Sunday, August 7, 2016

Technology for the Knowledge-based Distributor

Online order entry seems to be the next big thing in distribution.  Reading the distributor trade press, we are deafened with calls urging distributors to invest in the technology.  For some, the idea makes sense.  But before whipping out the wallet, let’s put some thought into the subject. 

All of these experts trot out Amazon, W.W. Grainer and a handful of online retailers as the poster children of how online order entry has changed our world.  No doubt about it, these
folks are growing their business at the expense of brick and mortar based organizations.  True confessions here, I am a dedicated Amazon shopper; buying everything from books to dog treats.  That being said, we aren’t talking apples to apples here.

I believe most solutions oriented distributors cannot afford to make a play in the “internet store” business.  Here’s how I came to this conclusion:

·         Most solution providing distributors operate within a prescribed territory (often referred to as an Area of Prime Responsibility or APR by their supply partners.)  Pricing and other support is not extended to customers outside of this APR.  While Google provides search engine tools capable of attracting only local business, the cost and effort is higher than most distributors care to pay.

·         The big guys are investing massively in the technology.  There have been reports of Grainger spending over $300 million on the technology; Amazon has probably spent even more.  There is no way the typical, small distributor can spend that kind of money. 

·         Distributors who fall closer to our model have made large investments and report sales produced still represent less than five percent of their business. 

Complicating matters, many distributors have wrongly assumed once they invested in an internet store, the investment was over.  Keeping the store updated, working properly and viable requires an ongoing investment which provides little return to their organization.  For solution-based distributors the investment made in this technology is a poor choice because the outlay has no return for the conceivable future and moneys invested distract from investing in their real competitive strength in the market – better solutions for customers. 

Pushing our thoughts further, let’s think the concept of the online store from a couple of angles.

First, let’s consider some distributor comments related to the subject.  A few manufacturers have created portals designed to make the distributor connection to their manufacturing plants more efficient.  Wholesalers using these portals are thrilled by the ability to check stock, follow-up on shipments, order literature and track programs.  They don’t seem all that thrilled about entering orders; line item by line item into the system.  Instead, they complain about the duplication of efforts and time wasted.

The driving issue is the manual transfer of data from their own business system to the manufacturer’s business system.  Thinking about the order, the distributor must create the order on their internal system then turn around and repeat the process; two sets of key strokes, twice the order time invested.  In many cases, the orders for “reoccurring” stock products, which have been purchased in the past, are generated automatically to save admin time.  The newfangled portal created as a time saver is actually a burden.

Let’s shift gears and consider customer transactions, where the situation is similar.  They have invested in company-wide ERP systems which track the parts coming into their organization.  In the case of repairs and orders for parts already in their system, moving to an online store only creates the same duplication of effort that distributors find so disturbing.  If the order involves a solution-driven product, they most likely need the kind of support which cannot be delivered via an Amazon-esque system.  So any investment in the technology does little to move the distributor forward.

Technology still provides advantage…
If this article appears to be a technology downer, it’s not.  I do believe distributors need to make use of emerging technology, just not the type described.  There is a technology worth exploring; technology with a payback for the distributor. 

What would happen if customer orders were automatically entered into the distributor’s business system thus eliminating a great deal of the manual transfer of data from customer purchase orders to the distributor’s business system?  Such technology exists today. 

For the past couple of decades distributors and others have experimented with Optical Character Recognition (OCR) software.  At River Heights Consulting, we gave it a try seven or eight years ago.   We purchased a special scanner designed to enter business cards into our system in order to streamline the entry of information collected at various trade shows and meetings.  The problem was, it didn’t work all that well.  As I’m sure you’ve also noticed, every company uses
Not so easy to scan
different layouts and fonts and provides different types of information.  Each card required human interface and some analysis, ultimately wasting more time.  We abandoned the system.  Others have experimented with the technology for order entry and discovered the same issues.

A high-tech company based in Vancouver, BC has harnessed the power of cloud computing and the internet to develop a product called Conexiom.  Using a patented algorithm, the Conexiom system allows incoming customer purchase orders to be pushed to the cloud for processing, then automatically fed back into the distributor’s business system.  Manual entry of routine orders is eliminated, thus freeing distributor personnel for more valuable tasks – like assisting with the solution driven stuff.

For a system to work, it has to be right something like 99 percent of the time.  Unlike the issues described with OCR data transfer, the Conexiom product delivers accuracy approaching 100 percent.  Sound too good to be true?  Prior to writing this post, I checked out the experience of a number of distributors already using the system.  It’s real.  It works.

The implications of the technology…
Experience dictates, some of the best technical resources in the distribution world spend an inordinate amount of their time entering orders.  It’s almost painful to watch them go through their unique “hunt and peck” typing sessions.  Sometimes, important customer calls go to voicemail while this typing takes place.  In very progressive distributors (who are large enough to handle the extra people,) orders arriving via email or fax are forwarded to a customer service person who is a better typist, but even they sometimes struggle with long catalog strings.  The Conexiom technology negates the need for this typing with routine orders.

The technology is cloud-based and scalable making the investment for a small distributor reasonable.  Unlike many processes where “the computer eliminates labor in one department but any savings is offset by new computer resources,” there is no need for new hardware or extra IT manpower.  (Again, this is based on the cloud and internet based technology.)

Unless it makes distributors money, why do it?
We have worked out the model for a couple of distributors using their real costs of people and the payback is strong - possibly one of the best investments in distribution.  This is one of the emerging technologies which will level the playing field and give solution-based distributors a competitive advantage. 

If you would like to talk about this or any other emerging technologies, drop me a line or give me a call.  This bit of information came to me by way of a reader, who actually wanted us to share with the public.  Based on all that we have discovered, it’s not going to be a secret for long.  

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