Turning an ERP system into a strategic tool, in its simplest terms, requires that your organization undertake a strategic planning process prior to and as part of the ERP implementation. So where do you start? In this and subsequent chapters of the multi-part series, we’ll explore strategic planning from a uniquely distribution perspective, and tie it to ERP and CRM fundamentals.
ERP and CRM as Strategic Tools for Wholesale Distributors (Part 2)
Strategic planning is a matter of tradeoffs, deciding where to focus and where to invest. Put another way, being all things to all people is the polar opposite of being strategic. If you fail to make the right commitments at the right time, you may miss opportunities or take unnecessary risks. There are three steps to the strategic planning process, which include the following tools used by dozens of companies to develop a strategic plan. These tools provide an important structure for the critical analysis and decision-making that make for effective strategic planning.
The first step is to really understand your profitability. If you already have an ERP system, you’ll find the answers within. The big idea behind the strategic planning project is to invest where you see the best chances for meaningful, profitable growth. The first step is to clearly understand your current customer segments from the perspective of growth potential and profitability.
One growth-profitability matrix for distributor strategic planning is derived from a business model developed originally by Boston Consulting Group. Adapting that to the distribution business takes into account three vital pieces of information for each investment candidate: How much revenue do you have in this segment, how profitable is this segment, and what do you see as the growth potential for this segment?
Many distributors keep investing in their largest revenue segments, without regard to either growth potential or profitability. It’s also important to look closely at those “rising stars” that might be smaller but that generate cash flow and probably merit additional investment. A third class of revenue sources are those that are neither as large as the core segments or as fast growing as the “rising stars;” is there a way to make them more profitable with additional investment. The strategic opportunities, perhaps, lie within a fourth segment, those highly profitable segments that don’t yet exhibit high growth rates. You have validated that you can make money with these customers. If you invest in this segment – additional sales talent or technical expertise, for example – will it grow? This exercise allows you to see how best to adjust current resources to the areas with the best potential for return. These decisions will influence pricing strategies, inventory strategies and sales strategies.
The second step in the strategic planning process is to ask yourself these three questions: Where will you operate; what products and services will you provide; and to which customer segments will you sell? Simply stated: what, where and to whom? In a time when markets are shifting, a review of these foundational questions will highlight where the biggest opportunities lie and help you focus.
Continued in Part 3