Implementing an ERP system, while an enormous undertaking, is that rare episode in an organization’s life for a “do over,” a chance to reevaluate all processes and procedures and build into the ERP system the rules for the way you would really like to take care of business. But this “do over” can be about much more than workflow. You can make it a strategic referendum. Along with a Warehouse Management application, which can tell you the strategic importance of each product you carry, and a CRM application, which can tell you the strategic contribution of each customer you serve, you can use your ERP implementation to launch new strategic initiatives and align processes and procedure with those initiatives.
ERP and CRM as Strategic Tools for Wholesale Distributors (Part 1)
A big reason we include CRM in this scenario is that the biggest strategic planning challenge distributors struggle with is people, not equipment, and, especially the customer-facing people who use a CRM application. The distributor’s sales force is often the most critical factor of success or failure. Yet few distributors plan for success. In today’s global economy, it’s critical to shift from a short-term “survival” focus to long-term “growth” mode. Instead of setting targets only one year out, this is the time to build a plan for the next three to five years, and to institutionalize that plan in ERP rules, key performance indicators (KPIs) and reports.
Strategic planning can be a key differentiator for distributors, yet studies have shown that only a small percentage of distributors have a formal plan in place. On the other hand, manufacturers in the same trade lines have indicated that about two-thirds conduct formal strategic planning. One reason may be that distribution businesses have a larger number of variables – qualitative and quantitative – than many other types of businesses due to their role as supply chain “middleware.” Distributors must manage a broad spectrum of customer and vendor relationships in an effort to achieve financial profitability.
Manufacturers feel pressure to plan far ahead. They make large capital commitments for equipment that must produce cash flow many years into the future. Distributors face a different sort of planning risk. Distributor assets are tied up in working capital, with more than 80 percent of the asset base in receivables and inventory.
Simply stated, distributors seeking profitable growth must put the highest emphasis on building a strategic sales force, and leveraging their CRM implementation to help accomplish that. CRM systems can turbo charge a sales force, a requirement that will become more urgent as we look at demographic trends 5, 10, 20 year down the line. Many sales forces will be depleted by retirements at just the time there will be a foreseeable shortage of qualified people entering the workforce. In many trade lines selling is becoming a more technically demanding career, further narrowing the field of qualified candidates. Distributors who have traditionally built their sales organization by recruiting talent away from competitors may find a great deal of competition for a small population of good people.
Within this context, it is more important than ever to understand your markets clearly. Strategic planning is about gaining that understanding, and then making decisions to create the best pathways forward, even in turbulent economic times.
Continued in part 2