A Lesson In Assessing Technology Plans

When was the last time your company bit the bullet and plunked down that sizeable chunk of money necessary to overhaul your enterprise software solution (ESS)?

If it has been a while (generally, companies upgrade every 10 years or so), it might be time to take a long, hard look at the technology options available to you. Something out there may drastically improve the profitability of your company.

By definition, your ESS is the technology that touches every part of your business — its heart, per se, according Doug Levin, executive vice president of Prophet 21. Levin presented the seminar “Enterprise Software Solutions: The Final Frontier,” at ISSA/INTERCLEAN^® New Orleans 2004 in November.

A company’s ESS ultimately affects customers, suppliers and employees since it regulates such operations as warehousing, business reporting and analysis and workflow automation, all of which contribute to effective inventory management, Levin said.

An ineffective ESS can have dire consequences for a distributor business: lost customers, upset suppliers, a drop in sales, or worse, bankruptcy.

How Will I Know?
But how do company executives know when it’s the right time to invest in software? If any of the following are true, Levin says it might be time to consider new software or a revamp of the existing system:

• Your company is not as profitable as it should be (or you want it to be)
  
  
• Your employees are stressed
  
  
• Your customers are not happy
  
  
• Your suppliers are complaining
  
  
• Your bank tells you that if you do not change the way you do business, you will not survive
  
  
• Your controller has no idea how much money you have
  

It’s always better to work with the technology systems already in place, Levin contends. A thorough assessment of usage can give distributors a better idea of whether they’re maximizing the capabilities of their current systems.

“If you’re only using 40 to 60 percent of what you currently have, you might want to focus more on investing in the current system and see if you can get that utilization up, rather than buying a new system,” says Levin.

If a company is nearing the limits of its capabilities, it may have outgrown its current system.

“If I’m at the 80 percent level, then I’m probably maxing out. I might need to look at what else is out there to take me to the next level.” Levin says. “Your technology should be a competitive weapon, not a competitive disadvantage.”

Then, distributors need to look at the costs of working with the current system vs. investing in entirely new technology, and weigh the options. “What will the investment be to take my current product and get me to where I need to be?”

The investment can be a sizeable one; therefore, distributors should leave no stone unturned in their research. Mark Turner, for instance, recently made the decision to essentially replace everything the company was doing with regard to technology. Turner is president of Turnmore Sanitation, a Calgary, Alberta-based distributor.

“We had to go with a brand-new computer system — seven units, plus two new servers,” he says. The investment: huge. “With the computer system, the software, computers and cataloging program, I’m looking at upwards of $40,000. Apart from buying a delivery truck, there’s [no expenditure] that big.”

Teaming Up
Assembling a team that will be responsible for making decisions about a company’s technology direction is important to finding the right fit. Levin believes executive leadership is essential.

“The No. 1 mistake distributors make when looking at technology is that they don’t have executive support,” said Levin. The job is often relegated to IT personnel. “Make sure there’s someone at the top that can balance all of the [departmental] biases,” he added.

“[Executives will] delegate to an IT person or the financial people or management, and then the technology is going to be bought with that bias,” Levin said.

When Turner decided his company needed its technological overhaul about four years ago, he took it upon himself as owner of the company to figure out the best solution. His quest for information involved contacting ISSA, perusing trade publications and industry networking.

He settled on a local software vendor and purchased software that allows him to track customer behavior including buying patterns. The system will launch in December, and then Turner plans to integrate software that will allow him to provide customers with customized price quotes in catalog form.

What was he looking for? “[Our purchasing criteria] was stuff that is going to position us in the marketplace in a better fashion,” Turner says. “Knowledge is power — if you use it. We wanted something that was going to give us a lot more information about our customers.”

Levin cautions distributors to think of this investment not as a technology purchase, but as a business tool purchase. Distributors should collect input from every area of the company to ensure that each department buys into the plan.

“You must have some IT focus, so that you have some infrastructure. It would be like building a house and not putting it on the right foundation,” Levin says.

“This is not a technology purchase; this is a business tool purchase. That’s the most important thing: how is this going to help your business.”

“We’ve seen where the president of a company wants to buy something then push it down [employee’s] throats, and it fails,” Levin says.

Setting Goals and Prioritizing
When it comes to technology — like other business aspects — progress should be gauged by setting goals and using benchmarks.

“It’s amazing how people want a computer system, but don’t have any goals,” Levin says. Set high-level goals and rank them, he suggests. “Maybe one of the goals is better financial statements or inventory management. Unless the goals are identified you’ll never know if you’re successful.”

Once you list the goals, then rank them in order of importance, Levin says. Next, distributors need to compile a list of potential technology vendors. One way to do that is to search the Internet. Type “distribution software” into Google, for example.

Also talk with industry peers and read trade magazines. This should help you narrow the field to three or four potential vendors, Levin says.

The next step is to meet the technology providers to discuss the project and goals, and determine whether the software provider can help the distributor accomplish those goals.

An important part of these meetings is a product demonstration, Levin says. But, he cautions, it’s important to see the demonstration for what it’s worth: the best possible application of the product.

“The demonstration gives you the basis for your comparison; you also want to see if they understand your industry,” Levin says. Ask terminology-related questions, he suggests, so you can determine that the vendor knows your industry. For instance, if the vendor representative doesn’t know what an MSDS is, a distributor might want to find a company better suited to its specific needs.

Distributors should be sure that their potential vendors have experience in the jan/san industry.

“A lot of times, the past will tell you about the future.” Ask vendors what percentage of their customers are distributors, and what percentage of those are jan/san distributors. Distributors should not only find out the percentage, but the actual numbers. This information will also help distributors determine where the vendor will invest in the future.

“The worst thing is to ask, ‘How do you handle rebates?’ and they say, ‘What are rebates?’ Or, ‘How do you take care of MSDSs?’ and they say, ‘What are MSDSs?’ You’re paying them $125 to $200 an hour, and if you’re educating their employees, that’s very expensive, so you want to test their knowledge of the industry.”

Don’t Take Their Word For It
You wouldn’t hire an employee without checking his or her references, and you shouldn’t make a huge technology investment without looking into a software vendor’s background.

In fact, references are the most important factor in making a technology-buying decision, says Levin.

Call as many other companies who use the vendor and possible, and try to find companies similar to yours, Levin suggests. Ask them about what they liked about the vendor, and how they would do things differently if they had the opportunity.

Making a decision about a technology purchase is a difficult one, but one that — if done correctly — can pay big dividends. It’s also a process that should not be taken lightly. Many people think the implementation of the new software is the difficult part, but Levin says that is not the case.

“The biggest failure when distributors look at software is the way they go about investigating the software — not the implementation.” Levin’s message is clear: it pays to do your homework.

ON SITE

A Lesson In Self Worth
Determining the value of your business is no easy task, but Inc. magazine’s website includes some tools to get started. Visit Inc.com/valuation and find links to informative articles on the subject, as well as a searchable database of industry comparables. The site also features a downloadable valuation multiples spreadsheet to help you calculate your own company’s worth.

Tech’s Crumbling Boundaries
Incompatibility between cell phones, Wi-Fi base stations, military radios and public safety networks may soon be a thing of the past, thanks to software radio, developed to replace internal hardware that causes devices to only recognize a specific frequency or bandwidth. In fact, the technology was included in Business 2.0 magazine’s recent article, “Seven New Technologies That Change Everything.”

According to the article, “In five years, software radios will be a $31 billion business, and you should be able to buy a phone that will work on any mobile network, anywhere you travel.”

Put This On Your Calendar
Want to start the new year off right?
Get an jump on your 2005 schedule of can’t-miss events by visiting CLEANLINK^® and perusing the online calendar listings. Go to CLEANLINK's calendar, where you’ll find dates, locations and contact information for dozens of industry events. Calendar entries are included for every segment of the jan/san industry.