By Bridget McCrea
In this 3-part series, tED magazine explores some of the biggest challenges that electrical distributors are facing when it comes to justifying investments in data management and usage in today's information-rich business world.
Finding the Real ROI in Data Analytics
Whether they realize it or not, distributors have been using data analytics to make good decisions for decades. And while the concept has been broadened out and more clearly defined over the last few years, data analytics still just comes down to examining information in order to extract the "actionable" aspects of that data, and then using the information to make better business decisions. Now enabled by specialized systems, platforms, and software, data analytics allows companies to leverage automation and information in very useful ways.
Now, while analytics sounds straightforward enough in theory, doing it the right way takes both time and money. It doesn't happen overnight, nor does it happen on its own. These realities don't always sit well with electrical distributors that want to see the instant results of their investments—the "rapid ROI," if you will. So while the need for analytics is clear-cut, the path to getting there can be a bit fuzzy.
If there's one major force that's pushing distributors and their suppliers to rethink how much time and money they spend honing their data strategies, it's coming from Amazon. "Amazon is one of those firms that's not afraid to spend tens of millions of dollars figuring out how to be more competitive," says Gary Owen, president at Seattle-based MITS, which specializes in distributor and manufacturer analytics. "Part of that includes heavily leveraging information (i.e., software analytics and processing systems) and automation."
Here's the Breakdown
The average electrical distributor may not be pumping millions of dollars into its data analytics strategies right now, but the good news is that even small investments in such strategies can pay off. "Companies of all sizes can benefit from making their organizations more data-driven," says Paul St. Germain, co-author of the National Association of Wholesaler-Distributors' Facing the Forces of Change. "It doesn't matter if you're a multibillion-dollar business or a $10 million business. The opportunities are there for both."
A few years ago, for example, Nucleus Research did a study and found that the average returns from analytics have been increasing, reaching $13.01 for every dollar spent in 2014 from just $10.66 in 2011. We can assume that number has grown a bit more over the last three years, but even a 13:1 return on investment is worth paying attention to.
"We know that the ROI exists, but for distributors it's really about figuring out how to accelerate that return and make it worth their while," says Owen, acknowledging the fact that many analytic projects involve long-term software development initiatives—something that most small to midsized companies would rather steer clear of, if at all possible. For example, the multimillion-dollar analytics projects that a company like Amazon undertakes could take a year or two to deliver a return on investment. "Amazon can afford to do that," Owen points out, "but most distributors don't have access to the kind of capital they would need to be able to do the same."
The question is, how can distributors reach that 13:1 (give or take) ROI within a reasonable timeframe without breaking the bank or investing an inordinate amount of human resources in the process? One good strategy is to focus on shorter-term goals, like getting to 1:1 ROI over a period of a few months. Do that by figuring out how to maximize analytics as the "middle ground" between information technology (IT) and business applications.
"If you don't understand the business applications of the analytics, then the analytics won't provide any value," Owen points out. "Analytics only provides value when you're able to take the technological component, apply it to an aspect of the business, and then optimize that business application in order to get an ROI."
For example, instead of assuming that a data and analytics solution has to solve every single problem that your company has, focus in on a few key sticking points that need to be solved. For example, many companies are still working with the internal "silos" that they set up decades ago…and that are still standing tall today. Unfortunately, these silos make the seamless sharing across different departments, managers, and/or employees extremely difficult.
Using business analytics, distributors can get everyone on the same page with a consistent set of information and one solution that manages both the analytics and data-sharing functions. That way, when Joan in accounting needs a sales report from Mike in sales—and Henry in the warehouse needs to be in on the conversation—all three individuals can work from the same playbook.
In another example, distributors can leverage data analytics to extract the data that's buried in their Enterprise Resource Planning (ERP) systems, which for most firms are untapped data goldmines. A software solution that offers interactive reporting capabilities, for example, can help "free up" the data and turn it into useful, actionable information. "Equipped with this information," Owen says, "electrical distributors can identify root causes of problems, past and future trends, and potential business opportunities."
It's Not All or Nothing
Along with assuming that data analytics will solve all of their business problems—or that they won't solve any of them—distributors don't always understand the global impacts even the smallest analytics investment can have on their businesses. So where they will implement a far-reaching ERP that touches every department and branch, they can't always justify a more laser-focused analytics project (even one that promises excellent returns over time).
"If you're implementing a new ERP, you have to get buy-in from everyone in the company because they'll all be interacting with it. And, if the system doesn't work for them, the business as a whole can't function," Owen explains. "With analytics, the key is to look at how the knowledge and insights will help you improve one part of the business— even just for a short period of time and involving just a handful of employees—and then work outward from there."
McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at email@example.com or visit her website at www.expertghostwriter.net.