How can distributors better leverage technology not only to boost profits, but improve efficiency, communication and customer satisfaction? And what do you need to know to make sure you’re getting the most out of the available technology for your own business?
To help answer these questions, Ian Heller, Founder at Distribution Strategy Group, hosted a panel with two technology experts who have a long track record of working with distributors on these questions.
Panelists included:
- Graham Smith, Business Development Manager, Esker
- Frank Heenan, Group VP, Distribution/LBM, Epicor
The Tie Between Technology and Efficiency
Automation plays a key role in boosting efficiency. Some businesses still rely on manual processes — “they’re putting all the invoices into envelopes, they’re shipping them in to corporate, someone from corporate’s collecting all the envelopes, and then they’re manually going through and matching and processing,” Heenan said.
“All that could be automated through AP automation where you’re doing OCR (optical character recognition). You’re reading the information, you’re filing the information, and you’re vouching for the information. Something that may have taken a lot of manpower has now been automated — and just think of the time savings. And then the cost for that FTE has now been freed up to do something else.”
Smith agreed and added: “I’ve noticed that a lot of companies don’t even realize the impact on their profit margin and their bottom line — maybe not directly — when they’re seeking out some of our solutions.”
Smith noted that customer behavior has changed since COVID. “If you don’t have self-service options, you better be answering that phone, responding to emails quickly, and so on.” But freeing people up through automation allows them to focus on increased customer attention and to upskill team members to take on more tasks and become headcount neutral through natural attrition — which lowers the FTE overhead and directly impacts the bottom line.
Smith says he sees a lot of businesses focused on reducing DSO (days sales outstanding), sometimes because businesses aren’t paying on time, but often due to breakdowns in communication through departmental silos. Being able to streamline those processes can lower the DSO and boost profitability.
Reducing Errors
This isn’t just about productivity — it’s about accuracy and customer experience. Replacing manual work with automation not only removes steps (which creates a leaner process), but also reduces errors — which in turn improves customer satisfaction.
Smith shared an example: Suppose you’re a distributor of building materials, which are large, expensive products. If you make an error on three truckloads, the reverse logistics of getting them back will be expensive. Smith said he’s seen $2 million errors from similar situations. Freeing people to catch those errors on the front end before they happen will have an impact on everything from write-offs to inventory to turnover times, and ultimately the bottom line.
The name of the game is speed, and every keystroke that keeps the customer waiting matters. When the contractor walks into the counter, they’re short on time — they want to get in, get their stuff, and get out, Heenan said. Many times, they’re either coming in early, at lunchtime or after work. So, the goal is to think about how to get that customer in and out of the distributor in the most efficient way.
The Money Value of Time
Heller noted that if a crew is standing around and material doesn’t show up, that’s not just one hour that’s wasted — it’s one hour for each person on the crew, which could be 100 people. If every hour of delay results in a loss of 100 hours of time, that explains why customers aren’t just sensitive to price — it’s also about time. If you can’t get it there on time, it doesn’t matter.
Smith said that due to the higher expectations after COVID, B2B business has moved toward more of a B2C philosophy, and that has created lower SLAs. One company he works with that manufactures and distributes orthopedic products has a 27-second SLA to answer the phone.
Speed also matters for the building materials companies he works with, who request quotes for products that a contractor needs on a certain day. That customer may have sent out three or four quotes to three or four different companies — and sometimes whoever can fill it faster gets the order. If you can get that quote out faster, you are more likely to convert that quote to an order.
Change orders are a big issue, too. Companies can be quick to say: “Hey, I had a change that was unforeseen, so I don’t care what’s going on in your warehouse on your manufacturing line. You need to fit my needs.” That leads to a lot of companies reaching out at the last minute for order changes that could be a change in address, change in quantity or change in delivery date.
Smith says he’s heard horror stories where four trucks were fully loaded when a change order came through and a customer service rep needed to run down to the warehouse and say, “Whoa, whoa, whoa” to keep the trucks from going out and turning into a $4,000 error. The silver lining is that they had the visibility to see that the order was being packed so they could stop it.
Driving ROI from Technology
How can distributors make sure they’re getting an ROI on their technology investments?
Heenan said:
- Make sure you’re working with good data and focusing on the right metrics.
- Track KPIs — whether it’s margins, inventory turns, gross margin on return on investment, etc. over at least a year.
He also recommended benchmarking performance against peers. That way you can identify whether you’re best in class, steady state or below your peers.
Technology to Profitability: Success Stories
Whirlpool has been a longstanding customer of Esker, according to Smith. They saw their SKUs were about 32 digits long, and their orders had about 600 lines associated with them. They were “just throwing bodies at Customer Care” for order entry. They were looking for ways to ease that burden and lower headcount through natural attrition, as well as free up more time for answering the phone.
With technology, they were able to get their average order entry time from 45 minutes down to 2 minutes because their CSRs didn’t have to manually enter orders. That also eliminated errors, which can be pricey when you’re sending out 800 appliances. Whirlpool was able to save about a million dollars in headcount over a five-year period.
Another example was Nvidia, a manufacturer of electronics. They were looking to create a one-click order management process so that a CSR could review the order and click OK and have that order created in the ERP. They were able to achieve that with more than 90% of their orders.
Takeaways
Smith’s No. 1 key takeaway for distributors was to understand what you want to accomplish. What’s causing diminished profitability, and what needs to happen to fix it? Is it errors? Returns? Overstock? Order entry delays?
Next, when you decide to invest in a solution to improve profitability, invest the resources required to do it well, and get buy-in from your team. Make sure you make time for testing and training.
Heenan agreed and said that instead of pursuing technology for technology’s sake, the key was to look within the business to find areas of opportunity for improvement and then find technology targeting that.
Heenan underscored the importance of working with an ERP provider who understands not only your industry but your current processes, as well as your customers.
Watch the full conversation on-demand: Technology Leader Panel: Practical Technology Strategies: How to Maximize Profits and Drive Efficiencies
