Distributors far from being dead

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Back in the days when established businesses were afraid of getting "Amazoned," some observers declared that the traditional distribution channel had the life expectancy of a fruit fly. The thinking was that the Internet would enable b-to-b marketers to sell directly to customers and bypass standard channels.

That, of course, didn’t happen.

"The rumors of our death have been greatly exaggerated," said Beatty D’Alessandro, VP-IT strategy project at Graybar Electric Co. Inc., a $4.8 billion electrical and data communications equipment distributor. St. Louis-based Graybar is investing tens of millions of dollars to implement the e-business platform, which will include customer relationship management and supply chain management components. Graybar believes that not only won’t e-business kill the company, it will make it a much stronger marketer.

"We’re buying a tool that will help us understand demand patterns better," D’Alessandro said. Installing the SAP platform is about streamlining the process of getting the right product into a customer’s hands at the right time, he explained.

Distribution challenges

While it’s a simple idea, it is difficult to execute. D’Alessandro describes the challenge of the distribution business as being able to "move 90-pound boxes across America and sell them for $8."

To accomplish this takes more than a browser-based software system. Over the past few years, Graybar has committed to reorganizing its distribution system around 16 regional warehouses. The changes were made because customers asked for a more streamlined shipping and billing process. In the past, on a single order, D’Alessandro said, a customer in Birmingham, Ala., for example, might receive three separate shipments—one from a local distributor, another from a local warehouse and a third from a warehouse several states away. In a case like that, the customer would also receive three invoices.

With the company’s new warehouse organization and the final SAP implementation, the customer would receive a single shipment and a single invoice. "They want one bill, one complete order," D’Alessandro explained.

The company’s new warehouse system is central to this change. Graybar has invested $250 million in the warehouses and will eventually spend "less than half that" on the SAP implementation, D’Alessandro said. But the SAP software is the virtual glue that will hold the zone warehouses together.

Graybar expects that the implementation ultimately will yield many marketing benefits. For the customer, the Graybar Web site will offer the capability to find the status of orders and invoices, and it will "provide greater visibility as to what products are available and the attributes of those products," said E.J. Kenney, an SAP VP.

D’Alessandro said this would allow Graybar’s in-house staff to focus on value-added services for customers.

For salespeople, the software will help automate customer relationship management and sell more products. When a particular electrical contracting job is entered into the system, salespeople will be offered computer aids to help them inform buyers of appropriate products and services available from Graybar. "We hope to manage the opportunity and turn it into an order," D’Alessandro said.

Unifying data

Another goal of the implementation is to place the entire organization on the same software. Currently, Graybar has distinct software for accounting, human resources and other departments that were "bolted on" to a central system, D’Alessandro said. The SAP software will help ensure that all parts of the Graybar pipeline—from suppliers to local Graybar distributors to customers—will have access to the data they need.

To implement this system and make it work for Graybar’s 9,500 employees will be a tall order. "This is going to be a challenge, no question about it," said SAP’s Kenney.

Graybar’s move is risky, said Pierre Mitchell, VP-research at AMR Research. He compared the effort to W.W. Grainger Inc.’s spending on e-business, which the maintenance, repair and operations distributor did early and often—and which, many think, in retrospect, probably was too early and too often.

But the fact that Graybar has waited this long could be to its advantage. "Graybar is getting the technology quite a bit cheaper and built out a bit more [than Grainger did]," Mitchell said.

Despite the risk, Graybar had to make this type of move, Mitchell added. "If you don’t do it, someone else is going to do it," he said.

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