Wholesale Distribution Industry and JD Edwards EnterpriseOne

Transcription

1 Wholesale Distribution Industry and JD Edwards EnterpriseOne An Oracle White Paper May 2012 PURPOSE STATEMENT This document is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for Oracle s products remains at the sole discretion of Oracle. Updates and enhancements are provided in accordance with Oracle s Technical Support Policies at:

2 Wholesale Distribution Industry and JD Edwards EnterpriseOne WHOLESALE MARKET OVERVIEW... 1 INDUSTRY CHARACTERISTICS... 2 TRENDS... 4 ORACLE SOLUTION... 6 ORACLE KEY DIFFERENTIATORS... 6 IMPLEMENTATION PARTNERS... 6 Wholesale Distribution Industry and JD Edwards EnterpriseOne Page i

3 Wholesale Distribution Industry and JD Edwards EnterpriseOne WHOLESALE MARKET OVERVIEW The Wholesale Distribution industry consists of businesses that buy product for resale to retailers, contractors or other businesses who sell to the end consumer. Generally, wholesale distributors exist in order to aggregate supply and/or demand in a supply chain. On the supply side, a wholesale distributor purchases product from many small suppliers, each of which may be too small for a retailer to deal with directly. On the demand side, a wholesale distributor may aggregate demand from many small customers, each of which may be too small for a manufacturer to deal with directly. Wholesale distributors frequently specialize in a narrow category of products, such as produce, or general merchandise in grocery and drug stores. Wholesale distributors also add value in other ways in the supply chain. They may do light assembly. They may do value-added services for retailers, such as building pallet assortments or rack displays, delivering small quantities direct to stores, and even replenishing direct to shelves (so-called rack jobbers ). They may also provide value-added services to manufacturers, such as marketing, merchandising, or consulting services. In some cases, purchases are made for specific sales (a broker model). In other cases, the wholesale distributor sources merchandise from overseas suppliers (e.g. small Christmas toys), taking large positions in advance of sales, which can pay off if bets are made correctly. This is a very competitive industry. Unlike manufacturers, distributors compete on two fronts. On the sales side, they compete to get and retain customers business. On the buying side, they compete to carry suppliers products. In addition, because the customer can often buy the same products (same brand) from a competing distributor, prices are competitive, and margins are low. There are roughly 2,000 distributors in the US with annual revenues greater than $100M, and many thousands of smaller distributors. Traditionally, this market was served by small niche vendors of software for wholesale distribution that specialized in providing the complex functionality required to support the business. However, in the last couple of years, more and Wholesale Distribution Industry and JD Edwards EnterpriseOne Page 1

4 more distributors have turned to the major ERP vendors, because of concerns with scalability and viability of these smaller vendors. INDUSTRY CHARACTERISTICS The wholesale distribution industry has a number of common, or special, characteristics. There are many variations on the wholesale distribution model, and in dealing with any particular company it is important to recognize which of these characteristics apply. High transaction volume. It is common to have tens of thousands of line items entered and shipped per day. Software vendors who normally deal with manufacturing company transaction volume are often stunned by the volume and pace of a modern wholesale distribution operation. Ability to sustain the volume and speed of transactions is a key qualifier. Warehouse automation. Warehouses of the leading distributors are highly automated. Sophisticated warehouse management systems are a way of life, with dock scheduling, bar code data collection, directed put-away, multi-level stocking schemes (bulk, pick), directed pick line replenishment, pick line automation (e.g. pick to light ), integration with shipping manifest systems, etc. Automated material handling systems are seen in some operations. Operating with thin margins, warehouse labor efficiency is a key focus. This leads to an interest in doing precise measurement and analysis of warehouse labor activities. Transportation and freight management. For distributors that operate their own fleets, transportation is a significant percent of costs, and transportation planning, scheduling, and route optimization is a key interest. For distributors that ship by common carrier, control of freight costs, freight bill auditing, planning, and scheduling is a key need. International logistics management. Many distributors source products from outside the United States. As a result, distributors place considerable attention on planning, tracking, and control of imported material, interfacing with multi-modal carriers and freight forwarders, and analysis of shipping costs and customs charges. Global location number (GLN) is a global standard established by GS1. GLNs provide unique identification codes for a physical location (e.g. a warehouse, a loading dock, a room within a building, a specific delivery point). When businesses use the standardized GLN as part of sharing information via electronic messaging, sharing location information becomes straightforward and automated. Complex sales relationships. Distribution firms, like their suppliers, deal with a variety of sales relationships, from direct sales to manufacturers reps Wholesale Distribution Industry and JD Edwards EnterpriseOne Page 2

5 to independent sales agents. Manufacturers may sell directly to retailers, but a distributor can fulfill orders. Reverse logistics. Distributors must deal with merchandise that is returned by customers for a variety of reasons. In some cases, distributors contract to take back unsold merchandise, it may be defective, it may have been shipped in error, or consumers may have returned it and the distributor in turn must return it to the manufacturer. All of these situations create a complex return logistics supply chain that is often not well managed and is an opportunity for information systems. New product introduction. Many new products, multi-attribute products, constant churn driven by marketing campaigns, seasonality, collections or promotional tie-ins must be managed effectively and efficiently. Just-in-time and vendor managed inventory, with various manifestations in different segments (e.g. rack-jobbers in grocery industry) are characteristic. Forecasting and planning is a critical function. Large distributors are one of the most advanced in the use of leading edge forecasting and planning techniques, including seasonality, collaborative planning with major customers; use of EDI point-of-sale data from major customers as basis for forecasting; planning at the customer level, product family level, item level, and warehouse/territory level, etc.; and integration of material and transportation planning. Relationships with major retailers (Wal-Mart, Kmart, JC Penny, Home Depot, etc.), which drives many sub-implications: razor-thin margins, need for full product line/customer/deal profitability analysis, customer-issued scorecards that include penalties for shipping errors and missed delivery deadlines, customer-specific packing/pallet configurations/assortments, etc. E-commerce is already a way of life, but the industry is dominated by retailer private exchanges instead of public e-marketplaces. Very high adoption rate of EDI (80% of orders for some distributors), which the industry has no intention of abandoning, although a trend will likely begin toward Internet-based EDI because of Wal-Mart s current EDIINT mandate (see below). Complex order rules by customer, with shipment penalties. Some customers accept backorder, while some do not. Some want the order shipped complete or not shipped at all. Others accept partial shipments. Most of the large retailers have severe penalties for missed delivery dates or shipment errors and issue vendor scorecards that report vendor performance and penalties. Many distributors, on the other hand, are unable to produce their own scorecards and have no easy way to audit or dispute the accuracy of the customer s scorecard. Identify and effectively manage highly profitable or strategic accounts. Not all customers are created equal.and it s important to be able to understand your customers and to establish guidelines and rules that support fulfilling key customer s orders based on service level agreements, Wholesale Distribution Industry and JD Edwards EnterpriseOne Page 3

6 especially when inventory levels may not be sufficient to fulfill all outstanding orders. Complex consumer sales incentives (coupons, rebates, etc.) and trade promotions (bill-backs, free-goods, slotting fees, order level discounts, bracket pricing, annual contract volume discounts, marketing development funds, co-op advertising programs, buy-downs, etc.), with implications for order management, accounting, and profitability analysis. Complexity of trade promotions also leads to unauthorized customer credit claims, with frequent invoice disputes, and large headcounts in accounts receivable, credit, and collections departments. TRENDS Consolidation and roll ups. As in other industries, there is a trend toward larger distributors as consolidation is taking place in the industry. Distributors are acquiring small distributors to gain both market share and geographic presence. Value-added distribution. As noted earlier, if a wholesale distributor is only serving to aggregate supply and demand, it is a very low-margin business. Therefore, many distributors are seeking other ways to add value and thereby justify higher margins. As noted earlier, typical value added services include light assembly, building pallet assortments or rack displays, delivering small quantities direct to stores, and even replenishing direct to shelves (so-called rack jobbers ). From a systems perspective, these valueadded services are often part of the motivation for a distributor to be seeking a new system: legacy systems often do not easily accommodate these new value-added services. Warehouse and transportation management for mid-size and smaller distributors. Although, as indicated earlier, warehouse automation is a way of life among the leading distributors, there is still an under-adoption of integrated warehouse management systems among mid-size and smaller distributors. A survey of supply chain managers and executives revealed that a surprising number of distributors have yet to fully adopt transportation and warehouse management systems (TMS and WMS) and advanced planning and scheduling (APS) systems, and that these systems are only now becoming more broadly accepted. The study found that only 15 percent of responding companies had fully implemented TMS, while another 10 percent were in the process of implementation. Adoption was somewhat better for WMS, with 35 percent having a WMS in place and another 10 percent in process of implementation. Still the study found that interest in such solutions is high, with an additional 24 percent considering TMS and an additional 35 percent considering WMS. Regulation and liability: Continuing pressure to reduce product liability exposure is forcing manufacturers to closely track product location (i.e. Wholesale Distribution Industry and JD Edwards EnterpriseOne Page 4

7 country of origin) and use. The country of origin will assist the wholesale distributor by ensuring a country code is assigned to each inventory item for the purpose of managing, monitoring and reporting on country of origin throughout the supply chain. When product is sold through distributors, the distributor will be able to track product accordingly. In the food and beverage segment, especially, there is an increased regulatory emphasis on food safety and security in the post 9/11 environment. Specifically, the Bioterrorism Act of 2002 places new requirements on importers of foods to notify the FDA electronically in advance of each food shipment, with deadlines for implementation in December Tracking and reporting environmental impact is a trend that is driven by both regulation and business demand. Many countries have or plan to enact legislation that requires companies to track and report on greenhouse emissions and other environmental elements. Customers are seeking business partners and suppliers that are environmentally conscious. Collaborative Planning, Forecasting, and Replenishment (CPFR) have been industry initiatives for many years but have been slow to gain critical mass. Increase participation by major players, however, may increase adoption in the coming years. Because some major retailers and consumer product manufacturers are committed to CPFR, distributors must keep abreast of developments and be prepared to participate to the extent needed to maintain good trading partner relationships. Internet-based EDI. Wal-Mart mandates all of its suppliers to migrate to Internet-based EDI (EDIINT AS2) as a way of saving significant costs over traditional VAN-based EDI. As the leading retailer, Wal-Mart s initiative will most likely give Internet-based EDI critical mass and other retailers will follow. Wholesale distributors, as major suppliers to the major retailers, will no doubt be part of the initial focus for Internet-based EDI. EAN.UCC identification numbering. The Global Commerce Initiative (GCI) 1 is a voluntary body to improve the performance of the international supply chain for consumer goods through the collaborative development and endorsement of recommended standards and key business processes. A key component of the Global Commerce Initiative is the Global Trade Identification Number (GTIN), including the adoption of EAN*UCC identification, a unique 13-digit identification number for goods. Because wholesale distributors drive large volumes in the consumer goods industry, the adoption of the GTIN is valuable in their everyday business. 1 See Wholesale Distribution Industry and JD Edwards EnterpriseOne Page 5

8 ORACLE SOLUTION The Oracle solution consists of four major areas Supply Chain Management, Customer Relationship Management, Financial Management Solutions, and Human Capital Management. These decisions are driven by SCM, because the core business process of buying stock and reselling it is so critical to the distributor s survival. ORACLE KEY DIFFERENTIATORS The key differentiators of the Oracle solution are: The Breadth of the Oracle Solution Distributors typically look for a singlevendor solution to avoid the development and maintenance costs of system integration. Oracle s integrated best-of-breed solution offers them worldclass software to support all areas of the business that is integrated into a single overall solution. The Pure Internet Architecture with Power HTML -- The low cost deployment of a pure Internet solution is very important because most distributors have a large number of locations widely geographically dispersed. However, many internet-based solutions require heavy use of a mouse, which slows down entry, particularly of orders. Oracle s patented Power HTML technology solves this problem, giving the user the ability to complete transaction entry using only the keyboard. Financial Management Solutions -- Oracle s solution provides strong capabilities for managing consolidated companies. The business unit structure enables an enterprise to continue operating separately for as long as necessary and to combine operations when appropriate. Embedded Analytics Because wholesale distribution is such a low-margin business, it is critical for an enterprise to continually monitor performance metrics and make appropriate adjustments to strategy and operations. Oracle s embedded analytics throughout the supply chain, customer relationship, and financial processes give a distribution executive a complete real-time view of performance relative to targets. Some of the most analytics will revolve around customer profitability and supplier performance. Wholesale Distribution Industry and JD Edwards EnterpriseOne Page 6

9 The Oracle Partner Network continues to grow and add specializations and Accelerate Solutions. Please check the following site to search for Partners. Implementation Partners With Oracle Accelerate Solutions for JD Edwards Wholesale Distribution Note: You must filter under Application for JD Edwards EnterpriseOne and Industry for Wholesale Distribution White Paper Title [Month] 2012 Author: [OPTIONAL] Contributing Authors: [OPTIONAL] Oracle Corporation World Headquarters 500 Oracle Parkway Redwood Shores, CA U.S.A. Worldwide Inquiries: Phone: Fax: Copyright 2012, Oracle and/or its affiliates. All rights reserved. This document is provided for information purposes only and the contents hereof are subject to change without notice. This document is not warranted to be error-free, nor subject to any other warranties or conditions, whether expressed orally or implied in law, including implied warranties and conditions of merchantability or fitness for a particular purpose. We specifically disclaim any liability with respect to this document and no contractual obligations are formed either directly or indirectly by this document. This document may not be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without our prior written permission. Oracle and Java are registered trademarks of Oracle and/or its affiliates. Other names may be trademarks of their respective owners. Intel and Intel Xeon are trademarks or registered trademarks of Intel Corporation. All SPARC trademarks are used under license and are trademarks or registered trademarks of SPARC International, Inc. AMD, Opteron, the AMD logo, and the AMD Opteron logo are trademarks or registered trademarks of Advanced Micro Devices. UNIX is a registered trademark licensed through X/Open Company, Ltd oracle.com Wholesale Distribution Industry and JD Edwards EnterpriseOne Page 7