While it has faced its own recent technology challenges, new rivals and emerging hurdles such as a more mobile technology landscape (particularly in recent years), Microsoft still packs plenty of clout. To borrow loosely the old EF Hutton slogan, when the company addresses industry, the people in it are all too eager to listen.
Microsoft's still-dominating influence was on display during a first-ever "Distribution Solution Summit" that it held at its New York City offices in March. The well-attended summit, subtitled "Powering Business Growth and Transition in the Distribution Industry," offered supply chain industry executives, vendors and analysts to meet and discuss topics impacting the industry.
But the event also brought to light Microsoft's renewed commitment to the mid-market, which is largely served by the Microsoft Dynamics line of enterprise resource planning (ERP) and customer relationship management (CRM) applications (the products are developed by the Microsoft Business Solutions group within Microsoft).
"There are going to be five core industries where we accelerate our investment," proclaimed Johneen Buffard, Microsoft Dynamics' East region business manager in opening the conference.
"We're focusing on manufacturing; distribution; professional services; retail; and the public sector," she said (the fifth focus referring to government solutions). "We'll select partners who are the best of the best in these five areas. That's what we're offering here today: partners that we have worked with who have in turn provided industry expertise to distributors as yourselves."
Buffard said the approach reinforces the Microsoft Dynamics ERP strategy -- one that drives industry-specific innovation for customers while enabling its partners to continuously deliver repeatable vertical solutions.
The summit was attended by well over one hundred vendors and distribution executives. Its feel harkened back to Microsoft's original mission statement, one that sought to place a computer at every desk (as well as one in every home) running Microsoft software.
The workplace part of that calling was advanced by Microsoft early last decade: the Microsoft Business Solutions Group was formed in part from Microsoft's acquisition of two software companies, Great Plains (accounting) in 2001 followed by Navision the following year. Microsoft Dynamics CRM entered the market in 2003 and since then the Microsoft Business Solutions group has grown to include the Microsoft Dynamics ERP product group and Microsoft Dynamics CRM product group. Other industry solutions from Microsoft Dynamics now include Microsoft Dynamics POS, introduced last year, and Microsoft Dynamics Retail Management (RMS).
In support of its five-industry focus, Microsoft Dynamics announced in September the acquisition of IT solutions from several vendors that serve the manufacturing, professional and retail industries.
And in November, Microsoft announced that an assortment of online services would soon be available for Microsoft Dynamics ERP packages. (Microsoft also revealed significant growth in demand for hosted Microsoft Dynamics ERP solutions.)
The March event marked the first time Microsoft Dynamics sponsored a summit for distributors (a similar such event was recently held for public sector professionals in Washington DC). "What we're doing in hosting events like this is to bring experts in together to talk about where the industry is going and about the investments we're making," said Chris Saklosky, the general manager heading Microsoft's East Region Dynamics division. "This program is about bringing a discussion to the mid-market: how do we focus on these five verticals and scale our vertical expertise and our vertical engagement with that mid-market? This event is an output of that. We want to understand the landscape and the key business challenges."
The investments Saklosky talked about are substantial; he said Microsoft is investing $9 billion in research and development and more than $1 billion is allocated specifically for Microsoft Dynamics. "Yet we benefit from the R&D going on across the board," Saklosky said. "There's a lot of power and momentum behind that. ... The more customers that are running similar solutions, the more we can innovate our technology cause we'll be getting consistent feedback across the lines and there will be a stronger community for our partners to develop (solutions) for those industries."
Apparel on track
Mircosoft's investments and plans clearly include the apparel industry -- as evidenced by the dedicated apparel track at the summit that was presented by Porini USA, the global Microsoft partner designated to build the Microsoft Dynamics AX for Apparel and Textile solution. The ERP system according to Porini is designed to be a comprehensive and scalable solution. It offers a Microsoft Office/Outlook look and feel and is designed to provide flexibility and industry-specific functionality (including supply chain and inventory management) for companies that manufacture and distribute apparel and textiles.
Earlier this year, Porini announced its appointment to the partner advisory board of the Microsoft Dynamics Distribution Solution Center. In that role the company says it is representing the needs of the apparel industry to ensure that Microsoft solutions continue to deliver value for the apparel market.
"Collaborating with Microsoft in this strategic industry outreach has confirmed Porini's capability to deliver relevant solutions to apparel, footwear and textile organizations," commented Ana Friedlander, Porini director of business development. "We're putting the industry expertise together with all the Microsoft technology to bring to the market a full solution. I think it's a very strong push by Microsoft to go into all the verticals and make the investment they're making."
In her presentation during a breakout session titled, "The Connected Apparel Enterprise," Friedlander suggested that considering all the dynamic changes within the apparel industry during the past decade, integrating product lifecycle management and supply chain functionality into an ERP system are key requirements moving forward to ensuring speed to market, heightening visibility and reducing the number of manual errors.
"In the past we saw ERP was simply an environment in which 'I can put my orders in, I can place my purchases, I can ship an invoice.'" Friedlander said. "Within the last five years, it's become more and more clear that the product development piece is taking on greater emphasis over the manufacturing portion of your ERP ... No one wants to make purchases anymore where the design and testing isn't done, where spreadsheets are flying everywhere, where I'm placing orders and don't even know what the product looks like."
In apparel retail, Friedlander said, as mass merchants and others seek to sharpen their store planning capabilities, manage inventories more effectively, and sell seasonal collections with greater success, merchandising and storyboarding are receiving heightened attention and the ERP of today must offer enhanced business intelligence and product development tools that improve decision-making at the outset of the product lifecycle.
"The boat can't get there fast enough these days," she said. "If there's something you need to react to, it really needs to be addressed during your preproduction ... and if you look at EDI now it is no longer just vendor to customer. You're looking at EDI for financing, CRM, ecommerce: it all needs to be in one system now."
From a supply chain standpoint, Friedlander said distributors must rely less on manual processes and intuitive-based hunches for inventory management. "Warehouses can be profit centers," she said. "The opportunity is there." She said effective use of information technology, for instance, can eliminate excess inventory, balance idle assets and stock-outs, dramatically impact turn rates, fill rates and carrying costs -- and possibly be the difference between profit margin and loss.
Sacred cows of distribution
Speakers at the summit concurred that organizations must cultivate better strategies to respond to emerging challenges such as evolving distribution channels, third-party logistics and new RFID requirements.
In offering his keynote presentation, "Sacred Cows of Distribution," Brent R. Grover, a distribution industry executive, consultant speaker and writer on distribution business topics, examined some of the "sacred cows" that hold distributors back. In offering tools and action plans for wholesale distribution executives and managers, he suggested that they must gain far greater insight into their supply chain visibility: he divulged formulas including a strategic profit model for distributors, discussed ways to figure out and optimize staffing levels and imparted the "quick and dirty calculation" of the cost of processing an order (it's total operating costs divided by the total number of orders).
Grover also indicated that distributors as a whole have been laggards in embracing strategic planning: he pointed to a survey conducted in 1982 reflecting that only four percent of distribution groups conduct strategic planning in their business: today a third of them have a formal method of strategic planning, with the rest having an informal plan or none at all.
"We're making progress but not as much as we should," said Grover, whose Cleveland, OH firm Evergreen Consulting advises the wholesale-distribution channel. "The worst practice we have is no compelling goal." Having one can propel an organization to heights once thought unattainable, Grover said: he noted that strategic planning enabled Lexus to successfully reach its ambitious quest to outsell more passenger luxury vehicles than Mercedes in the United States.
Grover said the strategic plan of an organization can be condensed into a one-page Powerpoint-sized slide that includes objectives and key business strategies that ultimately support the "big hairy audacious goal" (BHAG).
"The leaders have to be able to articulate 'here's where we're going, here's why we're going to get there and here's your role,'" Grover said. "Clarity of the role of the people who work there is very important."
Though he identified the obvious shortcomings, Grover also highlighted distributors' recent successes in the economic downturn.
"Companies that were 25 percent-35 percent below year-to-year performance levels felt intense pressures on their cash and their need to reduce staff and get rid of unnecessary activities at their company," he said. "I think they've found they can do business with less and I think they'll be better positioned to make more money in the recovery."
During a panel discussion, Jon Schreibfeder, president of Effective Inventory Management, a firm focused on helping companies get the most out of their investment in stock inventory, concurred, saying "What I see is people getting lean. They're out there looking at reducing inventory down to just what customers want: reducing excess stock, reducing excess inventory. I see many people who are as productive as possible: they're rearranging the warehouse to fulfill an order for two dollars less. The pricing is a big topic. People are really striving to get the fat out of their businesses."
During the roundtable, Bill Harrison, president of IT provider Demand Solutions for wholesale distributors, said that the emergence of Amazon.com and other online etailers during the past decade led to organizations' "getting smarter" on the distribution side.
"Today, we're seeing lots of people taking advantage of the cost structure and forward buying," said Harrison, who noted the practice is prevalent in the gas retail industry. "They're buying ahead of price increases to improve their margins."
Harrison said technology remains the enabler for wholesale distribution. "What it does is give you information you need at your fingertips," he said. "Wal-Mart places the fast movers on the shelves that are at arms length and distributors need to start doing the same thing. You have to rearrange your warehouse based on the activity. A lot of people still don't have access to that information, at least [not] easily, and that's where technology will start to come into play."
Microsoft's Buffard, during her opening remarks, indicated that razor-thin margins as well as other forces are placing demands and pressures on older distribution systems.
"How many of your customers want to communicate with you over the web?" she asked. "That's real basic, but customers are now leveraging the social network like crazy: Facebook, Linked-In and Twitter. To grow in this market we're definitely going to have to meet that demand, if not in communications then at least around efficiency. We have to definitely make sure our systems have the ability to address that."
Offering a yardstick, Schreibfeder said there is "a renewed interest in people wanting to be sure that technology pays for itself in a reasonable amount of time."
"People want to see a payback in under 12 months today," he said. "There's always a cheaper way. You should always look to low-cost technology and cheap solutions first before adapting more expensive alternatives."
Michael D. Cole can be reached at [email protected].