There are many unknowns about how this industry will be shaped in the next five years by Amazon and many other players. What is known – a strong analytics foundation will be critical to compete effectively.
As outlined in our current series on Amazon’s penetration of distribution markets – Distribution’s Omnichannel Future – the company has world-class analytics capability. Not only is it leveraging its own transaction data, but it has access to all the businesses selling on its marketplace platforms. Operationally, many distributors are rapidly adjusting their business models based on deeper analysis of their cost-to-serve, profitability and logistics data.
From our work with some of the leading North American industrial distributors and manufacturers that have developed strong market analytics and business intelligence teams, here are some ways to change how your organization thinks about analytics:
1. Choose a leader. Since the CFO is in charge of the numbers, the analytics function almost always rolls up to her. That’s appropriate but the CFO typically doesn’t possess the statistical analysis skills required to do analytics properly and so your organization needs a leader at the director or VP level with the proper experience.
2. It’s about statistics, not just financials. Distributors tend to be good at analyzing their financial statements but not so good at understanding customer behaviors such as onboarding and attrition. What actions correlate to acquiring, growing or losing an account? Your company needs statistical horsepower to understand what’s really happening in your business.
3. Analytics should be predictive and not just diagnostic. Financial statements are “backward looking.” Few distributors apply analytics to help them predict the future or build out pro-formas for various strategic alternatives. With the right leader and the right skill set, you can use a combination of financial and statistical analysis to evaluate strategic choices.
4. Combine internal and external data. Too many distributors limit their analytics to data they get from their ERP or perhaps their online marketing tools like Google Analytics. To produce top-drawer analytics, combine your internal data with information from external sources, which may include economic, market or customer and prospect data.
5. Build the three-year analytics plan. The keyword is “build.” The vast majority of distributors are early in developing analytics capabilities. Or outsource a slice of analytics to a vendor as a turnkey solution that sometimes delays building a stronger internal capability. Unless your management team is aligned on the longer-term strategic objective, it will get derailed by other priorities.
6. Win small analytic battles. Define small, crystal-clear projects. Fuzzy analytics are worse than none at all. Small pilot projects that validate the effort build momentum. There are always projects your team has talked about for years ripe to put under the analytics microscope that will yield valuable data-based insight to long-held gut assumptions.
7. Commit to analytics. Strong analytics is a combination of software, talent and leadership. Software is stronger, cheaper and better than ever. Data analytics is one of the hottest degree programs today; the key is to find analysts with communication skills to be part of a team and who have an understanding of business logic – not just financials. Be picky.
Analytics has to be elevated to a top development priority and given ongoing support and nurturing. This is a culture change for most distribution companies that is difficult and threatening. The top leaders have to defend the analytics team until it can stand on its own and you can say you are well on your way to building a data-driven culture.