Digital disruption in the distribution industry

Over 30 supply chain leaders recently gathered for an executive networking breakfast at Cafe Sydney to discuss the impact of digital transformation on the industrial distribution sector.

Moderated by Westwick-Farrow Media Publisher Geoff Hird, a panel consisting of Ivan Imparato, Chief Executive Officer at the Australasian Supply Chain Institute (ASCI), Tony Corley, Senior Global Product Manager – Distribution at Epicor Software Corporation and Craig Ogilvie, IT Manager at P&R Electrical, shared local and international perspectives on supply chain disruption.

The Amazon effect

Digital transformation has been widely discussed over the past few years, with the rise of technology and increasing customer expectations driving change in virtually every industry.

The emergence of large overseas-based online distributors, such as Amazon, has presented challenges in the supply chain industry. For example, Amazon introduced the Dash button in 2015, which is a small wall-mounted or digital button that offers users a quick and convenient way to restock commonly used products. Each button can be configured to order a specific product and quantity, and pressing the button orders new stock via the Amazon app.

“Dash buttons are viewed as a highly convenient way for consumers to purchase goods. Similar technology has been deployed to automate consumer purchasing in devices such as fridges and other home environments,” Corley explained.

So how can other distributors compete? One fundamental flaw of the Dash button is the lack of information around pricing. Dash buttons do not display prices and they often fluctuate, meaning users may pay more for the same product. Germany recently deemed them illegal on the basis that they fail to provide consumers with up-to-date pricing information, which violates consumer protection laws.

Although they are not yet available in Australia, it is likely they would be hindered by similar laws. However, Corley suggested this may not be the case in the long term. “Government compliance can sometimes lag behind the technology while the authorities determine the impact on their constituents. Typically governments catch up when the fear of change or risk has been assessed and the benefits outweigh the risks.”

The event noted that the increasing trend of smaller order quantities puts stress on supply chains, but all three panellists agreed that understanding customer requirements was the top priority when tackling this issue. Ogilvie added that in the electrical services industry, products such as light switches can be considered as a fashion item, and consumers often order smaller quantities. As a result, incentivising the purchase of more than one product is a better solution than penalising customers for smaller quantities.

ERP systems

One way distributors have been adapting to compete with digital disruptors and meet customer expectations is by implementing enterprise resource planning (ERP) solutions.

Epicor recently launched its ERP system Prophet 21 in Australia, which Corley said “helps distributors automate processes, reduce complexities, improve productivity and deepen customer loyalty by offering value-added services.

“Additionally, actionable data and analytics help distributors to identify growth opportunities and meet customer demand.”

P&R Electrical was one company that was quick to adapt, becoming an early adopter of Prophet 21 in Australia. Ogilvie explained the change was driven by the company owners who value technology as an important tool in the successful operation of the business.

“Successful implementation can only be achieved with buy-in from all levels of the company,” he said. “After many years of running the previous platform [the owners] could see the need for a new solution with a fresh modern look and feel, improved access to information and a proven support network.”

Since P&R’s successful implementation of the ERP system, it has seen a number of benefits, including: access to accurate and up-to-date information that can inform decision-making; the ability to support user feedback with real data, allowing for faster resolution of issues; and improved access to BI and reporting, which allows for faster analysis of the information it captures.

ERP and employees

However, Ogilvie said there are potential challenges associated with access to this information, and he explained how the company overcame these issues.

“Balancing access to data for good decision-making with security/data leakage is always an issue, but with access controls and clearly defined company directions we believe we have the balance right,” he said. “Finding the level so as not to overload managers with information, we have taken the approach where possible to provide exception reporting and give them the tools to dive into this information when required.”

He continued by explaining that ERP implementation is not always an easy process, and many companies underestimate the time it will take and its impact on staff.

“While the installation of the software is a definable time, staff training and data mapping for transition are variables and need to be constantly reviewed and if necessary adjusted in the timeline,” he said. “Successful staff training and review cannot be underestimated.”

Corley agreed, stating that change management is one of the biggest challenges facing electrical wholesalers when implementing a new system.

“They have current systems and processes that may not be optimised to take advantage of automated workflows and processes, or address new opportunities with mobility, visibility and faster decision-making for their key stakeholders and employees.”

ASCI aims to foster professionalism in the supply chain and has positioned itself as the formal professional accreditation body for supply chain management in Australasia. To this end, Imparato highlighted the importance of training employees. He drew on a recent Hays survey which revealed some of the top talent trends for 2019, including the balance between technological integration and human skills, the importance of digital upskilling, and taking employees on the AI change management journey.

“What we can all do now is immerse ourselves in learning to become masters of solutions such as powerful ERPs,” Imparato said. This includes offering APICS certifications to build capacity to support ERP transformation.

When asked what tips Ogilvie would give to others in terms of selecting the right ERP system, he noted that being open to new ideas and processes, understanding what is ‘baseline’ in any solution and getting feedback from other companies in your industry that are running the proposed system are crucial.

Looking to the future

The overarching message is that technological change will continue to happen, but this can present opportunities for distributors.

Corley said a successful ERP implementation will enable growth for electrical wholesalers. “An improvement to their customers’ experience can be gained from ensuring they speed up delivery and service through improved systems and better information handling. A system that is designed around the electrical wholesaler’s business practices, such as Prophet 21, will provide a greater chance of growth, improved margins and an increase in customer satisfaction.”

One aspect that remained consistent throughout the panel discussion was that the customer is king. Supply chains that learn to harness the power of technology and use insights provided by data can become more responsive, demand-driven and customer-centric.

This is what drove P&R’s ERP implementation, but the panel suggested that a certain level of human interaction will continue to be important. In the electrical industry, Corley said many contractors have difficulty using online services and appreciate the ability to discuss products with sales representatives.

With learning opportunities and change driven from above, distributors can adapt to better serve customers and keep up with digital disruption.