State of the Distribution Software Industry, Part 3: The Growing Role of the Internet

This is part of a series looking at the distribution software industry. This article examines the role the Internet is playing in driving change in the way distributors do business.

 

In the last decade, the Internet has been one of the key drivers of technology development.
 
The Internet is the backbone today for anybody that's in distribution, anybody in the supply chain and supply chain execution,"Rod Winger, Epicor's director of product marketing. "You could not do what we do today without the Internet."
 
e-Commerce
The emphasis on having information available anytime from anywhere has been a driving force behind many companies'moving into the realm of e-commerce, doing business with suppliers and customers online.
 
"Doing business over the Web as part of a multichannel strategy is absolutely critical,"says Mike Briglia, vice president for wholesale distribution/consumer packaged goods at IBM Corp.  "Customers will be at the point if they're not there already where they will demand it and consider it a minimum requirement to do business with them, especially for routine inquiries such as product catalogs, order status and pricing."
 
Chief Technology Officer Ross Elliott of supply chain execution software provider Accellos agrees. "For society in general, the Internet has created a 'now'mentality,"he says. "I want what I want -and I want it now. And if you don't have it, somebody else's Web site will."
 
Activant has seen an increased interest in its e-commerce platform offerings, says Vice President and General Manager Russ Mellott. For smaller distributors, e-commerce is more about providing an order platform for their customers. On the mid-sized and larger end of the spectrum, distributors see e-commerce as a customer service and CRM tool in addition to an ordering platform, Mellott says.
 
Creating an effective e-commerce site can be a challenge, especially on the smaller end of the market. "Every article I see says you've got to have an e-commerce site that's easy and customer friendly,"says Charles Gray, owner of Machinery &Factory Industrial Supply, a $15 million distributor in Racine, WI. "We just haven't found one that's affordable for a company our size."
 
And having an e-commerce site does not automatically equal success. H&C Tool Supply and Hewes Fastener Division, a distributor in Rochester, NY, introduced online order placement around 2000. "It may have been ahead of its time or maybe we didn't sell it appropriately, but we found that it didn't catch on with our customer base,"President Don Waltzer says.
 
For many distributors, the problem is that many products require a level of expertise and service that cannot be provided on a Web site, according to Steve Epner, founder of BSW Consulting Group, which advises distributors in technology decisions.
 
Waltzer agrees. "Primarily, we sell expertise having to do with a product. That's being delivered through a face-to-face meeting with a salesperson,"he says. "E-commerce tends to be an alternative that delegates a lot of the effort onto the customer."
 
Companies considering e-commerce generally want to improve efficiencies and decrease customer representative time, said Gary Rippen, Infor's director of distribution industry marketing. "But I have yet to hear a distributor say that's going to replace their sales reps."
 
The Web can be successful with products that are considered commodities -products that differ little from supplier to supplier. And even with highly engineered products, e-commerce can play a vital role in replenishment and future fulfillment. Once they have identified a product that fits their needs, customers can go online and reorder.
 
"There is a new generation of users that are significantly more comfortable doing it that way," Epner says.

The key is finding the proper balance between face-to-face service and online convenience.
 
E-commerce may also allow distributors to become direct-to-consumer sellers for certain items, says Scott Pugmire, senior vertical industry manager for Sage Software. Small ticket items or overstocks could be sold on the Internet either through a distributor's own site or through eBay stores or Amazon.
 
Other Roles
Though the focus of e-commerce is often placed on catalog accessibility and electronic ordering, the range of options with e-commerce is immense. Anytime a transaction involves the Web -from email quotes to selection of delivery options -that is considered e-commerce.
 
In fact, some specialized functions within e-commerce may be more readily available to smaller distributors that aren't ready or able to move to a fully functional and automated e-commerce site. BillTrust works with distributors and their customers to transition to electronic billing. "Not only is e-billing more green, but it can also save the distributor lots of money. A typical distributor can save 75 percent on sending a bill electronically versus sending it by paper,"says Mitchell Rose, vice president of marketing.
 
By using BillTrust's electronic invoice presentment and payment (EIPP) system, contractors can view bills and payment history, or make payments. And distributors can decide which payments to make available to their customers. With credit card fees eating into profit margins, that option is important, Rose says.

Web portals can also allow better management of inventory, particularly for vendors who utilize delivery fleets, says Chris Jones, Descartes' executive vice president for solutions and services. "Mobile technology allows the warehouse to be able to track what's on each truck and better determine amounts when restocking,"Jones said. "And, that's all possible because of the Internet."
 
Facilitating Globalization
In many ways, the Internet has helped make the farthest reaches of the earth accessible to businesses both large and small. The Web has transformed business into an anywhere-at-anytime institution. "Our customers want to be able to sell anywhere in the world. They want to be able to source from anywhere in the world,"says Zach Nelson, president of NetSuite, a Software-as-a-Service ERP provider. "That's the promise of the Web."
 
But while technological advances may provide new opportunities in a global economy, doing business in a multinational environment creates its own set of challenges that software companies must understand to help their clients compete. Those in the industry say that software packages should include ways to translate information between different languages, be capable of multiple currency transactions and be adaptable to local regulations and customs to allow businesses to do business.
 
Sometimes the most effective way to meet those challenges is by utilizing niche software to adapt existing business operations to new needs. As part of its logistics offerings, Descartes can manage cross-border customs filings, something Descartes'Jones says is an aspect of multinational business that some companies may not think about enough.
 
Many bigger players are adapting their full-package ERP offerings to assist with the transition to international business operations. "One of the major reasons we acquired iScala (in 2004) was to roll out the global infrastructure it had into our other product lines,"Epicor's Winger says. For example, the iScala platform includes capabilities for more than 40 languages.
 
SAP, which focuses more on organic growth, took many of its cues from businesses in Europe for how to adapt their offerings. "In the U.S., you don't really have to worry about the laws in Illinois being significantly different than the laws in Indiana. But in Europe, you do have

to worry about the laws in Germany versus the laws in France,"says Karen Lynch, SAP's vice president of global wholesale distribution.
 
As such, adoption rates of new technology and willingness to look to the Web for conducting business is higher in Europe than in North America. But, that will have to change if North American companies want to succeed in the global marketplace, Nelson says.
 
NetSuite recently rolled out its OneWorld product. "Functionality like OneWorld's going to be very important to distributors to be able to manage their subsidiaries as distinct units, but then, to consolidate the finances and the sales across those subsidiaries,"Nelson says. The product is designed to manage, from one Web-based account, companies with multiple subsidiaries, business units and legal entities. Local users see the application in their own language and can make and track transactions in the local currency. "It's really made for the Internet age,"Nelson says.
 
Improved Communication
Before the Web, doing business electronically was cumbersome. Manual data entry happened at many levels, and internal order approval could take days. The introduction of Electronic Data Interchange as an intermediary helped facilitate some of this.
 
"The old technology underlying EDI is so obsolete, it's laughable,"says Tim Reynolds, president of Tribute Inc., a niche software provider to fluid power and hose distributors. He forecasts better efficiency will be developed in the near future. "I think overall data communication between supplier, distributor and customer is likely to be much more in real time."
 
With the introduction of e-mail, communication in the supply chain has already improved. In the past five years, e-mail has rapidly become the standard way of exchanging information that before had to be called in, faxed or hand-delivered.
 
"I've asked distributors at different demonstrations how many sent orders, received confirmations or received sales inquiries over e-mail five years ago,"says Matt Hartman, president and CEO of MRH Technologies. "The answer then was about 5 percent to 10 percent. Today, it's a very high percentage."
 
An intermediary is no longer necessary for many companies. In the future, people may still refer to EDI, but what they will be describing is something completely different than what it has been, Reynolds says. Additionally, mobile technologies -such as smart phones and wireless Internet -are facilitating data transfer in real-time. "Tracking, mobile, wireless -we're seeing all those pieces come together in a single integrated solution,"says Jones, of Descartes. "And what's driving it is the cost of mobile technology and data plans are coming down dramatically."
 
There are a variety of options that companies can consider -and likely will consider -for how to improve data exchanges, Reynolds says. "But, we all now are on a technical foundation to allow us to meet those needs over the next five years."
 
Internet and Growth
Many distributors are rethinking their e-commerce strategies, according to IBM's Briglia. "They all have their eyes on a bigger prize, once the basics are done well,"he says. "They will be pretty aggressive evolving these strategies toward higher level services and more collaborative commerce both with their customers and their manufacturer suppliers."
 
This is where business intelligence initiatives can play a role, he says. Distributors can leverage order information to drive real-time promotions online. "It's a huge opportunity for wholesale distributors to create some real value in this space, as well as to redefine their value proposition with customers and manufacturers."
 
Distributors face the constant challenge of using technology smartly in their growth plans. "For technology providers, the rate of change is so high and so fast. The challenge is how do we continue to progress at that rate of change while at the same time taking care of your current customers?"says Richard Sides, senior vice president for Ramco Systems Corp. ERP OnDemand North America. As a Software as a Service product, Ramco's OnDemandERP enables companies to progress through the technology curve without having to manage it.
 
The Internet should become a key part of a distributor's strategy. Says Elliott: "What distribution companies have to do is to make the Internet a key component of their overall value proposition rather than a separate channel."There's no denying the Web will continue to play an even bigger role in how distributors do business, especially as younger people who are used to doing business electronically move into management.
 
"The winners 10 years from now are going to be guys who put the Web at the center of their business," Nelson says.