Software Wars
The big boys chase after distributor software business
by Brent R. Grover
Unlike most wholesale distribution consultants, I have smelled the industry software soup, tasted it, and eaten it. Some of the broth smelled better than it tasted, and some of it tasted OK but did not prove to be a satisfying meal. So much for the porridge metaphors.
Back in the ’70s, as hands-on CFO at an innovative and highly successful distributor, I oversaw the creation of a made-to-order “BICARSA” – Billing, Inventory Control, Accounts Receivable and Sales Analysis – package that worked so well we licensed it to others. Years later, when I was CEO, our team installed two popular enterprise (ERP) systems, one of which is still in daily use 15 years later. Today, as a partner at Evergreen Consulting, I work with clients in various wholesale trade lines (such as industrial supplies, plumbing and electrical) who use ERP systems from providers such as Infor, SAP, Microsoft and Activant as well as legacy systems from the 1980s.
Since the 1970s, enterprise system software choices for wholesale distributors have evolved from hardware-driven packages such as IBM’s “DMAS,” custom-written systems for minicomputers (remember Qantel? BasicFour? MicroData?), packages promoted by the big accounting firms and, of course, industry verticals. Many wholesale distribution trade lines are still dominated by industry-specific vertical packages that, enriched with industry-specific features, became popular in one line of trade or another after catching on with leading companies. For example, an excellent system known as Tribute is widely used by fluid power distributors. Tribute was developed by one of our clients, B.W. Rogers Company, for its own business 30 years ago and is now used at more than 200 companies. Businesses like Rogers were the fountainhead for most of the popular systems on the market.
As noted by Steve Epner, consultant at St. Louis-based Brown, Smith & Wallace (as well as “innovator in residence” at St. Louis University), “Vertical market knowledge, otherwise called domain expertise, can be a major factor in determining the success of an implementation project.”
However, according to distribution industry independent consultant and Industrial Supply magazine contributor Dick Friedman of General Business Consulting, “Application-specific software is not necessarily the best solution for a distributor in a given industry.”
The debate continues, but generic ERP packages have been adapted and are being used successfully in various lines of wholesale trade.
Software industry consolidators such as Infor and Activant have grown by snapping up popular enterprise systems such as NxTrend, Daly & Wolcott and Prelude. Client retention is high due to the cost and effort needed to switch, not to mention some risk. The private equity investors in firms such as these undoubtedly noticed not only the loyalty of distributors, but also the opportunity to acquire competing packages and trim redundant marketing and product development costs. Investors are, of course, also aware that users of systems have little leverage against price increases for ongoing support, enhancements and custom programming.
Unless there are serious problems with the old legacy system, it takes a compelling proposition to motivate a distributor to change to a new enterprise system.
In spite of the heavily entrenched user base, new entrants continue to come onto the distribution software stage in spite of the investment of money and energy needed to launch an ERP system attractive enough to entice embedded distributor clients to switch. Of course, the software industry’s biggest players have ample resources to invest. The venerable behemoth SAP, known for its success at some of the world’s largest companies, now offers a scaled-down version of its software even for smaller distributors. Microsoft acquired an established distributor enterprise system previously known as Axapta, relaunched as DynamicsAX.
Microsoft clearly has its eye on the wholesale distribution market for its integrated technology “stack” of products such as DynamicsAX, the near-universal Microsoft Office and much more. “Microsoft is investing into wholesale distribution as part of their industry strategy. The initiative is designed to drive industry-specific innovation for customers and enable partners to deliver repeatable, vertical solutions,” says Andy Vabulas, I.B.I.S. CEO.
Vabulas says that the foundation will be enhanced further with the upcoming release of Microsoft DynamicsAX Version 6, introducing richer capabilities for the Dynamics focus industries including wholesale distribution.
I attended the 2010 Microsoft Worldwide Partner Conference in Washington in July. A group of five certified partners including I.B.I.S. announced formation of a new group, Advanced Distribution Partners, to promote and support DynamicsAX to wholesale distributors. “Microsoft Partners are aligning themselves into vertical markets in which they have expertise,” says Vabulas, a founder of the new group. “Customers today demand technology providers know their business and how technology can drive those businesses forward.”
In Dick Friedman’s opinion, “The name Microsoft does not guarantee success; (Microsoft) does not sell nor support the software that bears its name.”
Vabulas explains Microsoft’s approach: “Microsoft’s entire business is built upon working with partners. No company, not even Microsoft, can have a solution specifically designed for every company. Microsoft DynamicsAX delivers a rich industry foundation on which partners build packaged applications for niche verticals, such as industrial supply distribution.”
Steve Epner comments, “Microsoft has had a couple of false starts going after the wholesale distributor. So far, they are not the 800-pound gorilla.”
Ross Elliott, executive vice president at software provider Accellos in Colorado Springs, is a former vice president of Business Strategy at Infor. Elliott’s view is a bit different: “Having been in this market for over 30 years, it’s been interesting to watch the generalists (Microsoft, SAP and Sage) compete with the industry specialists like Activant, Infor and Tribute. For years, the generalists have been missing key vertically focused functionality that enables them to solve the distributor’s business problems. But, over the last couple of years, their core products have begun to incorporate more of the necessary functionality and independent software partners have sprung up with complementary products that round out the needed capabilities. This ‘suite’ approach enables providers like Microsoft to offer the distribution channel the best of both worlds – leading technology and excellent industry specific functionality.”
Speaking of gorillas, Microsoft is not the only one in the software jungle. Epner advises that “The big guys (SAP, Oracle, and others) are looking for a strategy to allow them to sell to smaller customers to keep their pipelines full. Keep an eye on what they are doing.”
When the time comes to evaluate new ERP alternatives for your distribution business, you will find exciting new options as well as the familiar.
Brent Grover has written five books for the NAW Institute for Distribution Excellence and numerous articles about distribution management. He is a regular contributor to Industrial Supply magazine. Reach him at (216) 360-4600 ext. 101 or brent@evergreen-consulting.com.
This article originally appeared in the Sept.Oct. 2010 issue of Industrial Supply magazine. Copyright 2010, Direct Business Media.
INDUSTRIAL SUPPLY MAGAZINE
The March/April issue of Industrial Supply magazine features an in-depth cover story about Joyce Lansdale and Vallen. Plus, we're featuring articles by contributing writers Dirk Beveridge, Frank Hurtte, and David Kahle, as well as interviews with numerous product and distribution industry experts.
