State of the Distribution Software Industry, Part 4: The Next Steps for Distributors

This is part of a series looking at the distribution software industry. This article examines challenges and what distributors should expect in the next five years.
 
In the year or so leading up to Y2K, many distributors upgraded their computer systems to protect their businesses from what was supposed to be a widespread system breakdown when the clock struck midnight on Jan. 1, 2000. The scare fueled massive technology investment in businesses worldwide.
 
And now, thanks to technological improvements making viable solutions more affordable and scalable to distributors of all sizes, many are looking to invest again or transition from their legacy systems to an off-the-shelf solution or a modernized interface.
 
In a recent MDM survey, about 24 percent of respondents said they plan to make a technology investment in the next year, and another 24 percent are currently researching options to upgrade or buy new technology. Distributors say they face many challenges, including finding the right fit for their company, agreeing on a price tag that fits their budgets, and ensuring support and training from the software provider post-purchase. Keeping up with the rapid changes in technology can also be difficult, especially for smaller distributors.
 
Forces of Change
Consolidation of software providers has both constrained and opened options for distributors looking to upgrade or invest in technology. The Internet continues to change the way technology providers and distributors look at their businesses. A generational shift will force many distribution companies to keep pace with technological advancements, lest they miss out on the best and brightest in a young work force.
 
In addition to these factors, the twists and turns in the economy may put a crimp on technology investment on a larger scale -though some providers say that distributors are showing increased interest in software that helps them better manage their costs.
 
Mike Briglia, vice president for wholesale distribution/consumer packaged goods at IBM Corp, says current economic conditions haven't necessarily slowed investment, at least from IBM's point of view: The larger and more capitalized companies are doing all they can to protect their capital plans and are continuing to move forward with significant technology investments despite the current trends. We're not seeing any company tap on the brake with major initiatives."
 
Keeping Up
Luke Bucklin, president of Sierra Bravo Corp., says that technology is growing at such an accelerated rate that distributors and software providers to the industry face challenges in staying up-to-date. He gives online videos as an example. "Everyone knows how easy it is to upload a video so everybody can see it,"he says.
 
The challenge comes when a 22-year-old in the position of product manager asks why he can't make a video of how a product will work and upload that video to the distributor's Web site, where people can then buy the product. "The availability and ease of use will put pressure on software vendors to keep up with the generation that is populating the work force,"Bucklin says.
 
Distributors are also challenged to meet the needs of their customers, whose work force is also seeing a generational shift. The move from faxing an order to emailing an order is one example of such a shift that has already happened. "Two to three years from now, how will customers want to interface -with instant messaging, their cell phones, Twitter? People will be attracted to this new technology,"Bucklin says. "The distributor's problem is not new. It has always been keeping up with technology and making sure you are doing business the way your customer wants to. It just keeps getting worse faster."
 
But deciding when to bring in new technology can be tricky, says Don Waltzer, president of distributor

H&C Tool Supply and Hewes Fastener Division, Rochester, NY. "It's always the challenge with technology to determine how quickly you wanted to jump on the boat,"he says. "If you jump on too quickly you might end up going down the wrong road. If you wait too long you run the risk of losing the advantage of technology."
 
Choosing a vendor committed to the distribution industry provides long-term benefits in keeping up. "Over the long-term your system will evolve on a more consistent and steady rate with the technology,"Bucklin says. "There will always be something new in technology that is not supported, but in a year the vendor will incorporate the solution."
 
Reaching Out
Smaller distributors are generally looking to simplify their IT needs, even though those needs are similar to those of larger distributors.
 
The challenge for small or mid-size distribution companies is that many are under-invested in technology and in infrastructure, says Ross Elliott, chief technology officer for supply chain execution software provider Accellos.
 
The operating environments in IT today are lower in price -a good thing -but also require a special-purpose server for each component, complicating the management of these assets. "I have a Web server, I have a mail server, I have a database server and an applications server,"Elliott explains. "If you assume the IT infrastructure is small anyway, you've taken what they had to do before -manage one large server that took care of everything -and now they have eight or 10 or 12 that have to intercommunicate and so on. The job has not become easier; it's become harder."
 
Software companies need to find a way to make that simpler for smaller companies, Elliott says. "From a standpoint of not forcing your under-teched distribution company to log into five or 10 different systems, we in the software industry have to think about bringing all of this together in a composite framework so they can see data from me on the same page they can see data from Infor or Activant, or other providers."
 
Elliott sees an opportunity for the larger ERP providers to address the smaller end of the market. SAP has made a concerted effort recently to sell to small and mid-sized distributors.
 
SAP concedes that it has not been easy to change distributors'perceptions. "One of the challenges SAP faces and is starting to overcome, is that SAP is not just for the big companies,"says Karen Lynch, SAP's vice president of global wholesale distribution.
 
Making the Change
Chris Jones, executive vice president of solutions and services at Descartes, a provider focused on transportation logistics, expects that over the next five years there will be more commoditization of software, with lower prices, more package capabilities and more reaching out to small and mid-sized companies, where the market is ripe.
 
"There are thousands of people out there that do things like route their trucks on a piece of paper or in the driver's head,"he says. "It's self-evident that they may need to use something different. But they're not going to drop six figures for a system. So you'd better have a low-cost way of getting to these people."
 
Bucklin says that any distributor making a change or adding onto their current technology should set realistic expectations. "The users will get frustrated,"he says. "There are always horror stories because the expectation was set that the new system was going to be immediately better."But he says distributors should expect a shift will not be immediately better, but instead immediately worse. Processes are often redefined, and some new processes may be less efficient even if they yield benefits not seen before.
 
Waltzer has gone through systems changes at his previous work places. He says senior managers must be careful about forcing the new system into place.

"Don't make the mistake of bringing on a flawed offering,"he says.
 
In addition, he says distributors should budget 50 percent more than they think they need. And understand where the Return on Investment will come from with the new system. For example, if you can accommodate customers with certain needs in half the time, you still may not eke out any more productivity from the person who was serving them, he says.
 
Moving Forward
Software evaluation has grown more qualitative because software packages have reached a level of maturity with common capabilities. In many cases, this has made it more difficult for distributors to choose which path to take.
 
Steve Epner, founder of BSW Consulting Group LLC, suggests that to start, distributors should identify the critical things they do that make them better and different from their competitors.
 
Rod Winger, director of product marketing for Epicor, says that each distributor's situation is different when it comes to making a decision on technology. "The advice I would give is to ask them: Where are you headed? Where are you today? What is your strategy? Are you in a growth mode? Are you competitive from a pricing point of view? These are the types of things that will dictate what you need from technology. It is very situational."