Distributor Case Study
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It’s a story familiar to many by now: a fast-growing, large distributor spends hundreds of thousands of dollars on an ERP, only to realize later that they are deeply entrenched in a system that is not only expensive, but a system that is slow, frustrating to salespeople, and no longer serves their needs.
Why do large distributors insist on staying with their legacy ERP even though it is costly and inefficient?
We asked Robert Fiveash, co-founder of distributor Brand Fuel, to reflect upon his experience with a traditional ERP, before he joined commonsku. Brand Fuel is a distributor with over 40 employees with locations in India, London, Boston, Greenville, Wilmington, Raleigh, and Norfolk.
“There were several things at play when we first decided to move to a larger, more traditional, behemoth of an ERP system. In addition to opening a new location, we had just hired a financial person. He was very good and very smart, he did a great job for us. He suggested that maybe it was time for Brand Fuel, at this stage of its growth, to jump into a system that had more capabilities. And so, we were eager to explore this option.”
“I feel like there are probably a lot of companies out there that are in that place where you kind of feel like you've made it. And there's pressure from salespeople or various middle management folks in the business to ‘upgrade’ the systems. And finally, for the first time, you have the financial ability to do that, and there's a bit of ego involved in it too. I think we were in that exact spot and we trusted that this was the right move, we had the ability, we also had the money and the staff to make a move, so we did.”
“But what we didn’t fully appreciate was that an ERP is a locked system. The analogy I've used is that with a traditional ERP, only one person with the keys to the kingdom can get into it. And that's a dangerous situation to be in as owners of a business.”
“In addition, it was expensive to install and expensive to maintain. We basically paid someone to sit there and shovel coal into the furnace of the freight engine trying to get it up the mountain. And without that coal, without 75k in salary per year (or whatever the salary cost was), that engine would not move, and the initial installment costs, ongoing support costs, and this internal maintenance cost created a bloated and growing expense burden.”
Many large distributors struggle with extracting themselves from an ERP once it has become a part of their system, plus, they often have an infrastructure of middle management in place (coal shovelers) that have implemented the system. Their concession to stay with a slower and antiquated system is that they've made a huge investment, in real dollars, personnel, and sweat equity to keep it going. It’s the system they know, and, as long as the distributor is making a reasonable net profit, they allow this inefficiency and waste to continue, despite the fact that the opportunity costs are extraordinary.
But eventually, the system becomes a tremendous burden, slows production, and, though more affordable options are available, some distributors are reluctant to relinquish such a huge investment, although they could save thousands and free their team up to sell more.
“It was tough,” continued Robert. “That was, honestly, our biggest battle, we asked, ‘how can we waste such a large investment, over $200,000?’ Eventually, we realized that to keep this investment going, it was still going to cost even more, thousands more, and that it was better to quit now, consider it a sunk cost and stop pouring needless money into the machine.”
One other important mindset Robert referred to was the false idea that larger clients, those that might require RFP’s from distributors, would want and demand a big-name ERP system from their distributors, here’s Robert referring to this (1 min audio):
Eventually, Robert and his business partner Danny Rosin made a crucial decision to make a switch to commonsku.
commonsku is a hyper-specific, industry-designed and developed workflow application that ties every aspect of the distributor experience together through a network of accounting, e-commerce, and product search applications. It’s an industry-specific ecosystem that has mastered the workflows that are specific to this industry which is why it’s also more powerful than any ERP that is 100x the cost.
Robert Fiveash, Co-founder
We asked Robert, “What do you think are the sharpest contrasts now as you look back?”
“The sharpest contrasts: First, once we realized we didn’t need to spend as much as we were spending, switching saved us an enormous amount of money; Second, commonsku has become a system that our salespeople say they can’t live without. This is probably the biggest contrast, moving from a system that was barely tolerated by salespeople to a system they feel like they can’t live without, that’s the biggest win.”
The promotional products business is a sales-driven industry. Often, ERP decisions are controlled by those who use the system the least, which leads to massive frustration with salespeople, stifles sales growth, and creates a fragile infrastructure for your business.
In contrast, a cloud-based system like commonsku liberates salespeople to focus on selling, creates transparency throughout the organization, and builds real value into the net worth of the business (Robert’s summary, 2-min):
If you are considering a switch from a traditional ERP to a transparent, cloud-based system, we would like to introduce you to the fastest and most intuitive order management system custom-built for the promotional products salesforce.
Contact us to gain speed, save money, and all the fuel you need to accelerate your sales growth.
“commonsku has become a system that our salespeople, they will say they can’t do without it. My guess is that there are companies out there that get purchased and the legacy systems that the acquirer has, everybody needs to learn and if that purchased company was on commonsku, that’s probably a real issue … for these salespeople who are used to the effectiveness and ease of commonsku that now have to learn something else that might be very old school, ERPish and many ways probably is … I think the biggest contrast is, we moved from a system that was tolerated by the salespeople to a system that they feel like they really can’t do without, that’s a big one. I think the final one is an issue with owner accessibility and visibility, with some of those ERP systems, it’s simply not there, you don’t know enough about how to navigate it, it’s too complex, you don’t know enough to navigate and get data that will allow you to really assess the health of your business, the risk you’re taking with different financial people in different parts of the system, and I think in a combination of QuickBooks and commonsku, we have the ability to jump in both systems, they are both very intuitive, they work well together, and I think you owe it to your business to be able to get in there and get your hands dirty and you just can’t do that with these complicated ERP systems and it’s absolutely doable with commonsku and it was probably designed that way.”
- Robert Fiveash, Co-founder, Brand Fuel, Inc.