News & Views

December 9, 2009 from the Resource Centre of Industrial Distribution Magazine – “In October 2009, Industrial Distribution conducted a study on behalf of Microsoft Dynamics to learn more about industrial distributor goals, challenges and initiatives. Specifically, the study examines what role technology plays in achieving business profitability and growth…”

180 View (written by Lawrence Young) – This White Paper is based on a study done of 303 industrial distributors in October, 2009 by RBInteractive Research Group on behalf of Industrial Distribution magazine for Microsoft Dynamics. The purpose of the study was to learn more about industrial distributors’ current business goals, challenges and initiatives, and specifically what role technology will play in achieving business profitability and growth going forward.

The study cites the following key challenges facing today’s distributor:

1. Managing the realities of the current economic climate, which has led to intense competition and pricing pressure.
2. Dealing with excess inventory, as the same number of distributors compete for less business with more products considered commodities.
3. Retaining current customers and facilitating new client relationships.

Accordingly, respondents to the study are looking to improve efficiencies in their businesses that help to achieve their sales and profitability-related goals. Planned actions are focused in the areas of marketing, customer service and support, inventory forecasting & management, warehousing & distribution and e-commerce.

The number one action being considered or taken by respondents to prepare for the anticipated economic recovery is investing in technology (i.e. computer hardware and/or software applications). Whereas 2009 saw many of our prospects and clients putting technology-based projects on-the-shelf as they struggled to weather the storm of the recession, an increasing number of companies over the last few months have started to gear up for better times by evaluating and implementing new software tools and reengineered business processes.

However, we aren’t as sold on the study’s claim that 83% of respondents felt that the payback on their investment in technology would be two years or less (34% anticipated a payback of less than one year!). While we are not suggesting that the study misrepresented the responses of the respondents, we are concerned that the responses may not be reliable for several reasons.

First, only 46% of respondents even attempted to measure ROI, perhaps owing to the difficulty of doing so. As the study aptly points out, “There does not appear to be a “standard formula” used within the industry, with a wide array of views on what factors contribute to the measurement.”

Second, by definition calculating ROI ignores any benefit that cannot be sufficiently quantified so as to be measured (i.e. providing a better level of customer service will likely result in increased customer retention and therefore more sales and a better bottom line, but the calculation of ROI will ignore the value of this benefit unless the company is prepared to quantify the resulting improvement in profitability).

Accordingly, it is possible that some of the respondents to the ROI question may have used a method of calculating ROI that is not generally accepted and/or inconsistent with the method used by other respondents. Nonetheless, companies should consider using measures in addition to the ones included in traditional ROI calculations to justify whether or not an investment in technology is warranted. For example, these may include compliance to the requirements set forth by a dominant trading partner or regulatory body, such as internet portal or product traceability.

The article was sponsored by Microsoft and is somewhat self serving, but it does contain worthwhile information and it hopefully reflects that better economic times are around the corner.