OPI: You’re relatively new to the business supplies industry. Was it a bit of a culture shock?
Brad O’Brien: Not as much as I thought it might have been. Given the fact that I have worked across a number of franchise and cooperative businesses, the understanding of that owner/operator dynamic was there, and then it was just a matter of picking up the nuances of the product categories and the mix.
OPI: You succeeded Max Ritchie, who was something of an icon in the Australian OP world. How challenging was it taking over from him?
BO’B: The OP industry is very insular and in Australia, in particular, it is also very much a collaborative community, so much so that we have an industry-based charity that holds two major events a year and the collective buying arrangement between a number of the buying groups (through BPGI). As such, there’s a lot of cross-business networking and interaction that happens. That said, if you haven’t been in this industry for ten-plus years, you’re considered to be the ‘new guy’.
And you’re right; Max had been in the industry for such a long time and it was big shoes to fill, so initially I just focused on getting out to as many dealer outlets as I could. In the first three months I think I visited around 40 dealers – trying to get a better understanding of the group’s history, culture and the immediate challenges and opportunities. That process was really beneficial from an intelligence perspective. It did give me a little bit of credibility within our dealer network as well.
OPI: We’ve seen elsewhere that groups have struggled to hold onto their larger members. Any issues for you along those lines?
BO’B: There is always a risk, but we have been really lucky in that all of our members, large and small, are loyal and enjoy being part of the Office Choice group. We are also very focused on our model; the way we structure our fees and our rebate distribution really recognises the contribution the larger players make, so the financial structure for those big guys is very attractive in terms of the return they get on their investment and the services they receive.
OPI: Do you run things for your members like back-office systems?
BO’B: Absolutely. We have preferred ERP and e-commerce platforms and we have almost 50% of our dealers on these. As part of our brand re-launch we completed an upgrade to the e-comm website which included a front-end redesign and a major back-end enhancement in terms of functionality – integration, customer orders, ease of shopping, ease of customer engagement.
OPI: I imagine vendors prefer this kind of model in terms of being able to collect and analyse data, etc.
BO’B: Yes, and data is a big issue for independents. For the dealers on our preferred system, we released a business intelligence (BI) programme giving dealers consumer insight at a local level to identify opportunities around category spend, average spend, average transactions, etc, and we have provided customised reports and guidance on how to utilise those reports.
Now we’re very much focused on the consolidated view, so at national office level we can run consolidated reports and get a snapshot of results, particularly from a supplier, category and product perspective.
OPI: It sounds like you only have a minority of dealers not on that platform. What’s holding them back?
BO’B: That is right and they are spread across primarily 3-4 third-party ERP systems. As much as anything else, it is a cost and convenience issue and we respect that. That said, additionally for a lot of these guys (30+), we do manage another in-house e-commerce system. We’re in the middle of updating the strategy around that, but in essence we run two platforms.
OPI: Ideally, I imagine you’d prefer everyone to be on the same system.
BO’B: Correct. From an integration and certainly from an e-commerce and brand representation perspective, we’d love everyone on the one. When the group introduced the preferred ERP and e-commerce platform there was an intent and desire to push it through the network, but the reality is that, given the mix of our businesses, we’ve had to revisit that intent.
We’re also conscious that the technology needs of our larger members are not the same as those of a small dealer. From our perspective, the important thing is the business intelligence piece, so we’re also looking at integration from some of the third-party systems because we don’t want to have to wait for that evolution to happen naturally in order to get transparency into the data. As a result, we’re looking at drawing data from those commonly used third-party systems and integrating them into our centralised BI system.
OPI: How important is e-commerce to your dealers?
BO’B: Very! What we’re ensuring is that our dealers understand that the e-commerce platform is about reducing the cost of doing business (CODB) in their business, promoting to their existing customer base and utilising the efficiencies of the ordering platform. Yes, it serves as the window for our front-end marketing and as an introduction to the business for new customers – and that’s important – but the real reduction in CODB and the efficiencies that come out of that are where the benefits are. On visiting one of our dealers recently, I was surprised to see – believe it or not – a number of orders being received via fax, so being able to influence that buying practice is where the benefits will be realised.
If we look at some of our more progressive dealers, they’ve got online sales of up to 80-85% of their total business. The average across the whole group is around 35-40% of sales being transacted on the e-commerce platform, and that has been building year on year.
The re-launch of the website last year was about the ease of transaction for the customer and it has been working. Conversion rates of those dealers on that platform have climbed versus the more traditional means, so we are certainly getting some cut-through.
OPI: What other potential is there to take cost out of the independent channel?
BO’B: Significant and across a number of areas: the supply chain, buying practices, a more efficient use of technology, better utilisation of business benchmarks, to name a few.
The challenge is that, for the independents, the CODB is a lot higher than that of the corporate players, so if we are to be competitive we have to address that CODB issue.
We’ve got a very focused two-pronged attack: we’re talking about front-end sales – which is all about gaining market share – but there is a distinct focus on that back-end cost to serve, the CODB model and how we get those efficiencies. Drop-ship is something we’ve been working on across a number of different suppliers, with several already providing that.
With new categories, we’re looking at the whole inventory investment and how you more efficiently manage that. And then educating our dealers at an operational level about having a better understanding of the CODB model itself and what is a genuine fixed cost versus a variable cost. We do a lot of work benchmarking our guys, so we look at things like labour costs, rents, sales per employee, etc, and if they are not within that upper quartile, they need to have a hard look at their business.
OPI: Tell us more about category expansion.
BO’B: Our members are pretty nimble and diverse and they are very active in this area, so much so that some of the stuff that our guys sell to their customer base surprises me. If you think about it, however, our dealers have a really loyal SME customer base that has diverse needs, with their purchase and choice of dealer motivated by convenience.
Fortunately for us, that is what we specialise in, so there really shouldn’t be restrictions to what we can or can’t sell to them, assuming of course we are competitive and efficient in our supply chain management.
To support this mindset, as a business we have made some significant changes to our merchandising department. To start with, we have put in place a new department head with excellent sourcing, supply chain and product development credentials and are supporting him with a team of merchandise category managers.
Now that they are in place, the team is focused on executing a much more structured category management approach. Granted, this is not rocket science, but it’s not something we’ve applied in our business in a true, structured sense previously.
So, back to your question regarding category expansion, the team is doing a lot of work around the non-core categories that most would anticipate, including safety, warehouse, first aid, furniture and the likes. We are, however, also looking at this with a little more of a ‘left field’ mindset and with a focus on being first to market – we recently signed off a new category that meets that brief, so watch this space.
OPI: Dealer consolidation remains a fact of life, I imagine.
BO’B: Absolutely. If you look at the past 12 months, our site numbers have dropped by about five; however, the business has been retained within the group because it’s been a case of one of our members acquiring another. We’re fortunate in that way, as we have a number of dealers on the growth path taking up the opportunities presented by our departing members. However, that is not necessarily a long-term solution.
I also have a view that there must be collaborative opportunities across the independent group level as well.
OPI: For example?
BO’B: The BPGI purchasing model is probably a good example, but it could be a bit broader than that.
OPI: Have you sat around a table with the other groups?
BO’B: Not specifically. However, on occasion we have chatted about trying to consolidate some practices, whether that be in the form of materials production or duplicated processes.