Dealing with Complexity from M&A Growth in Wholesale Distribution
M&A growth in 2016 was sluggish in the wholesale distribution industry, but 2017 in giving optimist indications as the wholesale distribution landscape continues to shift.
Emerging M&A growth opportunities continue to develop as distributors move to capitalize on increasing their geographic footprint and shifting into adjacent and sibling product categories and services.
While distributors attempt to drive growth in the face of growing B2B competition, they are searching to find ways to get closer to customers and provide levels of service that differentiate them from online competitors.
With wholesale distribution industry consolidation and acquisitive growth, comes the problem of complexity. The problem is that acquisitions not only create larger organizations, but they also increase the complexity of bringing together new business models, processes, and work.
Mergers and acquisitions often leave distributors with numerous and disparate legacy systems, including custom applications, point solutions, and various operating systems and databases.
The result often finds distributors with:
- Fragmented and disconnected data, resulting in limited and latent information about operations, finance, suppliers, and customers
- Less flexible systems, which slow a distributors reaction to changing business conditions
- High IT costs from integrating and maintaining multiple systems and platforms
A fragmented IT landscape, because of M&A, makes it difficult to embrace new business models, streamline processes, control costs, and operate efficiently. Mergers and acquisitions can lead to disruptive and expensive growth, rather than profitable growth. One executive shared with me that he wanted to “double the size of his business without doubling the size of his employee parking lot”. This suggests that the human information interface is an area of concern because of the lack of integrated technology that could help increase revenue per employee after an acquisition.
To address these issues, distributors are exploring a digital transformation, enabled by new enterprise technology. SAP gives distributors the opportunity to replace multiple, aging, and patchwork systems with a single, functional rich, and real-time platform. SAP S/4 HANA is a powerful tool to help distributors react to shifting market forces in a consolidating industry, embrace new business models, and move beyond disruptive acquisition processes, grow profitably, and evolve from a traditional to a digital distributor.