What the ‘M&A boom’ is doing to distributors’ purchasing teams is more than just an annoyance. It’s a big cash problem. One that’s easily solved with technology.
Now may seem like the worst time to implement a supply chain planning solution, but in reality it’s the perfect weapon.
Supply chain planning technology is the fulcrum of future value creation for wholesalers and distributors – opening up cash through dramatic inventory reduction while improving service to accelerate market share.
How did we get here?
Over the past few years, distributors have been losing business in high-profit and easy-to-sell products because of Amazon. They continued losing more as suppliers embraced Amazon to make shareholders happy.
Now, with cash cheap and increased competition nipping at their heels, many of these businesses are embracing M&A as a strategy to cover new areas, incorporate varying products, and achieve speed-to-market and economies of scale.
The consolidation has dropped a bomb in the laps of inventory planning teams. Their ability to right-size inventory and meet customer de
mand is impaired by the new physical footprint. And it’s pure chaos:
- Bigger SKU counts
- New items, suppliers & minimums
- Multiple buyers in distributed regions
More confusion means costlier decisions
If your business is in the chaos of M&A, or on the brink of it, the thought of moving to a new system can make your stomach turn. We get it. But think about it like this… Take all the costly inventory imbalances you have right now with your legacy planning system, then multiply those by 1,000. That’s what you can expect to happen after an acquisition.
There is no possible way to absorb the entire chain into your legacy planning system without massive inefficiencies and imbalanced supply lines:
- Siloed groups in various regions are buying on a schedule
- Or they’re buying more inventory just to get to minimums
- The left hand has no idea what the right hand is doing
- Items run low or out of stock, so users react by placing orders
Replenishment is based on common sense, subjective intuition and perhaps a schedule prescribed by a supplier.
Let’s say, for example, you’re missing your service levels (which means lost sales; duh). You have an MOQ to fill, so you add more of the fastest movers – which only perpetuates the imbalance.
Not only will M&As cause more supply imbalances that crush the bottom line, but your workforce will burn tons of calories chasing a problem that isn’t sustainable. Without a centralized, integrated planning system heading into the acquisition, you have no visibility between buying groups and no science behind how you position inventory.
Translation: your investment goes down the drain.Protect your investment early on
Now is the perfect time to introduce a centralized supply chain planning solution. These advanced systems protect your investment by balancing orders with data-driven accuracy. The result is dramatic inventory reduction, improved fill rates, and rapid cash flow that would never come out of an ERP or legacy system.
Systems like Blue Ridge use powerful algorithms and predictive analytics to optimize investments across the board. Rather than a bunch of siloed buying teams working in spreadsheets, all buyers log into the same platform to:
- Get an immediate, holistic view of new locations & their inventory position
- Understand gaps & react on the fly
- Proactively identify seasonality of items & plan better
- Optimize orders & leverage investment deals with shared locations
- Clearly visualize the financial impact of decisions around perishables, pricing, events & promotions, forward buys, etc.
“We’ve seen customers, especially those with expensive inventory, realize ROI on the very first forward buy.”
We challenge your ERP to do this.
Haste makes waste
Sounds like a no-brainer, right? Yet, many organizations delay their supply chain solution implementation because they think they need to get through their ERP upgrade first. This is a fallacy and here’s why…
Unlike ERP implementations, this is a fast-cash solution. You don’t have to wait for your ERP implementation to wrap up. In fact, it is very common for purchasing organizations to use the savings and cash flow from Blue Ridge to fund the company’s ERP implementation – or even the next acquisition!
Integrate, scale & realize cash quickly
The barrier of entry is super low here. A software provider like Blue Ridge will not drop the mic and run away after the purchase, but will hold your hand throughout the chaos and provide world-class service every step of the way. So you can easily roll out Blue Ridge now using data from your existing ERP and have extra cash in the bank right away.
One word of warning: many on-premise ‘wannabe’ solutions require host systems or third-party planning tools. Cloud-native solutions – on the other hand – offer reduced infrastructure, fewer vendors to manage from a software standpoint, and a subscription model (OpEx versus CapEx) – also very handy during M&A.
The smooth integration of these solutions allows distributors and wholesalers in a contracting market to:
- Scale & standardize best-practice workflows faster across new business units
- Redeploy people & resources to higher-value initiatives
- And most importantly, achieve the holy grail: increased service levels + reducing inventory… a balance that does not usually go hand in hand
As we mentioned earlier, analysts expect distribution M&A activity to remain high through the next decade. Many players will hold out for the “right time” to implement advanced cloud-native supply chain planning solutions, and it’ll be too late. The competitive ship will have sailed, so to speak – and growth and complexity will force them into tying up cash in safety stock.
Meanwhile, others will use advanced planning technology to get their inventory teams working smarter, not harder.
So why wait? Put those tools in place now so you can digest new business groups, right-size inventory, and achieve economies of scale faster. Without the chaos.
Interested in learning more? Get in touch today.
A Surprising Strategy to Reduce Inventory
State of the Wholesale Distribution Supply Chain Report 2019