Tier II adopts technology, warehouse management systems

To remain competitive in today's market, smaller distributors are installing the same supply chain tools as the big guys, says PathGuide Technologies.

By Bob Trebilcock, Editor at Large -- Modern Materials Handling, 8/15/2007

Not that long ago, only the Fortune 500 could afford a best-of-breed warehouse management system (WMS). In fact, not that long ago, only the big guys felt they needed supply chain software solutions.

Today, even small to mid-size distributors are looking to technology to streamline their business processes, says Eric Allais, CEO of PathGuide Technologies, a provider of real-time WMS systems.

“Even small distributors in the $80 to $100 million range have to meet quality and compliance issues and provide value-added services to remain on the short list as a valid supplier,” says Allais. “That’s what our customers are losing sleep over.”

In fact, Allais says there are four key trends driving the adoption of supply chain technology among Tier II distributors.

1) Customer service

Because so much of a distributor’s product line is viewed as a commodity by the market, the biggest differentiator is often price. “The only way to combat this is to add value and establish yourself as a leading supplier,” says Allais. Distributors can do that by providing services like vendor managed inventory (VMI) and delivering perfect orders. The challenge is to provide those services without driving up the associated costs in the warehouse.

2) More sales, better margins, more profit

Margins are thin in the distribution business. Getting bigger is one way to drive sales and improve cash flow, especially if inventory is accurate and the amount of labor required in the warehouse to support that growth can be held in check, Allais says.

3) Inventory

Inventory is the hot potato of the supply chain: No one wants to be left holding it. “That’s one of the reasons just-in-time initiatives are so popular with manufacturers,” says Allais. “They can carry the minimum amount of inventory required to feed their lines and minimize the amount of space they need in the factory and their carrying costs.” Distributors, on the other hand, now assume the risk associated with forecasting what to buy, how much to buy, and when to buy it so they can strike when the customer calls.   

4) What’s a warehouse

The nature of warehousing is changing for distributors. For starters, as profit margins become tighter, more and more distributors are putting themselves up for sale or acquiring their competitors. The question they face then is how to merge several warehouses into one to reduce costs. But the nature of a warehouse is also changing. In addition to a traditional warehouse, inventory might also be stored in totes and containers used for line replenishment or in a tool crib at a customer’s manufacturing plant. Inventory might also be stored on a parts distribution truck, which is in essence a warehouse on wheels. In either case, Allais says, “technology is becoming important to manage and replenish inventory, wherever it’s located.”