Technology @ a Crossroads? Motherships and etc.

Back in July, we seemed to have hit a nerve with some distributors and manufacturers about some former Mothership ERP's that are now drifting out of orbit.

As we read emails and listened to phone calls, it became apparent that some distributors had followed a similar path when purchasing their latest ERP system.

• They did a quick survey to make sure they covered their Cardex system functions.
• They talked to their industry buddies to make sure the new system would work (if it is good enough for them it is good enough for us review process!)
• Some listened to tales of poor or waning support; Many did not pay attention.
• Site visits became the norm and many realized that they would never achieve the level efficiency of what they saw. But they wanted it.
• Not happy with their current system's support, many jumped to a system that everyone told them worked. But soon discovered that the support was as bad or worse than what they had left behind in their old system.
• The installation of new systems disrupted their business to the point that they cut short training and data conversion.
• Very few looked at ERP systems that ran on open databases, that would carry them into new technologies. To think that through was beyond their immediate goals. They just wanted a system that ran, regardless that it was 25+ year old technology and not very pretty on the screen.

"ERP systems that worked" But does it later on?

In the rush to install the "new" ERP system most overlooked two crucial items:

1. Complete training and turning on the complete system (like wireless warehouse/bar coding and EDI) These are not all the systems that didn't get turned on.
2. Correcting and cleaning their product data (this is like putting sugar, sand and sawdust into your car's gas tank.) Many just moved the dirty data forward and hoped for the best.

As time went, by distributors began to see the need to control variable costs and they looked at a number of other add-on modules. Many looked at various wireless warehouse solutions, only to find that their product data was so poor that they couldn't implement the process. The extent of the problem is best described in a recent article " Data Drives the Wireless Warehouse" by Beth Badrakan. If you wanted to bar code your data you had to meet certain standards. Many retreated from the project because of cost.

A side note about the data issue and closed ERP systems is that generally it forces you to go back to the original ERP provider, that now may be drifting off into space and no longer the Mothership that everyone thought it was. Even then, some were not successful because of the cost to add-on wireless warehouse.

So some distributors turned their attention to managing margin and cleaning up their data as it was updated by using epaCube. This let the distributor work at their own pace as data flowed in. The payback was over a longer period of time. Still others looked at ways to get at product usage data reports, which many assumed came with the ERP system. Not many mastered the use of the report writer and none had access to the source code. The key to getting access to the data lay in being able to convert the database files using a product like Kore Technologies offers. This allows the distributor to convert files to software products that they most are familiar with.

Game Changer Technology

Just around the corner is technology that will allow "Tablet computers" that are not Apple ,to deliver HD functionality and connectivity using free WiFi or a data plan:

• Log on to a distributor's site or system/send a RFQ or order
• Click on a distributor/manufacturer catalog (PDF), populate an order and send it you the distributor.
• Receive delivery notices
• See signature capture.
• See training videos in HD....etc
• All of this could be done with a distributor's salesperson being in attendance.

Manufacturers, ERP providers and distributors will probably want tablet delivery systems. Distributors for quote/order capability. ERP's will be forced to offer connectivity. Manufacturers will want to deliver training and product videos in the field.

What's a distributor to do with their partially functioning ERP system as they look out across their competitive landscape with changing technology that becomes a game changer?

• How do you hook up to tablet-like technology? Good data is required (and it is a separate discussion of how a distributor can get there ... what is the definition of "good" and who has the scale to deliver it?) What Mothership ERP package will offer that connectivity and open the way for future productivity?
• Is it time to get serious about driving variable cost out of your business? That means letting computers do the work....good data drives three way matching, collecting SPA Rebates, bar coding, accurate price matrix etc
• Good data, along with an accurate pricing matrix, can drive more profit to the bottom line.
• Or, do you start seeking a buyer for your business?
• Or do you seek to open up your ERP system's data in preparation to starting a new ERP search?

What do you think? Share your thoughts with us.

Is Your ERP system a Mother-ship or a Satellite?

Most distributors of any size invested in a distribution-specific ERP system that handles the specific nuances of the wholesale distribution business, save a few goliaths. The goliaths invested in SAP or an Oracle based system. But there are not that many goliaths.

ERP Software Consolidations

If you noticed, there have been quite a few software consolidations that have taken place over the years, and for good reason. The first few were because the distribution industry consolidated for the most part, yielding fewer 'check writers'. Then the industry took a swan dive with the recession, hit bottom and didn't rise very much from there. Capital investment wasn't the number one thing on distributor's minds, so more consolidation among business systems could be expected.

That's exactly what happened. Epicor recently bought Activant, which had previously acquired Eclipse, Prophet 21, Array (TSS), Prelude and Speedware. Activant also has Vista Information Services (which distributors and manufacturers use) and is the platform / partner for IDEA. And Infor just completed purchasing Lawson. And these are just a couple of examples.

So, now what? What happens when an ERP company buys others? Well they want a return on their investment, of course. The way to get that return is to minimize the investment in multiple platforms necessary to keep the profitable part of the customer base. They have issues, though. Distributors tend to hang on to their older systems and don't migrate as quickly as the acquirers would like.

The acquirers do like any stock portfolio manager would do. They look at products like stock and calculate the return they can get. Then they pick the winners and invest in those. And they look for products that cover multiple industries, unless an industry is very large and lucrative. The other products are slowly taken off life support. Sometimes not so slowly, like when we're still in a very slow capital investment environment and they can't rely on new installation income as much to hide the poor performers.

ERP for GROWTH or cash flow?

Having kicked the tires on a few business systems, there are some favorite criteria for choosing ERP systems in different situations. But the probable fate of your system in the ERP maker's portfolio of platforms has risen to number one on the list. And it should rise to number one in your criteria as in this "new" economy.

Here's a baker's dozen of other difference makers you might consider....

1. What comes with the base package? How do they charge for it? How do they install and train your people?
2. What are the add-on modules and what do they cost? What type of pay back do you get?
3. How well do they execute EDI transactions-orders, invoices, automatic shhp notifications, SPA price notifications, SPA claims and credits????
4. How complete and easy is it to use their product data warehouse or file?
5. How complete and easy is it to use their warehouse management/wireless bar code reading equipment?
6. How complete and easy is it to export data to Excel and PDF documents?
7. How easy is it to link your product database to a web store front?
8. How accessible is the DATABASE? Is it proprietary or an open access database like SQL or Oracle?
9. How easy is it for order entry to look up non-stock items in a complete product database outside of the production file?
10. How easy is it to execute matrix pricing? Or load a price matrix you prepare off line?
11. How good is the forecasting and purchasing capability in generating automatic replenishment orders? Can it handle multiple logistics setups, like CDC, hub and spoke, or multiple instances of these?
12. How easy does it execute 3-way matching of orders, thus streamline accounts payable work?
13. What new capabilities are they investing in with this specific system? Like mobile apps. or margin control.

Of course, there are more that can be added to the list. But do you have the above considerations on your list?

ERP Lifespan

Most of all...you really need to determine what the lifespan of your current ERP system is. Will it be supported? If so, how long? How fast will you be able to get support? ("All support technicians are busy, your approximate holding time will be 45 minutes...give or take an hour"). Will they invest in it? What is their deal to migrate you to the "Mothership" package?

This is business,folks. When you have branches that don't deliver or people that don't deliver, you look to serve the customers some other way than through the branch or person that's not making it.

ERP product lines aren't all that different. Whatever is not delivering to the bottom line has to be consolidated or cost reduced. Plus if you slowly draw down the resources devoted to a package (i.e. additional programming investments and installed base support), maybe the buffalo herd won't notice as much and will stick around so you can migrate them over time to your Mothership.

The moral of the story? Get on a Mothership. Start compiling your criteria now if you're not already on one.

And here's another tip. Find out what percentage of the parent company's sales your package is. And if you can get it, the percentage of the total INCOME (revenue) for the company, then you will know where you stand. Is it the Mothership or a small satellite?

Distributor needs change

Tell us how you look at your current ERP system. Does it meet your current and future needs?

2011 NAED Leadership Summit (aka National) Observations

The following post was originally posted on Wednesday, May 11. It is being reposted as Google / Blogger had technical issues on Thursday and "lost" the posting.

Last week I attended the NAED Leadership Summit in San Diego (yes, a long way to go for 2 days, but if need to be where the customers are!) and wanted to share a number of observations.
 Overall the feeling from many was "a good meeting", although this posting will be sent to, and read, by more people than attended the conference. According to the registration list, there were 80 unique distribution companies in attendance (84 if you included divisions of Rexel).  The distributor list seemed to have larger companies that are more industrially-focused, hence skewing marketplace feedback.  There were some manufuacturers and distributors that were on the list but never seen ... too busy in their suites having meetings.
 Some thoughts, observations and comments that we heard:

• A number of people commented on the distance (although San Diego had great weather) and the fact that the meeting was only two days.  The two days was an issue as most manufacturers and distributors were booked, having little time to meet with smaller manufacturers / distributors and no time for hallway meetings and networking. In fact, the second general session, which had a good speaker and an economic outlook panel, was poorly attended.
• Some asked about the branding of the meeting and felt that the name may make smaller distributors feel disenfranchised. Additionally, someone commented, regarding the brand, "where are the leadership type seminars to help senior management?"
• Showing the usage of technology, many were texting to confirming meeting times and places. The technological revolution has now hit the electrical industry!
• Heard from many distributors of manufacturers expanding into new product categories that are not their core and where they have no expertise - just looking to sell something or get on the latest craze.  This creates conflict for distributors.
• John Burke from Kirby Risk presented their supplier evaluation report at the Manufacturer Advisory Council Forum. Very comprehensive and professional. Terri Dumas from Rab presented their thorough approach for business development with a distributor.
• Social media was top of mind with a keynote presenter discussing it and a session at the Manufacturer Council (which was open to distributors). This social phenomena is having implications for manufacturers and distributors in how they interact with prospects, customers and employees. The opportunity is there, however, the speakers didn't share approaches or ideas on 1) how to develop an e-strategy, 2) setting goals for a social marketing initiative or 3) ideas for distributors / manufacturers to consider (afterall, everyone has heard of Facebook, YouTube, LinkedIn, a blog, Twitter, and Flickr).
• Overall business reports were encouraging with industrially-oriented distributors up 15-20% (and most have some type of energy initiative).  Did hear of some construction-oriented distributors doing "decent" but they were in larger cities and had been recipients of larger projects.  The resi / light commercial market is "nominal" - at best.
• On the lighting side, from speaking with a couple of fixture manufacturers, "LED, LED, LED" - and the product keeps changing requiring continuous education on the part of reps and distributor salespeople to stay even with customers.
• ElectricSmarts and IDEA announced a "strategic partnership" in conjunction with ElectricSmarts' launch of its new catalog system on Saturday night. Unfortunately didn't hear much about it during cocktail parties / at meetings. Here's an interesting snippet from their press release "Through the strategic partnership, ElectricSmarts Network will provide manufacturer-authorized IDW data to end-users, and IDEA will offer ElectricSmarts’ SMART eCat web-based e-catalog to distributors for use on their websites." The reality is that eCat will probably be syndicated to any distributor that wants it (not just IDEA members). It's interesting that ElectricSmarts is looking to get IDW attributed data to use in its NetPricer product to reach contractors. Does this mean that IDEA has its eyes on the contractor market and is planning to compete with Trade Service's TraSer SX (or let ElectricSmarts do it?) Also interesting that manufacturer content is being syndicated to a non-distributor.  Wonder if manufacturers approve of this?
• IDEA announced a service that they are soliciting feedback on called B2B Partnership Rating Program (PRP) which is essentially a scorecard of a manufacturer's data. They are seeking input and plan to release to the industry in Q3 2012! Sounds like a concept seeking approval. Interestingly, it was placed on general session attendee seats but there was no reference to it during the session ... did it surprise NAED or not receive support?

That was the highlights that we heard (other than we had a number of very effective meetings). If you attended, what else did you hear or find interesting? If you didn't attend, why and what would entice you to attend?

Infor Acquires Lawson Software

Over the past few months rumors have circulated that Infor was looking for the best fit software company to acquire to complement its business. Infor has over 75,000 customers in a number of verticals ranging from distribution to healthcare, automotive to manufacturing. Finally comes word of an agreement for Lawson to be acquired by Golden Gate Capital (GGC Software Holdings, Inc.) and Infor for a deal valued at $2 billion. Click here to read the press release.

The fit for Infor and Lawson is that they both have worldwide user bases that generate huge cash flow streams. Lawson bring to the new partnership a CLOUD offering for internal and external applications. The External offering enables companies to test the Cloud concept before considering a more extensive offering such as Amazon EC2. The Internal Cloud offering offers the business user the opportunity to consolidate their IT infrastructure, while reducing their costs and reallocating IT staff to more strategic activities. To read more about this offering click here.

Within a very short space of time, the electrical industry has witnessed a couple of high profile companies be either rolled up (Activant being purchased and emerging as Epicor) or making an acquisition (Infor along with a Venture Capital company acquiring Lason).

The question becomes, what does this mean to electrical distributors? Will these companies continue to focus and allocate resources to improving their systems? Will customer support be strengthened? Will new products be offered and the systems be more robust? Or will the companies be more financially driven to enable returns to their shareholders?

While we wish each company the very best, what do you think the affect will be if you own an Activant product (P-21, Trade Service Systems Array, Eclipse or Eagle) or an Epicor product or a Lawson product or an Infor SXE or SXA+?

And how does a Cloud offering affect your approach to your ERP needs? Do you foresee yourself considering a Cloud offering in the next 3-5 years?