A few years ago, PwC created a Distribution Maturity Model that is universally used in the distribution industry to gauge the level of maturity at distribution firms. The Maturity Model is not limited to IT, planning or any specific area of the firm, but rather all areas within the business process.
The Distribution Maturity Model has 4 stages:
- Level 1 – Developing
- Level 2 – Practicing
- Level 3 – Optimizing
- Level 4 – Leading
This is a critical stage for all companies because it is the first stage in their business life cycle – start up mode. Companies in this stage are completely entrepreneurial, going after everything in sight. This is a bad stage to be at unless you are a start-up. In all honesty, a company has limited time to be at this stage of maturity and the only goal at this point is to get past it. Eventually, industry dynamics will eventually force them out of this stage – Survival of the Fittest: Business Edition!
All companies in this stage have some type of software solution. However, they are afflicted with the following issues:
- Lack of defined strategies – other than an incredible desire to secure as much business as possible there is no strategy in place. There may be a document that outlines a strategy, but it is not being implemented.
- Ad-hoc manual processes – although software is implemented, it does not cover all the processes as most of them are manual and reactive.
- Standard Practices do not exist and best practices are rarely followed. Departmental – let alone company wide – best practices do not exist at this level. I have seen amazing and creative work-arounds, but best practices are as rare as a four leaf clover.
- Lack of supporting tools and applications. Firms in this stage have software, but it is nothing more than entry level and supports basic financial, inventory, purchasing and order entry. The functionality in these modules tends to be extremely limited and incapable of scaling as the business grows.
- Informal overall strategies are being followed. The strategies can be as informal as – no backorders at any cost, mentality to be the lowest cost supplier, and others that allow startups to grow.
The firm has made it past the startup stage! Now there are actual processes in place – not planned processes but necessary processes. These processes have grown from the need to sell, ship and invoice.
Now that they have experience and a budding reputation in the industry, they realize (sometimes to their surprise) that they have created and applied methods to their business:
- They are beginning to implement formal processes. Beginning is the operative word followed closely by inconsistent. The reason: formal processes are department driven and may have no relationship whatsoever to a full company process encompassing all departments. At this stage, the processes are being implemented by more aggressive department heads who want to ensure consistency of operation methods within their departments. This creates conflicting goals and objectives across the company as each department implements what is perceived as “best practices” for them.
- Most of these practices are manual, excel based or coded by a super user on some open system of some type. This gives the impression of having a software stamp of approval and false sense of using the necessary tools to run the business. Of course, nothing could be further from the truth as most often these tools are not based on best practices. Instead, they are not integrated and do not address the full company’s needs.
- They are beginning to understand the need for more refined business processes and using the proper tools for success and not just by departmental solutions.
In the Optimizing Stage, companies are hitting plateaus that require major decisions. We all know the saying – “If your business is not growing, then it is shrinking!”
This is the stage companies begin looking and understanding the need for industry best practices across the company to avoid conflicting goals and objectives between departments.
- Adopt standard strategies across the company to support a companywide integrated business process. These strategies are being tested, approved and adopted by all.
- New formal integrated processes are being reviewed analyzed, approved and implemented. The term “integrated” is important as it allows for inclusion/input from across ALL company departments. Integration is the only way to clearly understand the impact of decisions/changes to the company processes.
- Tools/digital platforms. Software, hardware and infrastructure are being reviewed and options are being considered and applied.
- Best practices are being discussed and applied across the firm. It is understood and accepted that these practices change with time and business requirements. Therefore, they are under constant review.
- Business Continuity Management and continuous improvement are part of the organization’s strategy.
The business is now planning and executing for today – and tomorrow – while adjusting, as necessary, to its market needs. “Customer centric” and “market driven” are terms that are understood and being applied at across the organization.
This is the stage most firms believe they have achieved. The operative word is “believe”.
At the Leaders Stage, innovation is strong and processes are consistently being utilized since strategies have been aligned throughout the company.
In this stage:
- Real time monitoring, big data and business analytics/intelligence allow them to review and analyze their processes and apply continuous improvement concepts. This points out areas that need to change based on market requirements and directs the firm to re-analyze and apply new processes.
- Businesses are living entities and change is part of their DNA. In this stage, change is a positive word that allows for continued growth and higher profit margins.
- Innovation applies not only to the business processes, but the tools they use to achieve their goals. “Easy to work with” is a slogan all companies use to describe themselves and, at this stage, their customers and suppliers agree. However, it hinges on integration of collaborative processes with vendors and customers. If they are not innovative in how they apply their portfolio of tools and the adoption of new tools to their supply chain, then how can they be “easy to do business with”.
- They constantly question their business processes and tools and have implemented a strong Business Continuity Management process to review and manage changes required.
The Maturity Model allows you to identify next steps in your firm’s development and provides areas your firm needs to improve on as your firm progresses through various life cycle stages. Not all firms achieve Level 4 of the Distribution Maturity Model. You can only achieve the 4th level of maturity – Leading – if you are a Modern Distributor. Once you have achieved this level of operation and process effectiveness within your firm you now have all the tools necessary to apply the Plan to Profit Model.
Most distributors reside between the practicing and optimizing stage – where do you fit?
SBS Group’s distribution solutions and industry experience can bring your firm to the 4th stage and make your firm a leader – a true modern distributor.
What does it take to be a Modern Distributor? Well, there are 5 pillars. They are…
Dominic Telaro CFPIM, CIRM
Vice President Industry Solutions, SBS Group
Dominic Telaro brings over 35 years of Manufacturing, Distribution, Software and Consulting experience. Half of his professional career has been in Manufacturing and Distribution from shop floor and warehousing positions to management. During this time he implemented ERP, DRP and Logistics solutions as internal Project Leader. The second half of his career has been in consulting, product management, product development and both consulting and software sales. He has held positions as VP Of Industry Solutions, VP of Product Development, VP of Sales and Marketing and Global Practice Leader for companies like IBIS Inc., IBM, Janis Group, Metamor, Marcam Corp. and more. Presently he is responsible for Industry Product Vision for multiple ERP solutions at SBS Group USA.
APICS Fellow and Certified in Integrated Resource Management, Instructor at Universite de Montreal, Vanier College and Granby CEGEP for APICS certification; Lead instructor for internal APICS training at Bell Helicopter, Avon, Le Groupe Hamelin