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Making the Right Choice
With the continued consolidation of software companies, distributors need to do their homework before committing to a package for their business.
by Lisa White
Some may argue that looking at the technology industry today is a little like watching a reality show on television. Which company will fold under the pressures of the industry? What small firm will be swallowed by a bigger one? Who will merge with whom?
Consolidation, say experts, is the result of a mature industry that has weeded out the smaller players and is run by a smaller number of larger companies. In addition, with many companies’ investments in software shrinking, and in some cases grinding to a halt, many experts predict that consolidation is inevitable.
In fact, a recent article in Business Week stated that investment bankers predict half of the sector’s 600 publicly traded companies are likely to be eliminated. Companies also are looking to reduce the number of vendors they deal with, purchasing a wider array of products from a smaller group of suppliers.
Changing buying patterns is helping to fuel the trend, according to TechRepublic. Because businesses have spent the last few years reducing the number of providers they work with, they are counting on fewer suppliers for more capabilities. That has driven larger suppliers to buy technology to fill out their portfolios. IBM's software group, for example, has made 17 acquisitions since 2001.
In addition, instead of launching large-scale projects, a large number of companies are looking to make better use of the systems and data they already have in place, reports TechRepublic.
The Wharton School of Business at the University of Pennsylvania reports that the coming consolidation in software will involve companies in the three chief categories of software for both businesses and consumers: applications (software that handles a slew of administrative tasks for corporations, such as financial management, procurement, human resource management and order processing, as well as for desktop computers); platforms (the so-called "middleware" systems on which some software applications run and which coordinate different software programs); and system infrastructure (the operational software that keeps computers running).
Taking a Second Look
Consolidation not only raises questions about the viability of smaller companies, but also about the viability of software packages acquired by larger developers, says Richard Friedman, president of Wilmette, IL-based General Business Consultants (GBC), a 25-year-old company that assists wholesalers and distributors in acquiring and utilizing information technology. "When a provider or seller [that is acquired by a larger company] owns several packages, there is no way that [the new] provider is going to support all of the packages over the long run. Consequently, sometimes there is a question as to which of the packages will continue to be enhanced," he explains. "While wholesalers are left to wonder if this software vendor will be around and who will be in business long term, sometimes the vendor that owns multiple packages has not yet decided which products will be the survivors."
There are companies that have targeted this concern with their software packages. One company, Creative Data Research (CDR), based in Mandeville, LA, provides assistance in software conversion. "[Consolidation] has given distributors the opportunity to reconsider their software packages," says Jim Sams, director of business development at CDR. "Our company is trying to help these distributors convert and transform their business. We have the conversion process down to a specific science to save our customers time and money."
He says one thing lacking in the software industry is customer support. "A lot of people view software vendors as vendors. Instead, we want to be a business partner with our customers. We’ve had customers bring outside or alternative vendors to our attention and we have partnered with them to make our customers more successful," says Sams.
Another company that offers integration software is Seagull Software, based in Atlanta, GA. Andre den Haan, senior vice president of product strategy and CIO, says the company’s software programs take legacy systems and create new interfaces for them. "It opens up existing applications to make them do things they couldn’t do before," he explains. "At a certain point in the lifecycle of software, there comes a point when you need to replace or update the package. Users have two choices—either go through the expense of getting new software, which will only provide a 10 to 20 percent improvement, or stick with what they have and utilize a program like ours to accomplish what you need to."
He adds that this software is pragmatic, economic and risk free. "It allows users to react to business changes more quickly, with less cost and uncertainty," den Haan explains.
Cost and Complexity Considerations
Consolidation and the need to update software has presented other challenges for distributors. Friedman says many companies in this industry are wary about dealing with the cost and complexity of new software packages. "Software packages are getting very complex, and the life-cycle costs of these products are becoming very high," he explains. "These costs are causing many distributors to seriously look at the numbers. As a result, many are motivated to stay with what they have."
He adds that he is aware of a number of distributors who abandoned new installation attempts or actually threw out newly purchased, recently installed software because the packages were too complicated to use. "One West Coast distributor surprised me because they gave up using a complex software package and installed one that was 10 years behind the times," says Friedman.
The key in this case is to not only look at the software’s viability, but also at its complexity. "Often companies don’t set up software properly because they don’t understand how or they didn’t make the needed changes to their software. The lesson here is not to assume the current data is accurate enough or clean enough to convert electronically. Data, over time, tends to get a degree of corruption. Many blame their system if they move erroneous data when they shouldn’t," says Friedman.
Ontario, Canada-based Mulvany Attard Associates, a company that develops, installs and supports software systems for the food industry, strives to keep things simple for its clients. According to Michael Benedick, director of sales, "The industry needs functionality, not to have three or four pieces of software in their offices." Mulvany Attard’s ERP software is designed for distributors looking for an affordable package that is all-encompassing. "It offers the ability to have order entry or order processing, GL accountability, inventory control and sales analyses together. This industry is not the most sophisticated where technology is concerned, so we are offering a package everyone in the organization can use."
When cost is an issue, many agree that companies can start small and add on features as needed. Taylored Technologies in Chanhassen, MN, a supplier of route sales and remote ordering software, is creating a system for distributors that can be built upon and added to in the future. According to Dave Ulrich, president of the company, "With this system, they can grow slowly and not get stuck with hardware they’ll need to throw away immediately. We can add features to existing systems over time."
He says that, because this industry will be replacing 300,000 Telzon machines in the next decade, Taylored Technologies has developed a number of replacement solutions. "Telzons are not inexpensive. They haven’t been produced in several years, so companies are buying them used. We offer a replacement product that is less expensive and can be upgraded," he says.
Although many wouldn’t argue that cost is a big issue when it comes to choosing software packages, Leon Hennes, president at Warehouse Innovations, a Lake Mary, FL, supplier of stamping systems and cigarette verification software, says accuracy is just as important when choosing a software package. "We find that distributors are looking most for accuracy in picks, because there tends to be a lot of discrepancies. They don’t want to lose money from these," he explains. "We had a customer whose WMS system caused the wrong pick of Slim Jims. There were two packages in one box and it was entered wrong in the system. Our software caught the problem, because it verified the weight of the box. The margins are not that large in this industry, and businesses don’t want to give away extra sleeves of Slim Jim’s."
Friedman says smaller distributors are at a disadvantage when it comes to pricing. "They’d like to get all the features they’re reading about, but can’t afford the software that contains those features," he says.
However, there is a new program geared toward these cost-conscious companies. "It’s called ‘application service provider’ or ASP," says Friedman. "This is where companies pay for the software as it’s used, rather than paying the costly up front license fee or monthly usage fees. Although he adds that these arrangements are "very embryonic, very new," this offers a way for smaller distributors to get around paying the high costs for necessary software.
Friedman predicts that, over time, software will be tied more into e-commerce and supply chain management. "This integration of ECM will make software even more complex. Software has become so sophisticated that it’s becoming more necessary to have users who are highly educated in general, in addition to knowing the system," he says. For this reason, it pays to do the research before choosing the appropriate software package as well as the provider.
Lisa White is a freelance food industry writer based in Cary, IL.
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