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MAKING "SYSTEMS"-USE and OPERATIONS MORE-PROFITABLE
For Distributors, WHOLESALERS, Manufacturers
WHAT LISTS OF SOFTWARE DON'T SHOW CAN KILL A DISTRIBUTOR
A distributor with sales of some $400 million was forced to sell out because it had to operate manually for several weeks after switching over to a new ERP system. While operating manually, it took so long to answer customers' questions, take orders, fill orders, handle returns, etc., that the distributor lost a very large customer. The loss resulted in a technical default on their largest loan agreement, and the bank refused to modify the terms. The name of the system was familiar -- it appears on one of those lists of software packages supposedly meant for distributors.
This article describes some very important system selection considerations that are not addressed in lists of software.
Suitability for a Wholesaler. The system disaster described above reminds this author of another software package that appears on most lists. It was thrown out by two wholesalers who couldn't get it to work right; and the system vendor was sued by at least one other distributor. Three other distributors are, even after a few years of use, still unable to get this system to work right in one critical functional area -- in spite of enlarging their system-related staffs, an unanticipated large permanent expense. Most systems are not difficult or costly to install and use. But some systems really are not meant for wholesalers, or certain kinds of wholesalers, no matter how many times they appear on lists.
A wholesaler is not a wholesaler. Some systems are really great for one narrow segment of distribution, but not good for other segments -- sometimes, bad for other segments. A look at lists of features would not reveal this condition. And not all the systems listed on an industry-specific list are appropriate for that industry (as one distributor learned when they had to spend more on software modifications than the cost of the software license, because the selected software was not suitable for the industry-magazine that published the list). Another example of not being industry specific is a third system found on industry lists; two distributors who licensed and installed it discovered that it didn’t have key features for their way of doing business; they stopped using it, and are suing the vendor. Another distributor, with more than 12 locations spent a fortune on a new system – supposedly suitable for their industry – only to discover that it was missing many needed features; they are now in the process of finding a replacement.
Cost of Installation. Another system on some lists has earned the unenviable reputation of billing for far, far more hours of professional installation services than quoted. At least two distributors terminated the installation process before the bills became unbearable, and two others filed lawsuits against the system vendor. The vendor of a different system refused to provide more installation help to two distributors who didn't want to pay more than had been originally quoted/estimated; the distributors opted not to proceed with the installation, even though they paid the license fees.
Its Not Your Software.Some of the software "packages" appearing on some lists are not physically provided to wholesalers. The software runs on the vendor’s computer, and each distributor who subscribes uses it via terminals and printers, and pays only for the resources used. This is called Software as a Service, and is described in detail in the March 2009 issue of Electrical Wholesaling. For small wholesalers, SaaS can be very cost-effective. But a selling pitch is that subscribers can stop using it at any time. Real World: After spending tons for money for training, education and conversion of data, only subscribers with horror stories would terminate their use.
The very weakest link. Several of the packages on lists are not licensed by their well-known authors, nor do the authors provide the installation and post-installation support. These packages are re-licensed by, installed by, and supported by re-sellers. It’s the capabilities of the re-sellers that mean the difference between success and failure (assuming that the package itself is suitable). Most lists provide no information about the re-sellers. And, since the contract is almost always with the re-seller, if something goes wrong, the author may not be able to help much; it certainly wouldn't assume financial responsibility. Historically, the mortality rate of re-seller firms has been very high.
Post-installation Support. This is critical because all systems are relatively complex, and no matter how much training occurred before going live, a high level of support is usually needed for 12 to 18 months after going live. Yet some vendors have a reputation for slow and/or unquality support, and many re-sellers are support-challenged.
Functions and features.Even the most detailed lists of software packages show only a cursory description of a package's functions. But the devil is in the details, and reliance on a software list to determine which systems to examine can result in wasted time when the project team discovers that a package is not nearly as robust as it seemed on paper – or too complicated to use. Some vendors list features that are still in development and not available. Worse, if a package is not examined in detail before licensing it, a lack of needed specific features would not be discovered until the system is paid for and in use.
Adaptability. Related to features is the ability to interface third party software packages to an ERP system. At least one vendor has gone out of its way to make life difficult for existing users who want to interface packages not sold by this vendor.
Viability. Obviously there has been much consolidation in the packaged software industry, and the pattern will continue. But no list contains the information needed to judge whether an author is likely to remain independent -- or be bought out, and its package relegated to obscurity (no enhancements, and dwindling support). Software re-sellers are much less viable than authors, and seldom is a re-seller bought out -- they usually go out of business.
List Objectivity. Some authors of lists seem to have relationships with some of the vendors of listed software. A relationship may not be financial; there can be a quid pro quo arrangement whereby each party promotes the other.
Pay To Play. A familiar phrase in Illinois (can you pronounce Blagojevich), it unfortunately applies to some lists of software. Software vendors who do not want to pay tribute money to be listed, aren’t. This questionable business practice deprives wholesalers of information about some systems that should be considered, including some low cost systems whose cost is kept low by the owners not spending on indirect marketing.
References may not be useful. One would think that the problems described here could be avoided by calling references already using the packages in question. However, experience has shown that vendors seldom provide the names of unhappy users; certainly not the names of users who have filed lawsuits. And even if names of questionable references are provided, most unhappy references adhere to the old saying "if you have nothing good to say, say nothing." Experience has shown that most "good" references volunteer only the positive points about a system, even if they had or are having problems. And, "similar" distributors can have vastly different business policies and practices, which can result in one distributor’s good reference feedback being inappropriate -- or misleading – to the distributor talking with the reference.
Contract Terms and Attitude.The contracts of system vendors protect the vendors. Most contracts provide no meaningful general protections for the users, let alone specific performance guarantees. And some vendors have a dangerous attitude about their contract – its almost "take it or leave it." This attitude has strengthened as buy-outs reduce the number of vendors in the marketplace. Even worse, when a re-seller is involved, there can be two totally unrelated contracts, one for software and one for installation; if something goes wrong, both vendors point at each other, while the distributor-user suffers. No list addresses this issue.
Dick Friedman, the author, is a recognized expert on ERP systems for distributors. He is anunbiased Certified Management Consultant and does NOT SELL systems. Dick applies more than 30 years of experience to objectively help distributors select the right ERP and WMS systems, while avoiding the pitfalls, problems and overpaying; and helps obtain contracts with specific performance guarantees. Call 847 256-1410 for a FREE consultation, or visit www.GenBusCon.com for more information or to send e-mail