Key Elements of The Digital Transformation
By Scott Benfield
In the July/August issue of Industrial Supply magazine, we reviewed the digital strategy for distributors. The digital strategy is comprised of the core elements for digital commerce. It includes the existing ERP platform, e-commerce transaction platform, PIM system, faceted search and procurement management software (punch-out).
The digital transformation, introduced in the Sept./Oct. issue, is the pairing of existing processes to the digital strategy. The digital transformation is responsible for two-thirds of the problems with successful e-commerce. We discuss key parts of the transformation in the final installment of the series.
Top Management Direction
Nothing matters as much as the understanding, direction and leadership of executive management for a successful transformation. Executives either get it or they don’t when it comes to amending existing processes to the digital strategy. The general assumption is that if company leaders are going to invest the capital (currently estimated at an average $2 million) for the digital strategy, they will understand the importance of the transformation. Our findings are that many wholesaler executives spend necessary funds on a digital strategy and successfully build-out the technology. However, they grossly underestimate the difficulty in marrying existing processes to the e-commerce effort.
Too often there is a belief that existing processes don’t need amending to the technology. It is regarded, tactically, as a means to successfully launder a transaction. If this is the case, there are typically few substantial changes to existing processes. There is also a better than average chance the digital strategy investment will yield sub-par results or worse.
If management views the technology as strategic, there are significant changes, including sales force changes, operating platform changes and marketing investment that need to occur.
Sales Force Changes
The outside sales effort has, for decades, been the backbone of organic growth. With e-commerce, the sales effort enters a different paradigm. Much of the commodity product sales are moved to e-commerce and not assigned to the outside seller. Sellers are assigned to roles other than strictly geographic territories. These include: key accounts, consultative, product expert and field service.
Key account or enterprise sales efforts are assigning the largest and growth accounts to a seasoned rep. The sales rep often has experience in other areas of the firm including operations, finance and marketing. The transition to this sales role is not as disruptive as others and the collapsing of territories and their reformation is, for key accounts, welcomed.
Consultative sales roles are often confused with product experts. Consultants are learning experts in a broad, often managerial, process. Consultants, from a B-to-B perspective, are typically found in the areas of supply chain, marketing and sales, and strategy. They work on a project basis and are paid by the project. We find increasing “hybrid” arrangements where independent consultants work with B-to-B companies and their customers to introduce and get up and running new strategies or disciplines that conform to the digital supply chain.
The product/application expert sales role is a burgeoning position as customers outsource mature technologies. We’ve seen process experts in automation, process heat, IT integration between client and customer, workflow/workstation design, and fluid power pump and control systems. Process experts typically have engineering or work experience in their discipline prior to becoming a sales professional. They spend their time with larger customers who depend on their expertise, or courting sizable customers who want to outsource the management of an extensive and related group of in-house applications.
Field service is a growing entity in B-to-B markets, as there is a push further into the supply chain for differentiation. We place field service as a sales function, as the quality of the personal experience is integral for call back. We’ve seen field service in oilfield start-ups and maintenance, machine repair in the jan/san sector, pump repair in fluid power and other applications. Much of field repair is purchased by the distributor or manufacturer. Field repair technicians are often small business owner/operators that benefit from the management, IT and capital funding of larger entities.
Other sales force configurations will emerge as the digitization of the supply chain continues. We encourage B-to-B executives not to build out the technology for e-commerce and simply lay it over the existing sales effort. The result is that the operating platform becomes lengthened, which results in added complexity and cost. Beyond the sales force changes, there are alterations in the operating platform that should be considered as e-commerce is perfected.
Streamlining the Supply Chain
The reduction of brick and mortar locations will be ongoing, as e-commerce is rolled out across the supply chain. Today, there are numerous inventory holding entities across North America that were built in yesterday’s environment where communication and the ability to check available inventory and receive it were less efficient. For distributors, we expect much redefinition of the local branch, including movement away from simplistic hub and spoke systems to inventory and storage strategies specific to market segments and their operating profiles. For instance, if a customer segment has significant downtime risk, we expect this to be paired with quick-delivery systems or core items close to the jobsite. In other segments where inventory usage can be planned, it is more efficient to develop stock loading systems with customers that allow them to place online orders when reorder points are hit. Much of these material requirements can be shipped from centralized warehouses and are more efficient than yesterday’s bin counting or managed inventory efforts.
There will also be a re-evaluation of in-house fleet services. We have noticed more distributors opting for outside delivery services over in-house. Where the product can be handled and shipped with relative ease, outside services are typically lower in cost than in-house options.
The opportunities for streamlining the supply chain follow the advantages of e-commerce, including better information on material usage and availability. Combined with better logistics and lower-cost outside services, we expect less direct investment by B-to-B firms in storage and movement of material, and greater partnering with vendors that specialize in these functions.
Marketing Changes
Marketing in B-to-B firms is often a fledgling discipline or confused with sales. In B-to-B e-commerce, a strong marketing effort is crucial. First, B-to-B commerce is enhanced by the development of “communities” or micro-sites for customers. The idea is that market segments can be successfully developed and used by customers from the e-commerce site. We direct readers to The Webstaraunt Store (www.webstaraunt.com) for a living example. The food service supply distributor has, on the home page, successfully developed a segment experience for customers. On the far right of the home page banner is a tab titled “Business Type.” The drop down menu is for different customer types including coffee shops, ice cream shops and Asian restaurants, etc. Each customer type is a segment with different products and services specifically needed for their business. This saves time for the customer as they don’t have to hassle with winnowing through a complex product taxonomy to find what they need. It also brings forward unique offerings of the supplier specific to that segment including kits, assemblies and services.
To successfully maintain product content, organize it, and improve product offerings, the role of the product manager will become more common. Product managers, besides having a good working knowledge of the firm’s products, are entrusted to develop the product taxonomy, which organizes products by family/function/type and allows for easier search. Product managers also upkeep product content as it changes and analyze product usage to recommend SKU additions and deletions. Currently, product managers are found in leading manufacturers and distributors but we will increasingly find the role in mid-market firms as the digital supply chain grows.
Transformation and New Knowledge
The digital transformation often involves new knowledge and knowledge specialists. Their roles are as change agents and they must be supported by executive management. Existing personnel steeped in the old style supply chain are, typically, poor choices for the digital transformation. Transition of the existing sales, operations and marketing platforms to digital commerce is also not an incremental, “do-it-as-we-have-time” event. The changes are large in scope and effective change management techniques are best employed.
Currently, the transformation of existing processes in many B-to-B firms is the most difficult and daunting part of e-commerce, and accounts for some two-thirds of digital failures. The changes involve amending existing culture, changing roles and their ensuing measurements and reporting structure, and hiring new employees with new knowledge. Existing executive management should not assume their past experience is sufficient to drive the transformation to succeed in the digital age.
Scott Benfield is a consultant for the B2B supply chain in the areas of mergers and acquisitions, operating performance improvement, and digital marketing. He can be reached at (630) 428-9311 or scott@benfieldconsulting.com. His site is www.benfieldconsulting.com.
This article originally appeared in the Nov./Dec 2015 issue of Industrial Supply magazine. Copyright 2015, Direct Business Media.
INDUSTRIAL SUPPLY MAGAZINE
The November/December issue of Industrial Supply magazine features an in-depth cover story about Kimball Midwest. Plus, we're featuring articles by contributing writers Dirk Beveridge, Frank Hurtte, and Mike Marks, as well as interviews with numerous product and distribution industry experts.
