I have a confession to make. When I am not overseeing the operations of International Business Systems (IBS) in Solna, Sweden, I am an avid baseball memorabilia collector. Several months ago, after purchasing items online from a dealer in New York City, I was invited by the shop owner to visit his store on my next trip into the city. Having never been to his shop personally, I was delighted to meet and accepted the invitation. 

    The day I visited, we spent almost an hour talking about baseball collectibles. The owner wanted to know my specific purchasing objectives. Who were my favorite teams? Do I collect cards, autographs, jerseys, or favor certain players? His interest in my hobby won me over. Since then, he has sent me numerous product recommendations unique to me. I now pay attention to his emails, because he tailors merchandise based on my interests. 

    What does this have to do with the distribution business, you might ask? In my estimation, it has everything to do with it. 

    The way products move from manufacturer to warehouse to distributor to consumer is ultimately driven by consumer behavior. The better you know your customer, the more effectively you negotiate the exchange, and the more value you create for yourself and your customer.

    Think about it. The cost to serve a customer is affected by an amazingly complex and dynamic set of variables, including time, materials, shipping costs, tariffs, middle men, mark-ups, margins, quantities, and personalization. You can tweak the system to gain a temporary edge. But, unless you consistently present your product at a price your customer is willing to pay – at the decisive moment – you’ll lose the sale to someone else.

    The Problem: A Disconnected Supply Chain
    In reality, a world-class ERP or warehouse management system cannot do it all. For a true solution, you must turn your warehouse from a cost center into an asset, by interconnecting your disconnected supply chain.

    Facilitating and coordinating the flow of inventory and information through your supply chain requires going beyond the warehouse. You will never maximize customer service at the lowest cost, until you create an adaptive ecosystem, connecting your extended supply chain to an ever-changing variety of customer entry points.

    Consider the multi-channel retail scenario. Bulk orders shipped from warehouse to store differ dramatically from single-pack orders drop-shipped to a customer. What goes in the box, on the box, how it is packaged, the preferred shipping method and any specific handling instructions must all be tailored to satisfy the customer’s expectations. In the case of back orders, a store manager may make promises the entire supply chain must keep. Any delays can tarnish the retailer’s reputation. Knowing where the product is and how quickly it can arrive is critical. But so too is having the right inventory to effectively service seasonal peaks.

    For instance, a grill manufacturer may secure 65% of annual sales over two months. Anticipating the season, retailers in the distribution chain will likely stock up on inventory direct from the factory. As product is sold, replacement inventory will probably ship daily by the pallet. But, after peak season, replacement orders will more likely come from an upstream 3PL or 4PL provider, shipping once a week and by the carton. On an even more granular level, replacement parts for specific models may need to be carried, region-by-region, to support the customer base. 

    The fluid nature of it all makes paring costs and meeting demand extremely challenging. How do you efficiently locate merchandise for the most effective response? Can any ERP or WMS effectively allocate inventory, on-the-fly, as market demands shift? 

    Value Added Services = Added Complexity
    What about value-added services? Personalized orders can challenge your system, turning warehouses into mini-production facilities. Consider the garment distributor, stocking dress shirts in an assortment of colors and sizes only to custom-monogram single orders upon customer request. The paperwork alone becomes a mini-project. 

    Gift baskets requiring personalized messages and variable product blends offer another example. The need for flexible managing, tracking, communicating, and accounting across the supply chain only gets more urgent. 

    The more made-to-order the operation, the more challenging it becomes to manage margins. And, guess what? You are not alone in this challenge. 
    Depending on whether you ship pallets, cases, inter-packs or pieces, supply partners across the chain will be offering price incentives on volume orders, specific merchandise, or seasonal inventories. Can you effectively manage credits, discounts, rebates and exchanges within the flow of business? What does that do to your cost of handling?

    Customers Running the Show
    Adding customers to the mix further complicates matters. Are you diligently tracking their purchasing histories to know what, when, where and how they purchased last? Holiday buyers who purchased twinkling lights to decorate their homes last year might appreciate an early reminder offering a “buy one, get one free” discount this year. Overlook the detail, and they may stock up with a competitor instead.

    Certainly, a good Customer Relationship Management (CRM) system can track information, but it’s in the follow-up where real customer service occurs. Is your CRM integrated with your supply chain, such that your forecasting program can effectively locate desired products at the lowest shipping costs, in the styles and sizes your customers demand? An effective, predictive ordering capability will help minimize handling costs and speed turnaround. But it’s personalized selling that builds customer delight and loyalty, leading to the secure sales bases every manufacturer and distributor covets.

    Not Your Grandpa’s Way of Doing Business
    Consider how consumers now do business. Brick and mortar operations are being replaced with online shopping alternatives. Increasingly, consumers are researching online, collecting coupons before they buy. 

    New mobile devices, including smart phones and tablets, are freeing shoppers from desktop screens and allowing them to instantly access purchasing information anywhere, any time. In three to five years, smart phones will become the preferred method of communications for most of the world. Startling new capabilities on these devices are rewriting the rules on how consumers control the process and communicate with sellers.
    Imagine, not long from now, a woman passing a dress shop on a casual stroll. The GPS application on her smart phone reports her whereabouts to the shop’s CRM system. The system identifies her as a frequent shopper. Moreover, it intelligently discerns that one remaining piece of apparel bookmarked by this woman in a recent online browsing session is now available inside this store. The system alerts her via personalized text of a discount on the item. She enters the store to inquire. The purchase is made, and within seconds, the woman receives a thank you note with a coupon for a return visit. Meanwhile, the system instantly records the paperwork associated with the transaction and sends a replacement order from the store to the warehouse to replenish the purchased item. The cycle starts all over again.

    Three Keys to Distribution Magic
    The only way this magical shopping experience can happen is through an adaptive, intelligent, supply chain ecosystem incorporating the right ingredients to affect the desired outcomes. This requires a paradigm shift, not only in the way warehouse management is conducted, but in the larger way of organizational change. People, equipped with automated toolsets, must be culturally indoctrinated with a customer-service mindset to respond to any order in real-time. 
    To get there, supply chain executives must embrace three concepts as part of their new reality: adaptability, integration, and disruption.

    First, adaptability. Distribution is not a core function for many organizations. Over the next 10 years, more distribution functions will be outsourced, leading to a proliferation of third- and fourth-party logistics suppliers, each with their own unique processes and technologies to contend with. To succeed, a bottoms-up strategy for engaging suppliers will be required. You will need to get comfortable adapting your systems to theirs, exchanging your linear view of transaction pathways with a more integrated outlook of collaborative service. The new system will have to flexibly accommodate global product sources and efficiently deliver end products to consumers anywhere. Changes along the supply chain will have global effects, impacting cost and customer loyalty. Having an adaptable business model is essential to survival in the future.

    Second, you must be able to integrate your processes and systems efficiently. Today’s view of software as a solution is no longer adequate. You can’t count on an ERP system, best-of-breed WMS or CRM package to carry you through. It’s more than an interface. Separate pieces no longer suffice. For an integrated environment, you need a technology partner who understands your business, can analyze your network and offer a holistic approach that allows your team to adapt and react with a minimum of human interaction. When an event in the Philippines affects a store in Wichita, Kansas, the only way to manage is through an ecosystem that efficiently interacts with your supply chain, in response to the way your customers are purchasing now. Supply chain integration has become the new reality.

    Finally, you must expect disruption. Scrutinize your distribution network. How does it look now? How should it look in three to five years? Can you take on more business in a global marketplace given emerging trends and technologies? Acquisitions and divestitures up and down the supply chain may be in order. Outsourcing non-core services is probable. Where are you growing? Where are you shrinking? To create a distribution model capable of supporting long-range strategic plans, you must analyze your strengths, and those of your distribution partners, and make some difficult decisions. A hybrid approach, considering who does what best in the most efficient way, may be the ideal solution.

    As I survey the collection of baseball memorabilia I have placed about my office, I imagine a day soon when a trip to the ballpark prompts an urge to place an order with my dealer in New York. I pass through the turnstiles, prepared for an afternoon at Fenway Park. The Red Sox host the Brewers. 

    A sensor in the turnstile alerts my dealer that I’m at the game. My cell phone buzzes before I reach the hot dog stand. This just in. Two items: a baseball bat autographed by Red Sox slugger, Carl Yastrzemski, and a “mint condition” rookie card, featuring Brewers Hall of Famer, Robin Yount, now in stock. 
    The dealer’s supply chain network has automatically located the items in two separate warehouses and placed them on hold. I touch the screen and place my order. The items are automatically placed in the shipping queue. My account is debited; a receipt comes back in text. The order goes out. The next morning, a delivery service drops a box at the reception desk at my office. 

    It suddenly doesn’t matter who won yesterday’s contest. I’ve got a treasure to open. My dealer makes the sale without ever touching the product – a home run no matter how you slice it.
    ***
    Doug Braun is the Chief Executive Officer of IBS, a world leader in distribution resource management software, providing ERP and WMS business applications for the wholesale, distribution and manufacturer/distributor markets. As CEO, Mr. Braun is responsible for translating business needs into products that solve customer supply chain problems. IBS Dynaman is a best-of-breed WMS that controls the movement and storage of materials within a warehouse and processes the associated transactions, including shipping, receiving, put-away and picking. For more information about IBS, or to contact Mr. Braun, email douglas.braun@ibs.net.
    I have a confession to make. When I am not overseeing the operations of International Business Systems (IBS) in Solna, Sweden, I am an avid baseball memorabilia collector. Several months ago, after purchasing items online from a dealer in New York City, I was invited by the shop owner to visit his store on my next trip into the city. Having never been to his shop personally, I was delighted to meet and accepted the invitation.

    The day I visited, we spent almost an hour talking about baseball collectibles. The owner wanted to know my specific purchasing objectives. Who were my favorite teams? Do I collect cards, autographs, jerseys, or favor certain players? His interest in my hobby won me over. Since then, he has sent me numerous product recommendations unique to me. I now pay attention to his emails, because he tailors merchandise based on my interests.

    What does this have to do with the distribution business, you might ask? In my estimation, it has everything to do with it.

    The way products move from manufacturer to warehouse to distributor to consumer is ultimately driven by consumer behavior. The better you know your customer, the more effectively you negotiate the exchange, and the more value you create for yourself and your customer.

    Think about it. The cost to serve a customer is affected by an amazingly complex and dynamic set of variables, including time, materials, shipping costs, tariffs, middle men, mark-ups, margins, quantities, and personalization. You can tweak the system to gain a temporary edge. But, unless you consistently present your product at a price your customer is willing to pay

    Follow