Analytics Have Become a “Must Have” Tool

It’s Thursday afternoon, I’m on the beach in Florida with my friends, and I’m energized.  

Let me share…

I just finished spending the afternoon with attendees of the Association of High Technology Distribution spring meeting where the topic of the day was driving more value from your ERP system.  But let me digress for a moment…

During the course of the last couple of downturns, analytics have gone from the growth tool of a few progressive distributors with a technology bent, to a “must have” instrument for longer range survival.

To be clear on this survival thing; I’m not saying lack of analytics will put you out of business today, next year or even over the next five, but I do believe companies with analytics are getting more sales during this year’s downturn.  They are also capturing customer “wallet share” today, which will grow when economic winds blow in a more favorable direction.  They are more productive in gross margin.  They are likely finding it easier to develop new salespeople as well.

The key to analytics for distributors comes via business data served up by the company’s ERP System.  Since literally everyone uses an ERP Business System, we should be able to assume data is readily available.  But, it’s not as available as you would think.

Based on my observations, only a few distributors have the ability to instantly access data from their ERP system and review it in meaningful ways.  Those who have invested in “smart front ends” for their ERP using systems like MITs, Sales Management-plus or other organizations seem to have more and better reports and make more analytical data.  But the data is there, lurking just below the surface.

Real Networking and Benchmarking

The Association for High Technology Distribution, hosted a round-table event to facilitate an exchange of ideas tied to the use of ERP systems.  This was pure networking the way it should be done.  Two groups of non-competing members of the distributor community talking about what worked, didn’t work and some of the tricks they had learned along the way.

While the groups didn’t follow this list of questions precisely, they talked about the following points:

• What is your current computer system and how long has it been in place?
• If you had just one thing you could change about your computer system, what would it be?
• Have you ever attended the user’s group meeting of your software vendor?  
• Did you see value in attending?
• Based on your experience with your system, how long does it take for a new inside sales/outside sales person to master the system?
• Thinking about your routine (daily, weekly, etc.) activities, what reports could you NOT do without?
• What reports do you wish you could pull from your computer system?
• How long does it take for you to get the right information by way of a report?
• Does your system make any “upselling” recommendations to your inside sales people?
• Does your system have CRM functionality?

Real information flowed from member to member.  I could see lights going off and people scribbling down notes as the meeting progressed.  The good stuff was flowing around the room.  Nearly everyone left the meeting with solid takeaways.

Sometimes the manufacturer’s data is better

Many of the attendees were fresh from a similar meeting conducted with manufacturers and distributors discussing best practices with “Reverse POS”.  For those of you who aren’t familiar with the concept, here’s a good description:

"Reverse POS is an analytical tool provided by manufacturers to distributors who provide them with POS data.  Often the data is benchmarked against nationwide statistics and offers objective tools for identifying customer opportunities for the distributor.

What's in your sales toolbox?

           

One such tool is product segmentation.  Based on a show of hands, most distributors have a difficult time segmenting manufacturer’s products into component parts (with examples being Electromechanical Contactors and Starters, Proximity Sensors, Photo Sensors and Power Supplies.)  This bit of analytical data (commonly called GAP analysis) is a huge tool for distributors; particularly during down economic swings.

Based on the comments of one distributor, a significant amount of their business growth can be traced to using the data provided by a select group of manufacturers via reverse POS.  One couldn’t help but notice the buzz recreated during the network session following the comment.

Analytics are must have tools

Previously, I mentioned that I was energized.  Here’s why.  Distributors and their supply partners are getting together to break down the analytics barrier.  Even distributors who were once cavalier in their attitudes around the topic are taking steps to improve their game. 

Quoting Allen Ray, who I view as one of the thought leaders in distribution and regular contributor to Electrical Trends:

“If your company bought an ERP software system 5-10-15-25+ years ago and set it up like most did, you may have built in limitations because the national average for ERP productivity usage is about 40%. This means that you may only use 40% of its capability.”

In my mind, the 40 percent Mr. Ray refers to comes centers mostly on the operational side of distribution, things like entering orders, handling inventory, billing and accounting.  The missing 60 percent is the ability to pull data and make data driven decisions. 

Thankfully, distributors are upping their ante on the process.

Before we go, what are today’s must have analytics

Here is a quick list of analytic related reports every distributor needs today:

• Product segment purchases made by customer – this allows the distributor to identify what’s missing from customer purchases.  It enables you to sell more to existing customers (which experts report is five times easier than finding new customers.
• Product segment sales by salesperson – A quick report to determine if seller "Frank" is not comfortable or effective in selling all the products you have for sale.
• Comparative sales and gross margin numbers for every customer showing the last several months and the same numbers for the time period last year.  Why?  Because it’s embarrassing when a customer flips their business to a competitor and you don’t notice it for six months.
• Purchases of new products by customer – we are constantly launching new products but often lack an easy feedback mechanism to determine if our efforts were fruitful.
• Purchases by new customers – discover when you break the ice with a customer.  This allows you to track sales progress and explore what products are the door openers to your business.  

Got questions?  Analytics are on our mind.