Productivity -- Technology -- Information

Can tech save the day?

by Bob Boyles

Technology is a rather vague term. It's second only to "supply chain" in misuse and being misunderstood. But unlike supply chain, tech is something distributors can actually do some really creative things with.

I was working with a small distributor recently faced with a difficult problem. The evolving world of technology at their major customer is changing in the market for their most profitable products. It means that within a few years there could be no market for the group of product lines that contribute 70 percent or more of this distributor's profits.

The management team recognizes they must do some drastic re-structuring of their basic product offering if the company is going to survive, much less prosper. Have we gotten your attention yet? This is not a completely bizarre scenario for almost every distributor is faced with a drastically changing market, or soon will be.

Fortunately, the management decided not to fold up the shop and die a slow death, but rather put up a good fight.

There are five basic ways that this company can respond to the situation and grow its future sales:

• First, it can grow geographically by opening up another location in a different city.
• Second, it can grow financially by spending money to acquire another company and increase its sales that way.
• Third, it can grow from its product base by introducing more products and new product lines and attempt to deepen its sales with existing customers.
• Fourth, it can try and sell more to its existing customers and attempt to grab a larger market share.
• Fifth, it can attempt to create new sales channels for its existing products and tap into market segment that it was not previously reaching.

Many consultants in this industry have jumped on the service-fees bandwagon as a substitute for the achingly slow growth in sales and profits for most wholesale distributors. This is a variant on the fourth approach of charging fees to existing customers rather than selling more products to them. This company's plight reveals the absurdity of this approach. Regardless of what fees this company charged, they are not going to make up for losing product sales that represent 70 percent of their profit.

The company we are discussing has decided to try the third, fourth and fifth approach to solving its imminent demise.

First, they will attempt to broaden their product line to create profitable substitutes for the products that are being phased out by changing technology.

Second, they are going to use their existing relationships with their customer base to attempt to become a supplier of choice to those customers.

Third, they are going to develop alternative sales channels for their remaining products.

So where does tech fit into all this?

Tech to the rescue
This company is currently using a piece of homegrown software that was first written 20 years ago.

Some of the common tools they lack are things like a price matrix, customer segmentation, business intelligence. As a result, things like proper purchasing and inventory management are being done by the seat of the pants by guys that have been there years and years and know what products to order when (they think).

The owners recognize they must take the leap into the 21st century and purchase a computer system that supports the demands being placed upon them by entering a new market place. Their new system will allow them to analyze their products and determine which ones are profitable and can be used as a platform for future growth.

The other key component is that they have a small Web site that is doubling in sales every few months. That e-commerce system is not tied into the legacy system at all and is causing them to purchase and stock material they have traditionally not handled.

At the very least, they need to integrate their e-commerce system with their new business system. What the Web sales have revealed is that there is an entire market for other parts of the product lines they currently have that just weren't being reached by their telesales approach.

The ability of e-commerce to develop a new sales channel is one of the bright spots at the company, aside from the fact that the company has a management team that is pro-actively attacking the problem rather than folding up shop. But how do we turn what has been a nice sideline into the company' new profit center?

So how do we do that?
That's an obvious question. Some of the tricks I'll have to keep to myself to reserve for paying customers but I can let you in on a few steps.

The B-to-C (business to consumer) Internet market is a completely different channel than what wholesalers are used to. The marketing is done via search engines; the selling is done via Web tools, and the payments are 100 percent credit cards. Each of these areas is radically different in approach and requires a unique set that most distributors don't have.

The B-to-B (business to business) Internet channel is somewhat different that what wholesalers are used to. The key factor is whether or not the Web site is able to directly access the data for the customer's business system. We want to allow the customer to have access to the same product at the same prices that they will receive if they call over the phone. Keeping two separate systems in sync is an impossible task; pulling Web and inside sales data from the same database is the only solution.

Both of these channels are going to be key for our wholesaler to survive the loss of 70 percent of his sales and profits.

Tech is one component that must be deeply integrated into your business plan rather than something that is tacked on like an afterthought. We'll bring you updates from this company in the future as they undertake their system change to support their business strategy change. Let's all cross our fingers and hope that the results are profitable

Bob Boyles is the principal of Smarter Distribution in Coppell, Texas, a strategic coaching business focusing on assisting distributors in using technology. He is also author of "Succeeding With Distribution Technology," a practical how-to guide for selecting and implementing the right technology. You may reach him at (972) 304-1180, via e-mail atbob@smarterdistribution.com or on the Web at www.smarterdistribution.com.