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Adapting to the new reality20th of September 2013
Don’t put your inflation-ravaged savings on it, but the broader EU economy looks to be emerging from recession! So how fit will your business be to reap the rewards when the upturn gets into full swing? Hartley Milner looks at ways some of the more forward-thinking players in the distribution sector are adapting to the new reality in their markets.
We talk about a business needing to stay lean, sharp and focused to stay ahead of the competition, not unlike an elite athlete in many ways.
In athletics, the relay runner who fumbles a baton pass puts the team’s chances of success in jeopardy and their own selection for future events at risk. Similarly, the distributor who slips up causes problems for their partners in the supply chain and blemishes what to that point may have been an excellent track record.
So it is crucial distributors stay sure-footed in the supply process, whatever the hurdles. For that, they need a stable and responsive base from which to launch their services and manage their purchasing, stock control and cash flow.
Yet, too many distributors still seem content to cling on to outmoded Dickensian practices while their costs rise and profit margins decline year on year.
Their more savvy rivals have long forsaken paper handling or multiple IT systems for integrated business management solutions that track a company’s financial health in real time. Data on bookkeeping, accounting, invoicing, order processing and stock control is automatically generated into reports and emailed to decision-makers to provide a snapshot of their company’s profitability and help them plan for growth.
Keeping a tight rein on your business is an even greater imperative when your customers are seeking to streamline their own operations to make them more cost-efficient.
Multiple drops every day
“With the issues end-users face in today’s world, they are finding their businesses are running slower, so they are reducing the levels of stock they hold and ordering more frequently,” said Stephen Harrison, chairman of the Cleaning and Hygiene Suppliers Association. “The distributor is making multiple drops every day and transport costs such as fuel are continuingly going up. Having to make more frequent, smaller deliveries and keep more in stock all carry an extra
“So distributors and their customers need to gain a better understanding of each other’s business and work together in the most cost-effective way. Where possible, they should try to rationalise the products ordered. If, for example, you visit a distributor’s warehouse you will find multiple types of toilet paper, yet they all perform the same function, so why do we have to have so many different types? It’s a matter of maximising economies of scale and minimising unnecessary costs.
Linking IT systems
“Developments in technology play an essential role in this. More forward-thinking distributors are linking their IT systems to those of their customers and encouraging them to order from a pre-agreed product list. It is this openness and collaboration that helps reduce costs.”
Opening e-commerce portals to customers can benefit all parties in the supply chain. Clients gain from having instant access to product and inventory information, plus pricing deals that may be available only to them. And being able to make sales online round-the-clock saves the distributor needing to take on extra staff to process transactions, and eliminates human error.
All this, however, is reliant on sound communications between the front and back-end systems so that orders placed at the web store are processed efficiently and depleted stock levels can be automatically updated.
Meanwhile, salespeople are taking to the road with the latest tablet technology. The smart apps on these increasingly affordable devices enable reps to access all the information they need to clinch a sale, from checking stock levels, making price comparisons and looking up market trends to taking and processing orders on the spot. These functions, along with appointment management and location-finding GPS, free up time for chasing new sales.
Advances in barcode scanning provide a fast and reliable way to manage inventory, collect product information more accurately, eliminate stock tracking errors and reduce costly inventory write-offs. The technology can be integrated with a sales force’s smartphones and tablets for tracking stock on the go.
Efficient stock management is key to profitability in one area of cleaning probably more than any other. In the healthcare industry, the need to maintain scrupulous hygiene standards has ensured high demand for cleaning services throughout the recession.
However, distributors in the sector face their own special challenges, as Leon Hermse, business development manager at Netherlands-based Alpheios International, explains: “In healthcare, people are still willing to pay money for good cleaning. I always say if you are going into hospital for open-heart surgery, you want to know the operating room will be clean, and that’s worth an extra euro. However, because of the fluctuating demand for cleaning products you can run out of supplies very quickly, so we have to ensure we are carrying a huge amount of stock at all times. For healthcare, this is critical.
“We promise our clients we have 98 per cent of our assortment available for delivery within 48 hours, and in the last few years this has risen to 99.2 per cent. I imagine what makes us different to general suppliers and the big chains in our market is they can afford sometimes to be out of stock for a few days, but we cannot.”
Part of the family-run Vebego Group, Alpheios has 180 people in the Netherlands and Belgium working to supply the Benelux countries and more recently Switzerland. As well as supplying the healthcare sector, the company is a total solutions provider to the general cleaning sector, yet still regards itself as a relatively small enterprise.
Handles stock predictions
Alpheios trusts the running of its distribution and business processes to the fully-integrated SAP management system, which Hermse likens to having a Rolls-Royce engine in a Vauxhall car.
“SAP works really well for us, because it gives us real-time information 24/7. It handles our stock predictions, so helping us manage our purchasing and cash flow, and gives our customers at our online shop real-time insight into not only our current stock but also the 0.8 per cent of products that may be out of stock. And it predicts in hours or days when the items will be in stock again.
“When you introduce new products or cleaning systems, you have uncertainties such as what the demand is going to be and you risk running out of inventory.
We have the business philosophy where we say we are in healthcare and cannot take that risk, so we put a little extra money into ensuring we always have a huge stock.”
Alpheios is using spare capacity within SAP in a variety of ways. In Belgium, the company is expanding into the medical supplies business, providing products such as wheelchairs, and finds the system copes well with the demands of launching and running a new enterprise. On the purchasing side, it is enabling the company to connect with client systems to improve product ordering and billing, and at some stage it could prove helpful in tracking stock levels held by customers.
Six years ago, Alpheios made the strategic decision to implement consultative selling. This alternative to traditional, sometimes high-pressure sales tactics places the salesperson in the role of a trusted consultant who helps the customer identify only those products and services that best meet their specific needs.
Alpheios adopted this approach because it believed it was crucial, as an A-brand with high added value in its markets, to reduce mass volume, pure product selling with eroding margins.
“We try to establish long term relationships with out clients based on partnership,” Hermse said. “In these relationships, we can prove we add a lot more value by enhancing the performance of a cleaning organisation rather than only talk about, for example, the cost per litre of a chemical product. Since we are a company that uses only direct and personal sales, this is quite an expensive distribution channel for simple product selling. Therefore, also from a cost point of view, we see the need to further grow towards the premium priced, high added value form of selling that is consultative selling.”
Elaborating on this consultative role, Hermse added: “We all read about lethal hospital outbreaks of antibiotic-resistant bacteria and viruses. Patient safety and high standards of hygiene are more important than ever in healthcare. Blaming the cleaner is easy, but there are other aspects to be taken into consideration.
“As an example of our consultancy services, we developed the award-winning Infection Prevention Monitor. With this monitor we look at – besides cleaning – food handling, building maintenance, wound care and so on in an institution. Afterwards, we hand over a full report with implementable advice on how to improve and ensure the hygiene level.
This consultative approach helps us build a long-term relationship with the client and helps our client prevent outbreaks, thereby both reducing costs and increasing patient safety.”