Continued margin erosion, nervous customers and increasingly limited opportunities for differentiation are placing unprecedented pressures on the IT reseller community. With business failure on the increase, it has become rapidly apparent that business as usual is no longer sustainable.
While companies may believe they have cut costs to the bone there are, in fact, inherent inefficiencies in the IT supply chain that need to be eradicated. From time consuming product price and availability searches, to manual sales order and purchase order processes, resellers are not only destroying profitability but compromising customer service.
Unless resellers embrace a totally integrated supply chain that seamlessly flows from in-house ERP solution to the pricing, availability and order systems of every distributor to minimise the cost per transaction, the future is looking extremely bleak.
As the economy balances on the edge of a double dip recession, organisations across the UK are questioning whether it is possible to cut costs any further. In the last four years, the vast majority of businesses have driven administrative overheads down, cutting heads and streamlining processes.
Yet for the IT reseller community operating on margins that continue to erode, the current cost per transaction is unsustainable. There is no option but to change business practice in some way: irrespective of the economic situation, the current operating model is simply not profitable.
Unless a reseller has niche expertise that supports a less margin centric business model, practices have got to change. And there are some key issues to consider; critically, how much time is the sales team actually dedicating to winning and keeping business, 50 – 60%?
Key to this is understanding just how much time is having to be spent by the sales team sourcing the best price for customers from a number of distributors; and then checking the product is still available once the customer has confirmed the order; and manually inputting the sales order and the purchase order(s) and faxing/sending the orders to the distributor. These processes are inefficient, time consuming and far from the best way to exploit expensive personnel.
For any organisation operating on the typical 3-4% margin, these activities will not only erode profitability within hours but are also distracting talented sales staff at a time when their expertise is most critically required.
Integrated Supply Chain
Of course, there have been some attempts to streamline these processes in recent years, with a shift towards electronic product pricing and ordering driven by the distributors. But these services are not streamlining processes for the reseller community. Individuals still need to check the pricing and availability of products with each distributor – a process that could require verifying information from up to 20 different sources.
Furthermore, each time the distributor amends its electronic service, the reseller is required to undertake some technical development to change XML formats and transaction templates to ensure systems are compatible and facilitate data sharing. In reality, the electronic process, to date, has added little value and demanded significant on going investment.
There is, therefore, growing interest in Software as a Service (SaaS) based subscription services that offer to consolidate and co-ordinate information from a number of distributors. Such services provide a one screen view of current product availability and pricing, providing a massive time saving in assessing the best option for the customer.
It is also possible to place an order via these services, with a purchase order being automatically created and sent to the relevant distributor(s). However, using this as a standalone service still requires the reseller’s sales team to enter the relevant information in the ERP system. How much more efficient would it be to integrate the ERP system with a subscription service?
With this approach, the reseller can use one system to check pricing and availability, make the purchasing decision and automatically create a sales order which is linked to one or several purchase orders automatically raised for the distributor(s), all from the core ERP solution.
Enabling Business Growth
Streamlining the IT supply chain in this way fundamentally reduces the cost per transaction, enabling organisations to operate profitably despite extraordinarily low margins. But this approach also releases valuable sales staff to dedicate their time to winning business and supporting existing customers.
Indeed, it is estimated that companies can grow sales activity by upwards of 50% simply by removing the burden of time consuming product pricing and availability searches from the sales team. And this is key: in any low margin business, volume is essential. Yet, for the vast majority of IT resellers, attempts to scale up in the past have been constrained by the administrative overhead: there simply was no economy of scale.
By providing simple, real time access to this information from within the existing ERP solution, the model is transformed. Sales staff can dedicate closer to 95% of time to the customer experience, enabling the organisation to confidently scale up.
Furthermore, the ability to provide a customer with an accurate trusted picture of product price and availability within seconds transforms the level of customer service; removing the risk of products being unavailable once the price has been offered and providing a speed of customer response that is a real differentiation in this market.