front-line employeeson the best price for that customer based on a vari-ety of factors, including customer segment and order size.

With better data and better decision-making surrounding pricing, distributors hope to sus-tainably improve their gross margins.

It’s hard to say when using technology to optimize pricing will reach critical mass among distributors. But demand for these tools is at an all-time high, driven in part by economic dif-fi culties.

“The problem is you have rising fuel costs. You have people who have leaned out their busi-nesses as far as they could. They’ve taken their inventory down,” says Dan Barlow, vice presi-dent of customer success for epaCUBE, which provides technology tools for gross margin ex-pansion. “The only piece that everybody hasn’t attacked because of complexity is pricing. And the reason they haven’t attacked it is because it absolutely requires technology.

“It’s too much information, too much to pro-cess, and you’re never going to be able to fi gure it out at the speed that business travels. But it is without a doubt the single biggest opportunity in terms of ROI in the business.”

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Technology Improvements

In addition to changing economic times, another reason for the increase in demand may lie in the fact that technology has improved to a point where pricing solutions and data management (critical for successful implementation) are ac-cessible to all sizes of distributors. And provid-ers of these technologies have adapted what’s been used by other industries to work in the B-to-B world, which has its own complexities.

More and more software providers and con-sultants are offering analytic tools that integrate with ERP systems. These include large software providers who have traditionally worked in retail or manufacturing, but have moved into distribution in more recent years, such as PROS Pricing, Zilliant and Vendavo.

Some smaller operations have also sprung up with tools developed specifi cally for distribu-tion, including programs by Strategic Pricing Associates, Evergreen Consulting and epaCUBE.

Success with pricing technologies and analytics is not just about the technology. So with the increase in available pricing technol-ogy packages has come an increase in experts who can help distributors make the change and prepare the analysis. This is critical, as a dis-tributor must be committed day-to-day to enact sustainable changes. “The technology is very clear and very well established,” says Tim Reyn-olds, president of Tribute Inc., a niche software provider to fl uid power and hose distributors. “It really is about organizational capacity.” Pushing Back

Many of the companies offering these tools say that they have similar challenges in selling these tools. As survey data shows, distributors are in-terested, but they may not believe that a pricing optimization strategy will yield what providers say it will. “The potential profi t gains are so big, people don’t believe you,” Barlow says.

Other challenges: Distributors may be leery of the investment, even though some providers charge them a percentage of the profi t gain with no upfront fees, trying to make such a project more attractive.

Distributors also are leery of the time and complexity involved in moving forward on pricing optimization. One of the hurdles is clean data. That’s where outside service providers come in. Providers will take care of cleaning the data and developing the analytics necessary to implement strategic pricing. The data piece is critical, according to providers. “You are negoti-ating with the vendor and the customer. Imagine

if you don’t have the right information,” Barlow says. “You can’t negotiate well in either direc-tion.”

Modeling has become a part of some sys-tems to help distributors understand the im-pacts of price changes. epaCUBE, for example, provides a tool that allows distributors to see what the impact of a price change will have on their gross margin in the future. The modeling program also considers impacts of price changes from suppliers and other factors that may im-pact gross margin.

Another challenge for distributors is the change management aspect of implementing pricing change. Many software providers have partnered with consultants to help with this. “(Distributors) are getting the hand-holding from someone who has been there, done that and can help them do it right the fi rst time,” say Steve Epner, founder of Brown Smith Wallace Consulting Group, which provides advice on software selection for distributors.

Brent Grover of Evergreen Consulting, which developed SMARTPricing, an approach to pricing optimization focused on distribution companies, says that a big part of success is training salespeople. “Part of our job as pric-ing consultants is to train people not just on the technology, but to negotiate better,” he says. Salespeople have to learn to trust the system, he says. And distributors have to provide technol-ogy tools such as iPads or other mobile devices to make it easy for salespeople to sustain the gains they are achieving through their pricing optimization programs.

Getting a Head Start

Though many believe pricing optimization us-ing technology will eventually become as com-mon as using technology for better inventory management – even as soon as fi ve years down the road – it’s still relatively early in the game.

“You can still be an early mover. The real-ity is that the people doing this have a huge competitive advantage,” Epner says. “Two extra points on the bottom line gives you ways to move if you have to be competitive in any situation. … In some short order, strategic pric-ing will be what you have to do to stay in the game.” Reynolds of Tribute agrees, and says he hopes more distributors buy-in to the potential benefi ts of these tools. “I’m a big fan of it and a big supporter,” he says. “I try and promote as much as we can, and I certainly hope it acceler-ates and becomes more the norm. But realisti-cally it will take some time.”

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This article examines the growing role of mobile tech-nologies in how distributors do business.

By Jenel Stelton-Holtmeier

Over the past two years, a signifi cant shift has taken place in technology, away from the tradi-tional home- or offi ce-based tools to technology that offers portability and accessibility. And while the development of new technologies of-ten takes place at the speed of light, the adoption rate of mobile technologies such as smartphones and tablets has risen at a nearly unheard-of pace. Even in industries such as wholesale distri-bution where investment in the newest technolo-gies is often approached conservatively, mobile devices have already become essential tools internally and externally at many companies.

Mobile tools are not a new concept in distri-bution, particularly in warehouse management. “People today don’t question using RF technol-ogy in their warehouse; they understand things like barcodes,” says Denise Neumann, senior account manager for Bar Code Integrators Inc., Chicago, IL.

“But the technology was designed for use within the four walls of your business.”

In a recent MDM survey, about 45 percent of readers said they had implemented mobile tools in their organizations; nearly a fi fth said they had plans to.

Today, mobile technologies are broadening accessibility to anywhere on the planet. That creates a lot of opportunity, but it brings with it a unique set of challenges.

Benefi ts of Mobile

“Everyone has a different idea of what mobile is,” says Brian Kazmierczak, president of Rub-ber Tree Systems, which develops and imple-ments applications for mobile connection to ERP systems. “What we’ve come up with is mobile is anything that keeps your salespeople out of the offi ce and in front of the customer, and reduces manual communication between your outside salesperson and your inside salesperson while still having that data available.”

Just a couple years ago, getting email on your phone was seen as a vast improvement, he says. Salespeople could respond to requests more quickly, even though they were on the

Distributors Embrace Mobile Technology

Mobile software and tools provide opportunities, challenges for distributors

road. Now, they can access the company’s ERP system and get details on every customer – and in turn have the ability to answer the customer’s questions instantly.

Maintenance Supply Headquarters, an MRO distributor with eight locations based in Staf-ford, TX, issued smartphones to their entire sales force. “Our users can … look at sales orders, customer information and search the Inter-net without having to use a PC,” says George Juarez, IT manager for Maintenance Supply Headquarters.

“Even laptops are becoming obsolete,” says Kevin McGirl, co-founder of Sales-i, a company that develops business intelligence software for mobile devices. Tablets and smartphones offer one-step access, making it unnecessary to open a laptop, launch a VPN, open another program and then get to the information you need.

In addition, tablets are offering more op-portunities for salespeople to become a “trusted business partner” by allowing them to do face-to-face customer reviews with real-time visibil-ity, says McGirl.

Breaking Down the Entry Barriers

Distributors often are viewed as delayed adopt-ers of new technology; they wait until technol-ogy is taken for a test run before committing to the investment.

“Distributors are much more pragmatic than other industries about making these invest-ments; it has to make sense in the fi nancial equation,” says Roman Bukary, head of manu-facturing and distribution industries at NetSuite, a Web-based business software provider.

But newer mobile devices are attractive from a fi nancial standpoint. For example, industrial RF readers for use in the warehouse can run up to $5,000 per gun. “Now your smartphone can become your RF gun,” says Ranga Bodla, director of industry marketing at NetSuite. For $500 or less, you can have more functionality for more people within your company.

Another barrier the distribution industry has had to overcome is technology aversion in its workforce, according to McGirl. “Our biggest competitor isn’t a traditional IT competitor,” he says. “It’s the perception of technology within the sales force itself.”

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on extra work to use new technology, McGirl says. They had to learn how to use and access complicated systems in order to accomplish tasks they could easily do without these tools.

But smartphones and tablets gained traction in personal and home use before taking off in the business world, meaning the comfort level of using the tool itself started at a higher point, says Greg Dehnke, director of business develop-ment for Blue Horseshoe Solutions, a reseller and developer of business software with a focus on warehouse management.

And software and applications developers, such as Sales-i, are designing more programs with the lower-tech user in mind. “We translate complex and sophisticated information into English for the salesperson,” McGirl says. “We want to make it as easy as possible for anyone to use.”

Heading Off Challenges

As easy as it may seem to implement mobile capabilities at your organization, there are some things that you have to consider to make the transition successful, says NetSuite’s Bukary. He offers six areas to focus on:

Infrastructure: Make sure your infrastruc-ture – including servers and Internet bandwidth – is designed to handle the load. “It will need to handle lots of queries all the time,” Bukary says.

A user interface designed for mobile de-vices: The tools and information being accessed needs to be consumable on any mobile device. Users will have little patience for adapting to a clunky presentation.

System availability: “Nothing is going to turn off your employees or your customers faster than getting that little spinning wheel when they try to log in.”

Cohesive presentation: The information needs to be understandable in the way it is presented.

Good business processes: “You need to have good management and executive support to make sure your workers know what they can and cannot do, and what they should and should not do, within the system,” Bukary says.

Security: As with any wireless environment, security has to be a concern. And to make sure it is the most effective, make sure the security system is built in, not just bolted on.

Tools Provide Actionable Intelligence

Business intelligence technology more accessible to all company sizes

This article examines trends in business intelligence and how distributors are using these tools to get smarter about sales, marketing and overall strategy.

By Lindsay Konzak

Distributors have questions, and many are look-ing to business intelligence technology tools to get the answers.

Why are customers unprofi table? How can we work more closely with vendors to reduce costs?

Why was margin off this quarter? Which salesperson is contributing most to Gross Profi t? Least?

Data from the past is helping them gain a better understanding of trends to help improve the future.

“It’s more than just pulling the data out and viewing it,” says Kelly Squizzero, director of product management for Infor Distribution. “It’s being able to take action from that data.”

As with other tools we’ve examined in the

MDM Emerging Technologies Series, business intelligence is growing in popularity in part due to the recession and subsequent economic uncertainty.

“I think it’s accelerated the interest in tools where there is a very quick return on invest-ment,” says Tim Reynolds, president and owner of Tribute Inc., a software provider focused on the fl uid power and hose and accessories sector.

But business intelligence tools still have a ways to go in distribution markets. In a recent MDM survey, about 35 percent of distributor and manufacturer respondents said they had implemented business intelligence software tools. A little less than 20 percent said they had plans to.

But technology providers say interest and demand for these tools is growing quickly. Gartner Inc. reports that business intelligence platform, analytic applications and performance management software revenue was up 13.4 per-cent worldwide in 2010.

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Our customers are defi nitely looking for what I would consider role-based dashboards so that they can see the data in a meaningful view to their role in the organization,” Squizzero says. “All distributors know they have a lot of data. It’s getting access to it.

“That’s what they are looking for tools to help them with.”

Changing Market

Business intelligence at its core is getting ac-cess to data within business systems and using analytics and modeling to drive better deci-sion-making and performance. Due to rapidly improving technology, how companies view business intelligence software is shifting.

“Maybe fi ve or six years ago, business intel-ligence was viewed as a report system,” says Roman Bukary, head of manufacturing and distribution industries at NetSuite, a Web-based business software provider.

“… The analogy that everyone in the busi-ness intelligence world used was it’s like driving at highway speeds and trying to steer your ve-hicle while staring only in the rearview mirror. It’s crazy, and it’s no way to drive a business.”

Technology has advanced to a point where it can quickly generate actionable intelligence based on data that already exists in a system. “Business intelligence today is real-time, it crosses departments, and it allows you to get to the information that really matters,” says Greg Dehnke, director of business development for Blue Horseshoe, a reseller and developer of business software with a focus on warehouse management.

“So many companies have gotten bogged down in Excel, and it’s so cumbersome, it’s not real-time, and it’s error-prone,” he says. “It’s so important to be able to mine that data and to be able to use it, rather than just getting hung up on the fi nancial data. There’s so much more that’s out there.”

Analytics are now presented on an interface that can be used by anyone in the organization; before, an analyst would be required to crunch the numbers.

“Business intelligence was traditionally lim-ited to a set of power-users,” says Ranga Bodla, director of industry marketing at NetSuite. “You really needed to understand the technology, you had to be able to jump on one foot while putting your hand on your head.”

But self-service is more the norm now, he says, which makes business intelligence tools increasingly a part of business processes, rather

than an afterthought.

“That’s a really big change,” he says. ‘Consumerization’ of BI

According to Gartner, the “consumerization” of business intelligence tools is helping with adoption throughout organizations. Consumer expectations of quick and easy access to relevant data – in part thanks to Google – have increased expectations on the business side. Consumers have also come to expect user-friendly applica-tions that are available on multiple platforms, including mobile.

“If you look at how you personally use the Web today, it’s different than how you used it three years ago. Since your personal preferences have changed over time, then how products are being delivered is also changing,” says Bob Conti, president of Sales Apex, a business intel-ligence tool for distributors.

Still, Gartner contends that across indus-tries, fewer than 30 percent of potential users of business intelligence tools use the technology, due to diffi cult-to-use tools, slow response to data requests and content that is only marginally relevant to the task at hand.

These trends are driving software compa-nies to improve upon what’s out there. Large software companies still dominate the overall market, including SAP, Oracle and IBM, but smaller platforms for business intelligence tools have also emerged, providing simpler and more affordable tools that open up business intel-ligence tools to smaller and mid-sized distribu-tors.

An example is Sales Apex, a platform devel-oped with a focus on getting distributors up and running on the system in less than a month.

Sales Apex developers also focused on mak-ing the platform easy to update and access: Data is downloaded from a distributor’s transaction fi les at the end of each month, and the resulting analytics are accessed by distributors over the Web.

In addition to the standard data around sales and gross profi t, the platform integrates cost allocations, so that a distributor can get a more complete view of profi tability by customer, vendor, product line and salesperson.

A Game Changer

WAXIE Sanitary Supply, San Diego, CA, a dis-tributor of sanitary and related supplies in nine western states, adopted the tool earlier this year. For Bob Gattis, general manager of WAXIE’s Arizona operations, it was a “game-changer.”

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“I’m in it daily,” he says, “whether it’s in relation to the things I can do to better wrap my arms around my larger customers and under-stand what’s going on with them, or I’m ad-dressing businesses that are less profi table.”

Gattis says using business intelligence tools such as Sales Apex has helped him have more productive conversations with customers, ven-dors and salespeople.

One of Gattis’ most-used parts of the system is what-if scenarios – a feature many platforms are starting to include. What-if scenarios allow Gattis to model what might happen to the profi t-ability of a particular customer if order size were increased or fewer deliveries made, for example.

A big priority for distributors when using these tools is drilling down more deeply into their customer base. “Any information they can get on the performance of a customer is very important to them,” says Infor’s Squizzero. More and more, distributors are also using these tools to analyze the profi tability and effi ciencies of their suppliers.

Oftentimes, especially at the start, distribu-tors are surprised by what they fi nd.

Conti provided an example on order size. He says that many salespeople say they take small orders from customers to eventually get big orders. But a business intelligence tool can show visually, by customer, how many large orders were from that customer for a set period of time, and test the reality of these claims.

“You can see that 92 percent of the orders were up to $100 and the rest were around $300,” he says as an example. “And that’s why we’re not making money.”

That stimulates discussions with salespeople and customers. “That’s what you’re trying to do here,” Conti says. “You can provide the informa-tion so that people can change their behaviors.”

“When they have the data, it’s hard to argue

with it,” Squizzero says. Paralysis of Analysis?

There’s always a danger when more users have more access to data in a distributor’s system that they may not see the forest for the trees.

Gattis recognizes the risk of “paralysis of analysis” at WAXIE and says he tries to focus on the “big rocks.” “I am concentrating on my larg-est accounts and my larglarg-est unprofi table pieces of business,” he says. “If I make changes on either of those I’ll have the most dramatic effect on my business.”

To do this he limits the data he pulls from his system to small lists – even though he could pull the top 1,000 customers or more, he limits it to 10 to avoid overwhelming his salespeople.

“It’s a fi ne line between having people use the tool as a tool versus people wasting all their time just looking at data,” Conti says. “At the end of the day, I want the salespeople out there selling and just doing it in a much smarter fash-ion.”

In addition to avoiding “paralysis of analy-sis,” distributors also have to train employees to use these tools effectively. Guy Blissett, author of the 2010 Facing the Forces of Change book from the National Association of Wholesaler-Distribu-tors, told MDM last year that employees should have a comfort level with basic statistics and analysis so that they don’t follow the numbers blindly.

“Analytics is very data-driven and increas-ingly enabled by software to get that analy-sis done quickly and at a different level than before,” he says. “ … doing the analysis is one thing – but being able to use that analysis in your business requires some new skills and ca-pabilities on the personnel side and new organi-zational considerations.”

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E-Commerce Evolves for Distributors

More options than ever exist to meet industry-specifi c e-commerce requirements

This is the fi fth and fi nal article in MDM’s Emerging Technologies Series. This article examines trends in e-commerce and how distributors are approaching the challenges associated with implementing an effective e-commerce strategy.

By Jenel Stelton-Holtmeier

Often when e-commerce is mentioned, Amazon. com comes to mind. And while that model is ex-tremely successful in the business-to-consumer market, it’s a stretch for some to see how that model can be applied to business-to-business. “It’s all a question of: What do you mean by ‘e-commerce’?” says Roman Bukary, head of manufacturing and distribution industries at NetSuite, a Web-based business software pro-vider. “If what you mean is Amazon.com, then absolutely it may not be relevant.

“However, if you think of it in the broad sense of doing business on the Internet – the ability to have self-service, schedule service, check an order, etc. – then there is no industry, no segment of the marketplace where e-com-merce is not relevant.”

Distributors are on all different levels when it comes to being online, says Kelly Squizzero, director of product management for Infor Distri-bution. Some simply have company information with some high level product information, while others have developed highly interactive user environments for their customers.

As the general public has become more computer and Internet savvy, so have the customers of distributors. “The web presence is important,” says Gene Nusekabel, worldwide industry lead – wholesale distribution, Smarter Commerce, IBM Software Group.

“A lot of people look to the Web fi rst to fi nd things.”

Increased Demand for These Tools

And as more customers are looking to the Web, the challenge for distributors is to fi nd a way to meet that demand.

“Our separate verticals are looking for different things from e-commerce,” says Scott Clifford, chief information offi cer for electrical distributor Graybar, St. Louis, MO. “Commercial and industrial customers want to transact with us in a way that’s similar to how they’ve done it

on typical consumer sites. ... And a majority of our contractors are still more comfortable with ordering over the phone.”

Graybar set out to provide options for its customers by upgrading its online shopping process and maintaining its traditional ordering process.

Other distributors, such as industrial dis-tributor Zoro Tools, are focusing most of their energy on the online experience. Zoro offers around 250,000 products through its online store, while maintaining a limited physical presence – a model that’s been successful for the start-up, allowing it to effectively compete with larger, more established distributors across mar-kets. (Zoro was recently featured in an MDM Webcast).

“Zoro is trying to take a more traditional catalog-style business and turn it on its head,” says Ranga Bodla, director of industry market-ing at NetSuite. NetSuite is one of platform providers for Zoro.

But Graybar and Zoro remain the exception for distribution. According to a recent survey by Real Results Marketing and MDM, 40 percent of distributors have no revenue from e-commerce. And almost 10 percent have no plans to ever enable an e-commerce platform. (See more detail on that survey on page 6 of this issue.)

Distributors who don’t have e-commerce-enabled websites are probably losing out on a competitive advantage, says Squizzero. “You’ve got to have an interactive transactional website.”

“Distributors face a number of challenges that are unique to this market segment,” says Kevin Cooper, director of sales and marketing for Insite Software, a provider of B2B and B2C e-commerce platforms.

Distributors often have complex pricing or several distribution centers from which to fi ll orders.

This structure contributes to distributor hesitation to implement e-commerce. “They just aren’t sure that e-commerce can accommo-date that structure,” Cooper says. “But they’re wrong.”

Implementation Challenges

“In the past, it was very diffi cult to refl ect the complexities, the personalization of the experi-ence to each customer,” says Brian Strojny, CEO

(12)

of Insite Software.

But the number of software companies offering e-commerce solutions in the business-to-business space has grown signifi cantly over the past several years, and at the same time the options available to distributors have expanded. It’s no longer just an adaptation of what’s avail-able to business-to-consumer customers, Strojny says.

Platforms now can be designed as portals that are fully integrated with existing ERP sys-tems, where customers can log in and get their specifi c pricing and product categories - includ-ing common confi gurations or kits - without having to search through an entire catalog. Software providers also offer features that allow distributors to service customers the way they need to. One example: letting a distributor’s customers track spend with that distributor with an integrated online budget/approval process.

The key is fi nding a balance that works for your company, Strojny says. “I’ve often seen organizations leaning too far one way or an-other on a solution,” he says. They may select a solution that looks cool and has a lot of great merchandising, marketing and recommendation tools, but can’t handle the business logic of their pricing. Or they’ve chosen a platform that was provided by their ERP company so can handle the logic, but has no options for branding or personalization.

“And there also are still a lot of people out there who believe they have to build the entire thing on their own,” he says. “They’re trying to be software companies when they really need to focus on their business and what they do best.”

Even if you’re not interested right now in selling online, related e-commerce functions can be benefi cial for distributors looking to provide better accessibility to product information.

BuildSite.com provides distributors with a “sales support system” through its online product and technical specifi cations database. “No one can keep track of all that information in their heads anymore,” says Ned Trainor, president and CEO. Though customers cannot purchase online, the information available improves the transaction experience, Trainor says.

Moving Forward

When you do settle on a path, success starts with education, says Infor’s Squizzero. The distributor has to understand the underlying process and how to manage it.

That’s the current challenge for Graybar. The electrical distributor recently expanded its e-commerce capabilities. “For the long run, we are far more focused on delivering solutions for the customer,” says Clifford of Graybar. “But in the short-term, we’re learning the intricacies of the technologies fi rst, so we can best utilize them for our customers.”

Understanding what you want to deliver to your customers is a critical component of selecting the appropriate platform, says IBM’s Nusekabel. Are you trying to improve your sales process? Or are you trying to improve sales performance? Be clear in your goals up front so that everyone is on the same page to achieve those goals.

Then there’s the question of control. Who’s responsible for getting things up and running? Who can make changes to the system? And when are you ready to actually go live with the e-commerce options? “There’s a challenge in being able to rapidly get through the test cycle,” Graybar’s Clifford says. “And to do that, we have to remove the expectation that everything will work perfectly all the time. Sometimes ‘good enough’ is acceptable to move forward.”

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