Just six years ago, Midwest Office Supply was in the OP power channel, being part of dealer rollup USOP. Since 2000, the company has been back in the independent domain where it started out in 1989. Having experienced first-hand the workings of the big boxes and aware of the threat of their growing encroachment on the mid-market, Midwest is keen to create a level playing field for itself and the independent community at large – and technology is as good a starting point as any.
The company became somewhat of a guinea pig when, in December of last year, it was the first dealer in the US to go live with the beta version of the new SAP-hosted solution for business products resellers. It’s an initiative that was facilitated and jointly created by United Stationers and SAP, along with an advisory council of seven independent OP dealers. The idea behind it was to offer independents the technology needed to compete more effectively against the power channel.
About five months down the line and the final version of the product is about to be rolled out, with two more dealers ready to go live over the next few weeks and about 25 to follow over the summer and autumn. And while the experience of the past five months has given Midwest a first-to-market advantage, testing the pilot version also meant that some teething problems were inevitable. But the overall process has been relatively smooth, says Jeff DeMarco, one of several partners at Midwest.
"Yes, we had some late nights, but we didn’t have any loss of business due to service drops – we monitored that very closely. As a beta, you’re always going to have some hiccups – we identified those hiccups, the design team patched them up and the next set of dealers won’t have those problems."
And the benefits of the new system have started to show already, adds DeMarco. "At the three-month point, we were at 100 per cent of where we were with our previous software. It’s my contention that two months of that was beta, so new dealers will be up there within 30 days and can grow efficiencies from there."
Cost savings
Without a doubt, some of the biggest benefits for dealers of the package relate to cost savings, which is somewhat ironic given that one of the criticisms that the initiative has come up against is the cost of the software and its affordability to small independent dealers. With revenues of about $10 million, Midwest is one of those small independents.
Indeed, DeMarco singles out cost savings as a driving factor for swapping from its previous software package. He says: "In the past, we ran four software packages that were all held together with strings and bandaids. We had a back-end package for transactions, a separate ecommerce package, a finance package, a separate reporting package – all on servers that we had here, all from different providers."
He adds: "We wanted to grow our business and we didn’t feel we could do it with our previous software. Before we converted to SAP, we looked at what we spent on technology during the previous 18 months. The fact is, what we are spending on technology now and before SAP is relatively similar, so affordability is the same. But the SAP-hosted solution does so much that you can grow your business without any step increases in personnel and that is a big cost saving. In fact, that was our goal and is the broadest and largest benefit of the software so far. We haven’t hired any more people [since implementation] and are keeping our current staff [of 30] anticipating rapid growth."
The fact that it’s a hosted solution eliminates the need to have servers at Midwest and constantly strapping hardware onto those servers also makes a big difference, as the technology spend remains fairly constant. And, argues DeMarco, the operational savings that are being made should eventually pay for the IT spend altogether, approximately four or five months after going live.
He explains: "There’s some incredible functionality in the system with regards to DTP [data transfer process] that shows availability – wholesale availability – of an item as it’s being ordered. If you use the ATP [available-to-promise] directly, you can reduce your back orders to almost zero. Back orders cost this industry a fortune.
"Another feature that will generate immediate savings is something called output determination. We’ve already started emailing and/or faxing our invoices and statements. So we won’t have any of the postage of mailing those out. If you can just eliminate half your postage bill from your invoices and statements and couple that with zero back orders, I believe that regardless of the size of the dealership, these two components can practically pay for the cost of the system. It would cover your monthly spend on IT."
Search engine
To the customers’ perception, only the front-end part of the software is different. All the tools available with the new software were marketed to them in advance. And most of the feedback has been on the search engine and what it can do, DeMarco says. "Our customers have really stretched the search engine and while it looks and works a little differently, it’s very easy to navigate. For us, the search engine is the end game, it’s second to none. We want our customers to be able to easily identify a SKU that they want to purchase."
The percentage of order lines that Midwest processes online is currently – and has been for some time – in the low 50 per cent range, but DeMarco is confident that this will increase to 75 per cent by the end of the year.
Interest in the SAP solution has exceeded expectations so far. With 400+ dealers in the pipeline, demand is two times what SAP and United Stationers had initially forecasted and contract signings are three times as high as expected. Both SAP and United Stationers appear happy with the progress so far and as more dealers convert to the SAP solution, a groundswell could occur, somewhat revolutionising the independent dealer channel and truly levelling the playing field with the power channel. And while United won’t benefit directly from dealers signing up to the software – the advisory council insisted that the software is completely wholesaler neutral – the implications are clear. A healthy independent dealer community is a good thing for the wholesalers. As DeMarco comments: "A rising tide raises all ships."
And the long-term prospects for dealers are looking good indeed, DeMarco believes. "I truly believe that the software will make the independent dealer stronger." More importantly perhaps, a large global operator like SAP spends billions of dollars on R&D and the technology that results from that R&D will be available to independent dealers in the future.
And with input from the dealer advisory council and the growing customer base, SAP is likely to continue to deliver new applications and enhancements, providing a technology platform to support dealers’ current as well as future needs.
And that’s a huge advantage to independents, says DeMarco. "We’ve always spent our IT dollars to be a couple of years behind the large big boxes. Now we’re spending them to be on a level playing field in terms of technology. To bring an independent dealer up to a level playing field with the big boxes is a very strong statement indeed. We have to be ready and proactive at a time when the power channel is moving into our channel."
At the end of the day, the SAP -hosted solution for business products resellers is a software tool that helps independent dealers do their job of servicing their customers. And after a month or so of using it, dealers – dazzled at first by the technology and what it can do – will go back to concentrating on the operational issues of their businesses, using the technology to increase efficiencies, grow revenue, and compete more aggressively with the power channel.
For those dealers afraid of change, DeMarco has the following piece of advice: "We’ve changed front-end packages five times and back-end packages four times in my 17 years at Midwest – this was my last change!"
