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Technology Drives Growth, Or Vice Versa?
In late 2003, SM surveyed distributors about their business outlook for 2004. At that time, 57 percent of respondents said they expected to increase technology spending in 2004.
Other news reports were equally optimistic. In late 2003, Economy.com, West Chester, Pa., predicted a 16 percent increase in IT equipment and software spending for 2004.
“Companies appear to want to invest in IT to get back on a growth curve,” predicted Jeff Rodek, CEO of software publisher Hyperion, in a December 2003 installment of BusinessWeek online. “I think 2004 could be a better year.”
The predictions made sense. Corporate IT spending had been relatively weak since its most recent peak in 2000 — the tail end of the period when companies were scrambling in response to the tech boom, while also preparing for the “impending disaster” of Y2K.
The 2004 economy has shown signs of an uptick, and distributors’ mindsets seem to have migrated from replacing what’s broken to putting money toward efficiency-enhancing business technology. They’re busy overhauling old, outdated equipment, and they’re relying on technology to drive their companies’ growth.
“Technology is a tool that provides distributors with mechanisms to reduce costs and improve quality associated with order processing, inventory management, customer service, order accuracy and administrative processes,” says Adam Fein, Ph.D., president of Pembroke Consulting, Philadelphia. But, he warns, “technology alone can neither remedy customer satisfaction problems nor replace a clear business strategy.”
Getting With the Program
One of the most common tech investments for businesses is computer hardware. Newer, better hardware is constantly rendering current systems obsolete. At the same time, prices are being driven down. It’s for these reasons that distributors are constantly reassessing what capabilities they might achieve with equipment upgrades.
Chuck Crouse, owner of Crouse Enterprises, a small jan/san distributor in Vacaville, Calif., says his company shelled out around $5,000 this year for a new server and computers. The quicker machines — and increased data storage capabilities — have helped the company increase efficiency while serving customers better. The new system replaced computers that were four or five years old, says Crouse, and the capabilities are enabling the company’s current growth.
“[The old system] got too slow. We were running at 85 to 90 percent capacity and it would crash,” he explains. “Now, we’re at 35 to 40 percent.”
The company’s new computer system also makes information sharing possible, Crouse says — all in real time.
“If the office manager does a quote for one of our customers with 180 line items on it, I can access it from my terminal, I can transfer it onto my laptop, and anyone else with access to the system can use it.”
Ready For the Web
Other companies are looking to expand their reach via the World Wide Web. While websites and Web ordering have become common ordering methods for many jan/san distribution companies, others are just now preparing to pull the trigger.
In 2004, Barry Cohen’s company, Monterey Sanitary Supply Inc., Monterey, Calif., undertook a project company executives had been talking about for years: by late summer, the company will launch a website for the first time.
“We decided, as a company, that it was the best approach,” says Cohen, president and co-owner of the company. “Our best competitor here doesn’t have a website and we wanted to stay ahead of the curve.”
Cohen’s e-commerce website will feature expansive product catalogs, and links to the company’s buying group vendors and partnering wholesalers. Customers will be able to place orders online, freeing up salespeople’s time for prospecting or tending to other accounts.
Distributors’ customers will inevitably provide the impetus for distributors who don’t yet have websites to become Web-savvy, agrees Fein.
“Larger customers will force jan/san distributors to complement phone and fax ordering with online technologies,” he says.
In the past, technology was a luxury of big companies, one that trickled down to small ones later. That trend, however, may be dying. Technological savvy is no longer limited to large distributors with greater financial resources, says Fein. In fact, small distributors are catching up. Fein refers to Pembroke’s most recent industry study:
“In Facing the Forces of Change we found that smaller distributors will catch up to larger companies in the application of today’s technology by 2008 as costs and complexity drop.”
Finding the Right Fit
Once a distributor defines his technology goals, carrying out the plan is the second order of business. Some take it upon themselves to see that a project gets off the ground. Others look to outside expertise.
When deciding on the best way to launch his company’s website, Cohen enlisted the help of professionals, although he maintained a voice in the decision making.
“We got to pick and choose,” says Cohen. “We looked at a lot of jan/san websites and picked out what we considered to be good.”
Crouse, too, looked outside his own walls to find someone qualified to help him make technology-related choices. Living in Silicon Valley, however, provided an advantage.
“My son-in-law is in the tech field and he did the research for us,” Crouse explains. “He looked at a lot of things, and said [the Dell system] was off the shelf, less expensive than buying a server and piecing everything together, and you can buy the whole system and it’s reliable. You just plug it in and it works.” Crouse’s business software choice: QuickBooks Pro®.
Crouse says he chose to stick with the company’s core competencies, and leave the IT research and implementation to the professionals.
“That’s not something I want to deal with on a day-to-day basis,” says Crouse. “I’m in the janitorial supply business, not the computer business.”
Other distributors prefer to make tech upgrades happen single-handedly. The down side? It can require a great deal of time and energy.
Not only is it a monetary investment — it can take up quite a bit of precious time, says Becky Eastwood, president of Puget Safety Equipment Co., Bellingham, Wash.
Eastwood recently invested about $11,000 for a new operating system (OS), Microsoft Windows® Small Business Server 2003. She says she’ll have to dedicate three months to implementing the new system and converting information.
“It’s a headache to set up because it’s almost like starting your company all over again,” says Eastwood, who has taken classes and reads magazines to stay apprised of tech trends. “I’m going to a whole new OS, so we want to clean up our OS as far as inventory, customer information and vendor information. We’re going to input everything from scratch so we don’t import old information into the new system.”
Planning To Grow
Like other distributors, Eastwood believes the hardware and software upgrades her company has made better poise the company for growth.
“It’s a pretty powerful system,” says Eastwood. “We’re not a huge company, but we have a really good sized accounting system for our company that allows us to grow.”
Still, jan/san distribution companies tend to approach technology acquisition conservatively. Most prefer to wait, rather than take on the role of groundbreaker and devote the necessary capital investment to software or equipment.
“We’ve been kind of laying back and not jumping on the bandwagon right away,” says Eastwood. “We’re watching the technology move forward a little bit and jumping on board when we think it will benefit us.”
Part of the reason, Eastwood says, is that customers are not clamoring for these capabilities, but her company will stay tuned in to end-user preferences.
Eastwood says a cautious approach to technology adoption has not hurt the company.
“We should’ve done this two years ago, but I’m glad we waited,” says Eastwood.
Eastwood is not alone. The jan/san industry in general is slow to embrace technology. “The jan/san industry lags other distribution industries in applying IT to routine activities,” Fein concurs, “so a great deal of catch-up investment needs to occur.”
Looking Down the Road
The past three years may have been a bit slow for technology adoption in the distribution community, but the future is looking bright, according to Pembroke’s research.
“In Facing the Forces of Change, we found that wholesalers and distributors spent approximately $53 billion on computer hardware and software in 2003, equal to one out of every five dollars spent by U.S. businesses. We forecast spending on computer hardware and software by wholesalers and distributors to exceed $80 billion in 2008,” says Fein.
And, as time goes on and customer needs evolve, distributors will look to purchase or expand systems to fit their demands.
“In coming years, distribution executives will invest in technologies that improve productivity, enhance existing service offerings, and meet new demands for customer self-service in B2B supply chains,” Fein adds.
SBA Studies E-Procurement By Small Firms
Small firms may rely more on e-procurement tools for obtaining federal contracts than their larger counterparts do. So says a June study by the Small Business Administration’s (SBA) Office of Advocacy.
The report, “Trends in Electronic Procurement and Electronic Commerce and Their Impact on Small Business,” also notes that there are barriers to small businesses’ effective use of e-procurement, including shifts in the government’s e-procurement system, the expense of monitoring procurement offerings, and confusion over multiple points of entry to procurement systems, according an article in SBA’s newsletter, The Small Business Advocate. The full report is available online.
Newly Formed ISA Launches Site
July saw the launch of www.isapartners.org, the website for the association formed by the recent merger of the Industrial Distribution Association (IDA) and the Industrial Supply Manufacturers Association (ISMA). The merger, which was approved in May, consolidated memberships of the two associations.
The site features an events calendar, industry resources and research, as well as membership information.
Now On Cleanlink...
Housekeeping Solutions, SM’s sister publication for in-house cleaning professionals, can help distributors put a face on their housekeeping customers.
The magazine’s July cover story, available at CLEANLINK, delves into the diverse backgrounds of today’s housekeeping managers: education, experience, and the path that led them there.
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