As the “middle men” of the supply chain, distributors thrive on high transaction volumes and swift inventory turns — and having the right IT infrastructure to facilitate that supply chain velocity is a high priority. For over a quarter of a century, electrical products distributor Summit Electric Supply happily watched its transaction volumes continue to rise and experienced unhindered growth; however, in 2004, the legacy system the company built in the 1980s began to show signs of stress.
For example, Summit was expanding its operations from its hub in New Mexico and adding new locations across the Southwest US, and its homegrown system could only manage a fixed number of locations. The legacy system also limited the number ranges that could be used on documents — to the point where IT had to recycle document number ranges every few months.
“The breaking point came when we found that we could no longer process our nightly batch inventory and financial updates in our available window of time,” says David Wascom, CIO and Vice President of IT at Summit Electric Supply. “The legacy system in place was becoming less and less stable, and we didn’t want to continue to run our business on that system.” The company began a search for a new ERP system.
Priorities for Evaluating and Implementing an ERP System
Selecting and implementing a new ERP system is no small task for any business, but Summit’s case was uniquely complicated. The company’s legacy IT infrastructure had been in place for so long that the business had built many of its processes around it. A new system would require some process changes, which would mean that business-side people would have to change how they work.
Another concern in selecting a new ERP system was that most of this software — being designed for manufacturing or retailing business models predominantly — would not address some of the distribution industry’s unique processes and priorities. However, Summit’s experience with its legacy systems provided some clear priorities for its ERP search. The top priority was scalability, especially in supply chain areas like orders and inventory, as the company expected strong growth in these areas.
Next on the priority list was inventory visibility. In the distribution business, order lead times can be literally only minutes, so knowing what product is available in what location is a key component of a distributor’s sales strategy. “Customers often call us to place an order while they’re driving to the location for pickup,” Wascom says. “So the lead time from order placement to fulfillment may be only 10 minutes.”
After extensively reviewing the market, in January 2007, Summit went live with SAP ERP software across its 19 locations — specifically for functionality in the areas of sales and distribution, financials, and materials management. The company has since implemented SAP NetWeaver Business Warehouse (SAP NetWeaver BW) and SAP NetWeaver Master Data Management (SAP NetWeaver MDM), and also uses an e-commerce SAP application for its online sales.
Wascom, who served as the SAP implementation project manager for the ERP rollout, says one reason Summit chose SAP was because the software provider demonstrated knowledge of the distribution business and the unique challenges that come with it. In fact, Wascom says the ERP selection team visited other distributors that were SAP customers — including some of Summit’s competitors — and these visits were a major factor in the decision to implement SAP ERP. “They helped us realize not only that it is possible to run an electrical distributor on SAP ERP, but that the software is very effective,” he says.
But to truly maximize its ERP investment, Summit’s IT organization identified several ways in which it could creatively customize its SAP instance to better suit its unique business needs.
Successfully Customizing Software and Processes: 3 Examples
Every business has some unique aspects that require customization to properly align its IT and business strategies. And Wascom admits that Summit is no exception and shares some very practical examples of how the company tweaked its SAP ERP implementation and processes to cater to its business needs.
1. Running More Frequent Inventory Updates
Distributors often must deal with extremely fast order turnaround. According to Wascom, most of the delivery and material scheduling functions within SAP ERP are designed for overnight processing — because, in many industries, a product is received from a supplier during the day, but it does not need to be entered into the back-end inventory system until the overnight updates. However, like most distributors, Summit may receive goods from a supplier in the morning and sell and ship those goods to a customer later in the same day. So waiting for the overnight inventory updates would significantly delay some sales.
The solution Summit came up with was to run smaller, more frequent updates for just the material received during the day, rather than running big updates for all open items in the system every time it received new goods. That would allow a more frequent and accurate inventory snapshot and keep orders humming (you can’t sell what you don’t know you have) — without requiring a major back-end IT overhaul.
2. Adapting the Inventory Tracking Process
One of Summit’s biggest product categories is wire and cable, which the company buys by the reel in lengths up to 5,000 feet. It then sells the wire to customers in cut lengths, which makes it difficult to know how much of that “inventory” has been sold and when it is time to replenish.
To address this inventory tracking issue, Summit adapted a batch management solution in the materials management functionality of SAP ERP. Now, wire reels are treated as batches rather than as a single product. Each time a customer buys a length of wire, the length is entered into the system to track how much of the “batch” was sold.
“If there’s an issue with wire, we can look it up on that batch to find which other customers bought from that same reel of wire,” Wascom says. “And we can track it back to the manufacturer very cleanly.”
3. Changing How Inventory Is Managed at Customer Job Sites
For larger customers that have long-term job sites, Summit creates temporary warehouses onsite to supply those customers with electrical products. While Summit still owns that inventory, it’s dedicated to those customers and can’t be viewed as standard inventory in the ERP system.
According to Wascom, the standard consignment process in SAP ERP wasn’t a perfect fit for that model. “We used some of the standard functionality in SAP ERP to change how we allocate materials into those storage locations to set up a parent-child warehouse relationship for those locations,” he says. “Now, our Houston office, for example, may have a couple customer job sites that are managed as subparts of their warehouse. That way, someone won’t accidentally sell the consigned inventory in that warehouse.”
“In IT, we’re not living in a vacuum. We have to be very closely tied to what the business is trying to accomplish, and really recognize that our purpose is to enable business users to be more productive and more effective at their jobs.”
— David Wascom, CIO and Vice President of IT, Summit Electric Supply
Experimenting with Business Intelligence
In early 2010, Summit expanded its SAP ERP implementation by adding SAP NetWeaver BW to better leverage the business intelligence opportunities that come with an integrated ERP system. Because the company’s legacy system used separate systems for orders and financials, there was little opportunity for business intelligence in that system.
Summit’s initial foray into the use of business intelligence has focused on evaluating profitability for its sales channels. “The visibility and analytics that the integrated ERP system provides — as a result of the aggregated data pulled from our transactional system — allow us to run ‘what-if’ scenarios,” Wascom says. “For example, we can look at profitability analysis by salesperson, manufacturer, customer, or branch, which has opened our eyes to some trends we never saw before. And in many other cases, it’s been able to validate what we suspected but could never prove.”
The results of the sales-focused business intelligence work has Summit ready to expand its efforts both upstream, to areas such as sales order quotations, and downstream, to supplier performance and delivery times.
Lesson Learned: Tweak It, Don’t Force It
After migrating from a legacy system to SAP ERP, Wascom says the key lesson he took away was to not try to force the new system to look exactly like the legacy system. “The more determined you are to recreate your legacy system in the new software, the longer it will take and the more expensive it will be to set up and maintain,” he says. “We like the functionality in SAP ERP, so we’ve done a lot to maintain the flexibility our users have but still run within a standard SAP business flow.”
And marrying technology and business processes is what Wascom sees as the IT organization’s true purpose. “In IT, we’re not living in a vacuum. We have to be very closely tied to what the business is trying to accomplish, and really recognize that our purpose is to enable business users to be more productive and more effective at their jobs.”