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A Key Question Wholesale Distributors Should Ask Themselves – What Can I Do Today to Make it Easier for My Customers to Do Business With Me?

Friday, August 28th, 2009 by admin

Today, wholesale distributors are looking for ways to continue to protect their existing customer base, to hold or increase profit margins where possible, and to look for opportunities to grow their market presence through selling additional products and services to existing customers and by finding and attracting new customers with whom to do business.

One way in which distributors can continue to maintain existing customers and add new ones is by continually asking, “What can I do today to make it easier for my customers to do business with me?”  What is it that customers are looking for in the first place?

Customers want to buy the products and services they need from their supplier.  They don’t want to hear that their supplier can provide certain products from a given manufacturer’s product lines but can’t provide others because “we don’t stock those items.”  They may even be looking for suppliers who are willing to place consignment inventory of certain high-moving or highly critical stock at the customer’s premises for easy consumption.

Customers want straight forward and accurate pricing.  They also want to understand their suppliers’ ability to deliver the given products they’re looking to acquire in the time frame within which they need them.

Once they’re ready to place an order with their supplier, they want to be able to do so as efficiently as possible.  They want to be able to minimize their work efforts while providing their supplier the precise information they need to be able to receive the products in the exact quantity they’ve ordered, and to be invoiced exactly what they expect for those products.

Customers want to be able to choose their preferred methods of placing orders – either via eCommerce, EDI, fax, email, or phone – and want to get back an accurate promise date from their suppliers the first time, every time.  They likewise want to receive communications from their supplier in their preferred manner.

When the products they’re acquiring are delivered, customers want to receive the expected quantities on the date and time frame in which they were promised by the supplier.  They may also want their suppliers to perform value-added services including applying correct product labeling and price marking of the products to the customer’s specifications.

Finally, customers want to work with suppliers who can resolve any issues that may arise when transacting business together in an expedient, professional manner with a first-time resolution.  They also want their suppliers to take the data arising from problem resolution and make continuous improvements to minimize or eliminate the possibility of the given issue arising again in the future.  They want their suppliers to make it easy for them to get the information they need in the manner in which they need it to be able to transact and analyze their on-going business.

The bottom line is that customers are looking to do business with suppliers who “say what they do, and do what they say – period.”  Customers want to work with suppliers who are looking out for their customers’ best interests while continuing to grow their own businesses.  By leveraging wholesale distribution software solutions, like TGI’s Enterprise 21, wholesale distributors can meet and exceed their customers’ precise expectations.


Go-Live Expectations

Monday, August 24th, 2009 by Alex Smith

The final step in the implementation process is the day of system go-live. On this day, the manufacturing or distribution organization will switch from its former software system to a new ERP software solution to serve as the transactional backbone of the organization. On this day, all of the company’s former problems will go away, 100 orders above the daily average will be processed and shipped, and worker productivity will increase, on average, 75%. This is what any company who has just completed a software implementation should expect, right? Wrong. Initial system go-live is a critical step in the migration from one software system to another, but it is unrealistic for the organization to expect that all of its troubles will be solved on the initial go-live date. What then, should the organization expect on the go-live date in terms of customer orders, worker productivity, and return on investment?

From a customer orders standpoint, the organization should expect to enter, pick, pack, and ship customer orders on the initial go-live date. We frequently hear terrible stories in the ERP industry of companies investing six to nine months of employee time and money in a software implementation only to go live and not ship orders for another two, three, or four days, causing complete chaos for customer service personnel and the organization’s customers. I can honestly say that in nearly twenty years of business, we have been very fortunate to have every one of our customers ship orders on their initial go-live date. With sufficient testing and training, there is absolutely no reason why orders should not be shipped on the go-live date. That being said, companies should also expect the volume of orders shipped on the initial go-live date to fall slightly below average. Issues (hopefully minor) will arise, questions will come up, and some employees will not have a full, 100% understanding of the new pick, pack, and ship process within the new system; however, things will improve, the process will continue to be practiced, and overall operations will become much more efficient over time. One of our customers had an average of roughly 300 orders shipped per day under their old system. When they went live in January 2009, orders shipped fell to below 200 the first day of system go-live (a Monday), climbed above 250 the following day, and reached above 300 by Wednesday. Within two weeks after go-live, the company was shipping nearly 500 orders per day. Again, companies should fully expect to ship orders on the initial go-live date but should also expect to see an initial decline followed by a steady increase in shipping volume over the following weeks.

The organization should also expect overall worker productivity to decline on the day of go-live and then steadily increase in the following weeks. The transition from one software solution to another is not always easy for or widely accepted by the organization’s employees. No matter how much training end users receive during the implementation process, they are always going to have a multitude of questions upon initial go-live. They will, however, learn how to perform their daily tasks in a productive and efficient manner with the new software solution and will more than likely become more productive over the course of a workday than they previously had been under the old software platform. Workers starting to use a new ERP solution are like toddlers – they need to learn how to crawl before they can walk or run.

Lastly, what can the organization expect in terms of return on investment on the day of initial system go-live? The answer, bluntly, is nothing. Realizing a return on investment for purchase of an ERP solution takes time. Some companies, depending on the nature of their business, realize a return on investment in a variety of different ways and over a variety of times. Larger organizations can achieve a sizeable return on investment by eliminating staff due to streamlined processes and operations under the new software solution. One of our customers, for example, was able to eliminate 30% of its customer service personnel within 4 months of go-live due to improved visibility to customer information and more efficient order processing. Smaller businesses can achieve a return on investment through increased productivity, reductions in employees’ time spent on a given task, and improved inventory accuracy and data integrity. Even the task of closing an accounting period can save a CFO hours of time using a sophisticated and fully-integrated ERP system. Organizations of all sizes can and should achieve a sizeable return on investment. Such a return, unfortunately, is not going to occur on the initial go-live date. For more information on calculating a return on investment for purchase of an ERP software solution, click here.

Initial system go-live is a critical step in the overall implementation process. Companies should be realistic with their expectations but should also demand reasonable results from their software supplier. Orders should be processed and shipped, and end users should be sufficiently trained to make it through the day.


The Small Business Software Rules: Add a Product, Upgrade Software

Friday, August 21st, 2009 by Alex Smith

I recently spoke with a small business owner who provided me with a piece of information I previously was unaware of. The small business owner said that his company had started running QuickBooks approximately three years ago when the business was just in its infancy. The business grew rapidly, increasing its customer base and its product offerings. One day, the business had reached a total of 3,501 products in its catalogue. When the QuickBooks user entered the 3,501st product, the software informed the user that the entry was invalid, as QuickBooks would only support a maximum of 3,500 total products. When the small business owner called customer support, he was told he needed to upgrade to QuickBooks Enterprise Edition to allow him to enter more products. I, needless to say, was shocked. Believing that his business was not ready to migrate to a more sophisticated distribution software system, the owner spent $3,000 to upgrade to the Enterprise Edition for the privilege of adding new products, which, according to the owner, was simply a waste of money.

This pricing scheme for varying degrees of standard software functionality should be a lesson to all small business owners as they consider migrating from their existing small business software to a more sophisticated ERP software solution. Owners should pay careful attention to a software solution’s pricing structure and the software’s limitations at each price level. By requiring software vendors to disclose the true cost of all demonstrated software functionality before contract signing, the small business owner will receive the most accurate cost estimate to be used for budget and ROI calculations.


Which are Your Most Profitable Customers? Leveraging Your ERP System to Analyze True Customer Profitability

Wednesday, August 19th, 2009 by admin

Strong ERP software systems can enable companies to more accurately assess true customer profitability.  While gross profit margin is an obvious measure of customer profitability, there are a number of other factors which can affect true customer profitability dramatically.  Executives and sales managers are encouraged to include the below gross margin costs in their overall customer profitability calculations.  An obvious place to start is to make sure you’re including all of the costs of promotions, allowances, and rebates that the customer qualifies for in the cost equation.

Next, consider the internal administrative costs associated with entering customer sales orders into your system.  These costs can vary substantially depending upon the methods by which your customers place their orders.  Do they email, fax, or phone in orders, or do they require a company representative to call out to them to get their orders placed?  Or, do your customers place orders via EDI transactions where there can be little or no manual interaction required beyond the initial setup of the transactions in the EDI translation solution being used?

Assuming you have a company representative speak with your customers to get orders placed in your system, you may have the opportunity to perform cross-selling or up-selling to those customers.  Likewise, the company representative can discuss with your customer contacts about products they may have ordered from you in the past and how they’re sourcing those currently.  You might be pleasantly surprised by how much information you can receive from your customers by merely asking the appropriate questions.  You can potentially find out from whom your customers are buying and the associated prices they’re paying your competitors for these items.

Does your customer access order status electronically through your Web site or via EDI transactions, or do they call your customer service personnel to inquire about the status of their orders?  One of the most interesting facts about enabling customer self-service has been that not only has this process resulted in reductions of administrative costs by companies, it has also produced increased customer satisfaction by enabling their customers to get the information they desire any time of the day or night, 24 hours a day, 365 days a year.

One of the costs that is frequently overlooked when analyzing true customer profitability is the rate at which your customers change their orders once they’ve been placed in your system. If you’ve enabled your customers to be able to change their orders themselves via the Internet or electronically via EDI transactions, this will result in reduced administrative costs over customers who communicate their order changes via email, fax, or phone which requires your personnel to make these changes manually in your systems.

Of course, your customers’ orders must be picked, packed, and shipped.  Are your customers ordering in bulk quantities where there are efficiencies gained through picking case or pallet quantities, or are they buying in eaches where individual products must be picked and packed for shipment?  Similarly, you may be making margin on the shipment of your products to your customers by charging the customer at standard transportation rates while you’re paying a reduced rate to your carriers.  Alternatively, you may be giving your customers free or reduced freight due to their status as a preferred customer or based on the overall pricing of the given order.

Once your customer receives its products, what is their frequency of returning products to you via RMA’s?  Some organizations may be charging their customers restocking fees in an attempt to offset some or all of the cost for the RMA processing while others may not.  Additionally, you may want to analyze how frequently your customer places a shipment variance claim with you where they’re claiming they’ve received less than the quantity you believe you had shipped them.

Next, there are costs associated with customers short paying invoices or taking unauthorized discounts.  Likewise, it costs you money to provide your customers with a professional, well-trained account management team that may include direct sales reps, indirect sales reps, inside sales reps, and sales management.  There will be costs associated with traveling to see your customers and sales related travel and living expenses for activities such as golf outings or other entertainment activities.

The bottom line is that strong ERP systems can better enable executives and sales management to more accurately assess the true profitability of their customer base by including all relevant costs to get a handle on the bottom line.


Three Benefits to the Wireless Warehouse

Wednesday, August 19th, 2009 by Alex Smith

A key functional element to any wholesale distribution software solution is an integrated warehouse management software system that provides distributors the ability to operate their warehouse in a completely wireless, paperless environment. A wireless warehouse that utilizes RF and barcode technology can streamline warehouse processes, decrease the likelihood of data entry errors, and improve worker productivity. While there are hundreds of benefits to a wireless warehouse, here are three:

Directed Picking. Directed picking utilizes RF devices to prompt warehouse workers to pick items using an optimized picking path that reduces overall time spent during the picking process. Rather than a warehouse worker simply looking at a pick ticket and traveling around the warehouse in a completely random order, the RF device can instruct the worker to pick items on a pick ticket from their associated locations within the warehouse in a logical sequential order that reduces worker transit time from one location within the warehouse to another. This feature can streamline the pick process and reduce average picking time to improve warehouse efficiencies and lead to increased worker productivity and daily shipping volume.

Accurate Data Entry. Using RF and barcode technology can greatly decrease the likelihood of data entry errors in receiving, picking, and shipping. Lot numbers, for example, which can frequently be several characters long, can easily be scanned and recorded in the ERP system via barcodes and scanning devices with little to no manual data entry. Deploying these devices for use in the warehouse for receiving, picking, and shipping can result not only in faster, more efficient data processing but improved data integrity and product tracking as well.

Faster Physical Inventory and Cycle Counts.
A common process many distributors deploy for physical inventory and cycle counts is to have a warehouse worker walk throughout the warehouse with a clipboard and piece of paper, manually count and record the quantities of each product in the warehouse, walk back to his or her computer, and then manually enter the recorded inventory quantities into the organization’s software system or Excel. This process, needless to say, can lend itself to a number of problems. First, manually counting and recording inventory quantities takes a painful amount of time for people in the warehouse. Secondly, manually counting and recording inventory quantities on paper and then entering those values into the computer increases the likelihood of data entry errors and diminishes the integrity and accuracy of the counted values. By using barcodes and scanning devices in the warehouse, workers can complete their physical inventory and cycle counts in a timely, efficient manner. Furthermore, by scanning items, the recorded quantity of items is directly recorded in the ERP system, eliminating multiple steps to complete the same process while simultaneously improving data accuracy and integrity.


Gauging Long-Term Viability of Software Vendors – Examining Revenue-per-Employee

Monday, August 17th, 2009 by admin

One of the key areas companies attempt to gauge as part of their ERP selection projects is the long-term viability of potential ERP software companies.  On the surface, one might initially assume the vendor’s annual revenue is the key element to consider, but is it really?

In recent years, Oracle bought PeopleSoft, who had previously acquired JD Edwards.  In using Software Magazine’s Software 500 as the data source, PeopleSoft reported corporate revenue of $2.27 billion in 2004 – the last year they reported data as a separate business entity prior to their acquisition by Oracle.  Likewise, JD Edwards reported corporate revenue of $904 million in 2003.  Assuming revenue alone could be used to gauge long-term viability, would anyone have come to the conclusion that these software vendors would be gobbled up?  Some other large entities that have been acquired in recent years with their last reported annual corporate revenue from the Software 500 include Siebel at $1.34 billion, Hyperion at $765 million, SSA Global at $712 million, Geac at $444 million, and Intentia at $425 million.

Rather than merely reviewing revenue, it is our recommendation that potential buyers of ERP systems and consultants with whom they work take a good look at the various vendors’ revenue-per-employee ratios.  For example, let’s examine this in light of the recent announcement that SoftBrands was being acquired by Infor.  SoftBrands reported corporate revenue of $93.4 million with 775 employees in 2008.  This equates to a revenue-per-employee ratio of roughly $120,500.

In reviewing a series of twenty-five software businesses (including ERP, supply chain management, CRM, and financial management software companies) which have been acquired by other ERP software businesses since 2002, seven of these had revenue-per-employee ratios between $100,000-150,000 in their last year of reporting, nine were between $151,000-200,000 (including PeopleSoft and JD Edwards), five were between $201,000-250,000, and three were between $251,000-280,000 (Hyperion, Mapics, and Siebel).

So, what are the revenue-per-employee ratios of some of the familiar ERP software vendors in the market today?  For 2008, Microsoft led the pack at approximately $647,000 in revenue-per-employee, followed by SAP at $344,000, and Oracle at $240,000 respectively; however, these numbers include these organizations’ complete portfolios of products and services rather than ERP software sales and associated services revenue alone.  In reviewing data for the top ten big name Tier 2 ERP vendors included in the study – using 2008 data if they reported or their most recent reporting in 2007 or 2006 otherwise – four of these businesses reported revenue-per-employee ratios between $100,000-$150,000, while the other six were between $151,000-200,000.

Based on the percentage of employees with strong technical talent that software businesses must attract and retain, and considering a typical employees’ salary and benefits, ERP software companies whose revenue-per-employee ratios are at or below $150,000 may start to raise some serious questions about their long-term viability.

Businesses that are selecting new ERP systems are doing so with the knowledge that they are making a long-term commitment to run their businesses on the new software packages and to work with the associated software vendor for roughly 8-12 years, on average.  In doing so, gauging the long-term viability of the software vendor is a key element to this long-term success.  We encourage software selection teams to examine potential vendors’ revenue-per-employee ratios and trends over the past several years before making a final commitment to move forward together.

Note: Software Magazine’s Software 500 has been the source of all revenue and employee data for this article.


Enabling Customer Service Personnel to Work with Customers and Purchasing to Source Products in Wholesale Distribution

Monday, August 10th, 2009 by admin

I was involved in a recent discussion with a wholesale distributor which can be a very common scenario.  A member of the distributor’s management team described that while they stock a portion of their various supplier’s product lines, they can sell virtually any of the products those suppliers offer in their product catalogues.  The distributor’s sales process generally starts via quotes.  Some of the items being quoted may be stocked by the distributor, others may not.

In situations where supplier catalogues are not stored electronically within the distributor’s wholesale distribution system, customer service personnel will spend a lot of non-productive time looking through supplier catalogues – either paper-based (which may have outdated data) or on a supplier’s Web site – or interacting with supplier personnel to find the desired items for their potential customers.

Furthermore, many wholesale distributors allow their sales or customer service personnel to place purchase orders directly with suppliers to fulfill the non-stock items on sales orders.  This process can result in numerous issues.  Sales and customer service personnel may buy the wrong quantity of items at a higher price than necessary because the distributor’s overall purchasing power with the given supplier may not have been accounted for in the given transaction.

A strong wholesale distribution system will provide sales and customer service personnel with electronic access to their suppliers’ most up-to-date catalogues online.  By enabling business rules about minimum profit margins for given product lines or customer groups, sales and customer service personnel can easily quote both stock and non-stock items in alignment with the management team’s targeted metrics.  When non-stock items are quoted, purchasing personnel can be notified electronically as to the existence of the given quote line items.

When the distributor’s customer elects to purchase the products on the quote, the sales and customer service personnel can convert that quote to a sales order, either in part or in whole based on those items desired, and have the system manage the committing of inventory for those items which are stocked by the distributor simultaneously with generating the purchase requisitions for the non-stock items.  These purchase requisitions can then be reviewed by the distributor’s purchasing personnel – those people the company has entrusted to work with its suppliers – to turn the purchase requisitions into purchase orders within the wholesale distribution system, and then transmit those purchase orders to the associated suppliers via the supplier’s preferred method of interaction – either printed paper, facsimile, email, or EDI.

By leveraging the capabilities of strong wholesale distribution systems, such as TGI’s Enterprise 21, wholesale distributors can enable their customer service personnel to work with their customers and their purchasing personnel to source products from their suppliers.


Selecting the Best Options for Successful ERP Software Implementation Training

Monday, August 10th, 2009 by admin

One of the key requirements for the successful implementation of a new ERP software solution is a well-defined and executed training plan.  A training plan should document how, when, and where all executive, functional, and technical user personnel will learn how to execute their work processes in the new system.

Some of the key elements of a training plan include whether the software vendor or implementation services provider will train all end users or if a train-the-trainer approach will be used.  A train-the-trainer approach is one in which key members of the implementation core team become functional experts or super users who then train their peers and colleagues within various functional areas.

Another decision to be made is how much of the training will be performed in an on-site classroom environment, via off-site remote or Internet-based training, or via computer-based or self-directed methods.  Please note that these methods are not mutually exclusive and may be used in combination during a successful implementation training process.

Some of the key aspects that will help determine how training is performed will be determined by the sheer number of personnel to train, the number of locations at which the personnel to be trained reside, and whether or not an entire workgroup can be trained concurrently vs. needing to stagger their training to keep portions of the team engaged in day-to-day operations while training others.

When the customer implementing new software is of any substantial size with multiple locations, a train-the-trainer approach typically can be delivered at a reduced cost over a method of having the software vendor or implementation services provider train all functional users.  Another benefit of a train-the-trainer approach is that the company implementing the new ERP software will generally come away with better overall internal functional knowledge because of the depth of training of the super users who become the internal trainers.  If this method is of interest, don’t assume that a given software vendor or implementation services provider has a core competency in training internal trainers.  Make certain to ask the various vendors about their training approaches and preferences during the software evaluation process.

While remote or Internet-based training can be performed concurrently with personnel from various locations without the need for travel, a key element which can be lost by using this approach is the ability for the trainer to walk around and observe the participants’ comprehension during hands-on exercises.  There will be both hands-on learners and lecture learners, and it will be imperative to cater to the needs of both groups equally.

Finally, there are advantages to using canned training aids such as computer-based training including the ability to ensure that a consistent level of training is provided and that the training materials can be used after initial production Go Live with the new system for ongoing training of existing and new personnel.  Ongoing training is a critical success factor to prolong the longevity of the ERP system and enable the company who is implementing new software to use the system as-designed and as extensively as possible.


Leveraging e-Commerce Functionality to Increase Software ROI in Wholesale Distribution

Monday, August 10th, 2009 by Alex Smith

A functional requirement that is often overlooked when selecting a distribution software solution is fully-integrated e-Commerce software functionality. In addition to providing more methods to customers to place orders, e-Commerce functionality can significantly improve software return on investment (ROI) for wholesale distributors by reducing the need for excessive order entry personnel and decreasing the call volume to customer service when customers want to track the status of their existing orders.

When evaluating a given vendor’s e-Commerce software solution, there are some key criteria the vendor’s software solution must meet. First, data that is displayed on the Internet through the e-Commerce portal should be pulled directly from the distribution software’s database. For example, when Customer A has Price A for Product A, and Customer B has Price B for Product A, each customer’s specific pricing for Product A should be displayed when they place a web order based on the customer’s log in ID for the e-Commerce portal. Customers should also then have the ability to track the status of their orders and view their order history.

Secondly, the vendor’s e-Commerce software should deliver functionality that is capable of providing relevant customer and product information to sales representatives. For distributors who have sales representatives who place customer orders while at a given customer’s facility or from the road, such functionality can improve customer service and sales revenue. A given sales rep should be able to log in to the distributor’s customer portal and be able to obtain customer information such as pricing, order history, total sales, any outstanding accounts receivable, etc., as well as product information such as available, on hold, and committed inventory.

Lastly, distributors should be able to tailor the e-Commerce software solution to have the same look and site architecture as the distribution organization’s website. While the software that is used to create pages such as an organization’s home page and contact page is different than the e-Commerce software that is used to place and track orders over the Internet, the aesthetics of the website should be completely transparent to site visitors.

Assuming the software vendor’s proposed e-Commerce solution can meet these criteria, distribution organization’s can continue to gain a larger return on investment from their purchase of an ERP system. By allowing customers to place orders over the Internet, distributors can begin to cut costs that were formerly associated with customers placing phone or fax orders. With fewer orders being placed over the phone and a larger percentage of orders coming through e-Commerce, distributors can reduce the need for excessive order entry personnel due to the automated order entry processes an e-Commerce solution can deliver. Furthermore, by allowing customers to track the status of their existing orders and view their complete order history via e-Commerce any time of the day or night, fewer calls will be made to the customer service department regarding order inquiries. Again, this can lead to a reduction in customer service personnel by readily providing such information to customers over the Internet and a tangible ROI for the distribution organization.

To view an interactive demonstration of TGI’s Enterprise 21 eCommerce solution, please click here.


Selecting a Third-Party IT Service Provider

Tuesday, August 4th, 2009 by Alex Smith

After selecting an ERP solution and vendor, the next step for the selection team, in the case of small business manufacturers and distributors, is to select a third-party IT service provider (this assumes that the small business does not choose a Software as a Service or Managed Infrastructure model, and the small business does not wish to employ a full-time IT employee). It is a good idea to discuss the ERP software’s hardware and network requirements with the chosen software vendor and then communicate these requirements to potential service providers. It is also a good idea to purchase new hardware (if new hardware is required) directly from the selected IT service provider. In choosing a third-party IT service provider, quality and scope of services and cost should be the main focus of the selection process.

From a services perspective, the organization should look for an IT provider who offers 24-hour technical support in the event of server or network issues should they arise. The organization should also look for a service provider who is capable of delivering a guaranteed, on-site response time should on-site fixes be required. Typically, a guaranteed response time of 4 hours or less is a fairly good service offering. In addition, the organization should look for an IT service provider with local representation and local technical and support staff. Choosing an IT service provider who is in relatively close proximity to the manufacturer’s or distributor’s facilities can improve response time and make on-site visits much more plausible. To gauge quality of service, the provider should have some references of other comparably-sized businesses in the area that use the provider for similar services. The selection team should talk to these existing customers to ensure the IT provider is capable of delivering the services and expertise it promises during the selection process.

In terms of cost, the selection team should be careful not to buy into providers’ claims that system failure and network disasters are always lurking around the corner. Some IT service providers have fairly sophisticated software offerings that can monitor hardware performance and check for potential issues that may arise. While these service providers can deliver value to larger organizations, they are not really a cost-effective solution for small businesses. The reality is that while hardware issues do occur, complete system failure (short of a natural disaster, fire, etc.) is highly unlikely with today’s technology, and as long as data is routinely backed up and stored, hardware issues should be minimal and in no way catastrophic.