At the height of the dot-com boom, it was widely, if not wisely, assumed that the traditional role of distributors would in many industries be marginalised as the wonders of the Internet enabled business and personal users to order a wide range of goods direct from manufacturers, and those manufacturers to offer effective efulfilment. Clearly, the apocalypse has not happened. Phil Streatfield of Entertainment UK (see panel for business and job details of roundtablers) said that five years ago his business fully expected retail volumes to be massively eroded this way, as did the 20-40 other players in this space, but in fact the e-fulfilment model still only accounts for 5-10 per cent of the market and most of the other players have left. (He noted in passing that to make the e-fulfilment model work, firms are having to set up in Jersey, or even Hong Kong, to exploit VAT loopholes on shipments back to the UK!)
In the entertainment business, Streatfield said, the biggest challenge is not webbased buying of physical goods, but digital downloads of music, games or films. ‘The physical market in the UK will “tip” in around 2008/9. As a wholesaler, we started as a “rack jobber” – we now have great VMI (Vendor Managed Inventory) capabilities and we have to explore new markets where we can exploit this’. EUK has already moved into the supply of books to retailers, for instance.
The Internet revolution has turned out other than expected for other distributors. Frank Peplinski of Electrocomponents explained that ‘five years ago, everyone thought that having a leading-edge website was going to be the key to market leadership. But in reality it’s just another channel, and another cannibalisation of sales. On-line ordering is certainly a boon in many ways, and we do find that Internet customers are both more loyal, and spend more with us, so we want to direct our customers onto the Net – but it certainly isn’t just about web-sites. The services you can offer business over the web, for example control of spend limits, or the products that individuals can buy, the things that give buyers control, and the provision of content for the customer’s own Intranet – these are what are valued. But in reality, our customers would probably have bought by phone or fax anyway, so the Internet hasn’t fundamentally changed the proposition.’
Is the internet a cheaper channel?
As to whether the Internet is a cheaper channel, Peplinski was sceptical. ‘Whether you are using direct mail or a web-site for promotion, someone still has to generate content. Order-taking is certainly cheaper – in Japan over 50 per cent of orders are already on the Web and its growing in every market – but that’s only a small proportion of the overall cost including queries, returns handling and so on’.
Peplinski said that telephone order-taking gives opportunities to sell – ‘the Internet can do that too, but in a different way’. Andy Newberry of Westcoast suggested one of the biggest customer criticisms of the Internet offer is the lack of personal service – not that Internet trade is deliberately more transactional, but it can seem that way to customers.
Clearly some customers are happy with Web trading, others aren’t, and it isn’t just a size thing. Stefano Perego of Rexel said his big customers ‘don’t want a relationship – they want easy order-placing tools that they can spread across the organisation’. Perego also suggested that user comfort with the Internet was a generational thing: but some panellists also felt that there was a growing conflation between business and consumer buying habits. (Interestingly, Rexel has a pricedriven brand that is using the Internet to target the consumer market alongside its B2B offer). As Danny Edsall of IBM put it ‘As a consumer my expectation of web shopping has risen – and that feeds over into my commercial life. If I buy a computer, I can click on the web-site and get through to ‘Zak in California’ to solve the problem. Suddenly I’ve got a new benchmark. If I can get that personally on a e900 order, why can’t I when my business is spending e1million?”.
Certainly, the Internet can offer business customers the added value that consumers are expecting, but care is required Peplinski said some of his big customers absolutely reject ‘pop-up’ promotions, or anything that might encourage buyers or end-users into impulse purchasing, while smaller firms behave more like consumers. Newberry had the opposite view – his big customers are the savvy Internet users; it’s the small firms that flounder.
The relevance of SRM software
Clearly, the Internet has enabled, and focused attention on, customer relationships. But how about suppliers? Keith Purvis of Norbain was categoric. ‘How will SRM software help us? We manage suppliers with people, and the metrics we get from our IT, so we haven’t looked any further’.
There was a general feeling that SRM is not yet developed to the same level as CRM. Ian Wahlers of Intentia conceded that using tools to manage day-to-day relationships and portals to allow suppliers into your system, requires a considerable level of trust. Streatfield said his firm had put a lot of effort into customer interfaces, but a lot less so far into the supplier interface. Nonetheless, EUK has developed a portal which is about to offer suppliers six weeks’ forward visibility of expected requirements. ‘I’ll show you some helpful stuff that will help you with your performance’. But, he noted, ‘suppliers all say “Show us the EPOS data”. But they don’t want the source data, they need to know my net requirements. But we’re hoping to use intelligent conversation to build a better business’. Peplinski said that Electrocomponents offers suppliers ‘a one year best guess which allows them to reduce costs on materials, stocks etc, and then we can worry about plan changes on one or two items, not the whole 300. We use our supplier portal to introduce stability and feedback’.
Feedback implies performance measurement. Purvis said ‘We show larger suppliers simple metrics like accuracy or adherence to time limits every month, and would like to benchmark’. Peplinski claimed that ‘suppliers like to be benchmarked, except with their direct competition. They want to know how they compare to their peer group. “Why are we only tenth? What are we doing wrong?”
Measuring a distributor’s own performance is also problematic. Streatfield said ‘The customer expects us to tell them when we’ve fallen over’. A common problem is that “in store” isn’t necessarily “on shelf”, so the distributor’s metrics may bear little resemblance to those of the customer but, said Streatfield, ‘fundamentally you want the store managers to be responsible for what happens in their store’.
Andy Jones of Beko had a slightly different problem. ‘We’ve developed metrics but I question whether the end customer is really interested. We primarily deliver goods to 3PLs, and their reports to the customer on our performance may differ from ours!’
Chris Morgan of Cranfield touched a nerve when he doubted the reality of the ‘whiplash’ effect often blamed for supply chain distortions. ‘Actually, its just people fiddling to support uncertainty. Everyone adds something in’, which as Jones noted, raises the question of who has ownership or responsibility for the inventory. ‘You have to manage the data yourself, and know what your customers are really doing. We try to fix the quantities and go to the customer saying “We’re happy; are you?”. But we don’t usually get a lot back – often they don’t have internal people with a sufficient overview.
From most panellists, the IT industry came in for criticism, principally for seducing IT directors with standardised ‘big solutions’ that lack adaptability and flexibility, and that too often require the business to change to fit the system, not vice versa. Jones said ‘This is a big issue for organisations growing from a small to a medium size. Too often they try to do it all in the system, without looking at the business processes first’. Streatfield confirmed ‘Very often for smaller firms these “solutions” don’t work in terms of finance or profitability’.
The swing to bespoke solutions
So there is some evidence of a swing back from standardised to bespoke solutions. Perego’s company has tried it both ways. ‘First, we tried to give a standard business model around the world, and we dictated that our large areas would use Oracle, and our small ones IBS. This approach failed dramatically. Now we realise that every territory has its own requirements. We encourage them to share experiences and tools, but the rule is that each national unit has to make its own assessment of appropriate IT and logistics tools. They benchmark against comparable local operations, not against Paris or London. For example, in France we have a 30 per cent market share so of course we can support a model based around large logistics centres. In UK, we have six per cent share, and we can’t. Different countries need different models, and that means different IT systems’.
It’s not just about hardware and software: cultural influences matter too. In Morgan’s opinion ‘Everyone has to find their own salvation. Everyone believes that big buyers can impose their own culture, but that isn’t generally true nowadays. There are different suppliers, different resources, different constraints’. Cultural differences extend to such apparently ‘hard’ matters as KPIs and targets. Jones said ‘KPIs mean different things in different cultures’ and Morgan suggested ‘It’s better to talk about a few targets, preferably on one side of A4, and allow differences of interpretation across countries’.
Talk of process measurement inevitably leads to RFID. Streatfield has recent experience of a large scale RFID trial (reported previously in Logistics Europe) and said ‘When we actually tagged product, and saw live data of what was really happening to stuff in the back room – it’s the only time I’ve seen data I truly believed in. It helped us assign responsibility to the right place, and adjust processes’. But, he added ‘Tagging everything doesn’t make you a better store manager. If businesses paid more attention to the things they already measure, and got some value out, we wouldn’t need most of this IT, tagging and so on’.
So can RFID help distributors? In theory, the panel felt, yes, in all sorts of operational areas from shelf availability to Distribution Centre operation (although Peplinski said that Electrocomponents has ‘looked and walked away – we see no benefit to us when dealing with our end customers’. And in practice, the benefits are more opaque. The middle of a supply chain is not a good place to initiate RFID. ‘Product has to be tagged at source, otherwise it’s a nonsense’. Who bears the cost, and who reaps the profit, is also moot. Streatfield said ‘It is right that we should continue to work with customers who have a vision of how things might be. It’s not right that one part of the supply chain should have all the cost without the benefit. And if we can successfully leverage what we have now, that pushes the case for RFID even further back’. Morgan also suggested that ‘There is still more benefit to be gained from improving existing processes than from investing in gimmicks’.
Human resources are a challenge
One promise of RFID is that it enables firms to establish control over the low-paid and often poorly motivated staff that are sadly typical of too many parts of the supply chain. Human Resources at all levels are clearly a challenge for all our panellists. Better internal communications would clearly help. Morgan claimed that research showed that understanding of business or supply chain strategy rarely migrates much below the topmost levels of the company. Perego’s company Rexel is about to mount a ‘communications week’ to share the three year corporate strategy with every single branch worldwide (particularly important since Rexel is about to ‘regionalise’ purchasing, which will need every store manager to be on board and understand what is happening and why). Supply chain leadership, and the skill sets that go with leadership, is clearly an issue, as is the need for succession planning in the logistics and supply chain arena.
There is also a clear need to work more closely with other functions. Perego noted the typical mismatch between the product offer and the logistics offer: ‘What supplies do we have to stock? what should we be cross-docking’ or in Newberry’s blunter question ‘Why do marketing people always sell what we haven’t got?’ Marketing people need to be brought closer to the supply chain. Streatfield concluded ‘There has to be dialogue between the commercial functions and the supply chain functions. The supply chain in turn needs to be part of sales promotion, not a ‘sales prevention department’. And if we can find a new equality of view around the board table, then a combined approach will allow our operations to be deliverable, rather than aspirational’.
Which would go a long way to ensuring the future health of the distribution sector, whatever the challenges of the digital age.
Under the chairmanship of Logistics Europe Editor Nick Allen, our panellists were:
Andy Jones, supply chain director of Beko, which distributes refrigerators and other white goods for its parent multinational
Frank Peplinski, general manager supply chain at Electrocomponents, the international distributor of electronic, electrical, mechanical and other supplies under trading names such as RS
Phil Streatfield, supply chain director, Entertainment UK, wholesale distributor of home entertainment products such as DVDs and computer games
Keith Purvis, operations director, Norbain SD, the UK’s largest distributor of electronic security equipment
Stefano Perego, logistics director, Rexel Senate UK, distributor of electrical goods to professional installers
Andy Newberry, logistics and operations director, Westcoast, a leading national wholesale distributor of computers and computer products
Dr Chris Morgan, director of the full-time MSc Logistics & SCM programme at Cranfield School of Management
Danny Edsall, world-wide solution executive, consumer driven supply chain, IBM
Ian Wahlers, wholesale distribution industry director, Intentia International