Facing the Forces of Change

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1 Facing the Forces of Change Decisive Actions for an Uncertain Economy Decisive Actions for 2012 October 20 th, IBM Corporation

2 Guy Blissett. Wholesale Distribution Lead IBM Facing the Forces of Change Webcast Speakers Andy Berry Vice President & General Manager Infor Global Distribution Business Unit Tom Gale Publisher Modern Distribution Management

3 Facing the Forces of Change Webcast Special offer! 10% discount on Facing the Forces of Change: Go to naw.org/ftf10 and enter FTFMDM11 produced by event sponsor

4 In 2010 IBM expanded its partnership with NAW to research trends in distribution, and craft a compelling point of view on the future 4

5 The themes in Facing the Forces of Change: Decisive Actions for an Uncertain Economy reflect industry leader s perspectives The New Economic Environment Role of Information Technology Differentiating with Analytics Expanding Role of Services Leveraging Human Capital Capitalizing on Key Trends 5

6 Even after all the macro-economic shocks and volatility for many distributors a fundamental question remains what next? October 2008 February 2009 April 2009 April 2010 May 2010 October 2010 April 2011 July 2011 Source: The Economist, 6

Wholesale Distribution IBM 2010 CEO Study 79% 85% More volatile More uncertain

7 We do know that the New Economic Environment represent a different world and we will not see a return to the way things were The New Economic Environment Wholesale Distribution IBM 2010 CEO Study 79% 85% More volatile More uncertain 44% 51% More complex Structurally different Source: IBM analysis, IBM 2010 Global CEO Study 7

Distributors must continuously redefine and

creation - in the supply chain Suppliers MRO

Distributors Primary Flow of Goods Customers

Manufacturers Restaurants Government Buffer

and storage costs Access new markets and

touch-point Conduct product tests and audits

respond to market trends Benefits Benefits

Create purchasing leverage Reduce number of

and merchandise product Execute and assess

8 Distributors must continuously redefine and assess their role - and the sources of value creation - in the supply chain Suppliers MRO Parts Consumables Components OEM Parts Distributors Primary Flow of Goods Customers Utilities Contractors Retailers VAR Manufacturers Restaurants Government Buffer inventory Credit extension Reduce transport and storage costs Access new markets and customers Provide regular customer touch-point Conduct product tests and audits Monitor and aggregate demand Identify and respond to market trends Benefits Benefits Own brand Services New segments New categories Deliver product and market knowledge Deliver broad range of products Create purchasing leverage Reduce number of deliveries Assume inventory risk Replenish and merchandise product Execute and assess trade promotions Source: IBM analysis, IBM 2010 Global CEO Study 8 The New Economic Environment

9 In confronting the New Economic Environment distributors must firmly grasp the available opportunities Get ahead of scarcity Drive cost efficiency through productivity and agility Develop targeted approaches to growth 9 The New Economic Environment

10 The importance of services continues to grow and not just as a source of incremental revenues Source of competitive differentiation vs. peers vs. non-traditional competitors Reinforce customer retention Create incremental product sales opportunities Contribute to distributor gross and net profits Enable customers and suppliers to execute new operating models Many distributors lack a consistent, shared definition of what constitutes a service and what services are offered 10

Services will double in importance to gross margin by 2015 however a performance gap exists in assessing services profitability Importance to Gross Profit Very Important Today Very Important 2015 %

11 Services will double in importance to gross margin by 2015 however a performance gap exists in assessing services profitability Importance to Gross Profit Very Important Today Very Important 2015 % Change 2015 vs. Today Fee-for-service from suppliers Fee-for-service from customers 11% 22% 19% 38% +100% +100% Performance and Importance Gap Assess service offering profitability 16% 25% 37% 53% 47% 22% -25% 11 The Expanding Role of Services

12 To effectively expand the role of services within their organizations distributors will Get much closer to customers Craft a comprehensive strategy for services Actively manage their service and product portfolios 12 The Expanding Role of Services

segmentation Scope of analytics Advanced analytics capabilities are moving beyond simply better

13 The role of analytics continues to expand, with technology increasingly acting as a critical enabler Inventory Management Product Portfolio Analysis Price Optimization Supplier Segmentation Customer segmentation Scope of analytics Advanced analytics capabilities are moving beyond simply better reporting to more accurate prediction Workforce Optimization Network Optimization 13 Differentiating with Analytics

Analytic tools and approaches also continue to evolve rapidly and innovative distributors are investing to advance their maturity where are you on the curve?

are shared with other teams within department Task integration VP sets strategy Department metrics map to other departments Look both forwards and backwards Basic Reporting Top-down goal setting

14 Analytic tools and approaches also continue to evolve rapidly and innovative distributors are investing to advance their maturity where are you on the curve? Predict and Optimize Rely on spreadsheets with information gaps Rear view is only view Command and control Data Management Have a view into current results and a little of what s driving them Results are shared with other teams within department Task integration VP sets strategy Department metrics map to other departments Look both forwards and backwards Basic Reporting Top-down goal setting Insights flow freely across org Allocate resources, minimize risk and maximize outcomes with ease and speed Benchmarking Analysis Manual, slow, error prone, cumbersome, fragmented. Data quality concerns Automated, instant, accurate, seamless, converged. Data governance is in place 14 Differentiating with Analytics

15 However, distributors acknowledge significant performance vs. importance gaps in many critical areas of analytics Performance and Importance Gap Assess Sales Force Productivity 39% $ Optimize Prices 39% Assess Customer Service Productivity 33% Assess Customer Profitability 30% Assess Product Profitability 29% Optimize Inventory 29% Assess Service Offering Profitability 24% Assess Warehouse / Transport productivity 14% 15 Differentiating with Analytics

16 Many distributors assess customer profitability, and most plan to stop doing business with the highly unprofitable ones, however 79% What factors influence the decision about doing business with unprofitable customers? What strategies are employed to address their performance? 7% 14% Our company has no plans to do this Our company does this today Our company does not do this today, but will by Differentiating with Analytics

current adoption of Activity-Based Costing suggests the underlying analysis of profitability may be flawed 33% 48% plan investment in Activity-Based Costing 28% 20% By 2015 59% of distributors will

17 current adoption of Activity-Based Costing suggests the underlying analysis of profitability may be flawed 33% 48% plan investment in Activity-Based Costing 28% 20% By % of distributors will use an Activity- Based Costing application. 8% 11% 17 Not familiar with No plans to use Not currently using by will by 2015 Differentiating with Analytics Currently using, will need upgrade/ change by 2015 Currently using and fully meets our needs

The growing importance of human capital management is being driven by numerous internal and external factors Distributors sell a more complex value proposition Highly competitive operating

18 The growing importance of human capital management is being driven by numerous internal and external factors Distributors sell a more complex value proposition Highly competitive operating environment Customers have ever-higher service expectations Core skills required continue to evolve Industry demographics continue to change base At Graybar, we believe our people hold the key to long-term success 18 Leveraging Human Capital

Many large distributors have already developed a human capital strategy <$20M $20M to <$50M $50M to <$250M $250M to <$500M >$500M Our company has no plans to do

19 Many large distributors have already developed a human capital strategy <$20M $20M to <$50M $50M to <$250M $250M to <$500M >$500M Our company has no plans to do this Our company does this today Our company does not do this today, but will by 2015 and many smaller ones plan on creating one by Leveraging Human Capital

magazine -1% Direct mail solicitation -8% Fax or other telemarketing -1% Leveraging Human Capital Increasing relevance +17% E-Mail marketing +16% Webinars

20 Looking to the future it appears traditional and face-to-face interactions decline in relevance Change in importance Today vs Declining relevance In person sales call -18% Physical presence at trade show -5% In-person event or seminar -7% Advertise in printed industry magazine -1% Direct mail solicitation -8% Fax or other telemarketing -1% Leveraging Human Capital Increasing relevance +17% marketing +16% Webinars +23% Search engine marketing +20% Our company s website +6% +18% Advertise on an industry website Participate in online networks while technology-enabled interactions grow in importance

21 To leverage existing Human Capital and build the workforce of the future will require a strategy and prudent investments Increase the profile of human capital management within the organization Develop a strategy addressing workforce dynamics and skills shortages Manage and enable the workforce across key dimensions Attracting and recruiting Developing Assessing performance Measuring productivity Retaining Use tools and analytics to heighten productivity and effectiveness 21 Leveraging Human Capital

22 Many distributors are questioning the true sources of sustainable value and differentiation in their businesses Wholesale Distribution Information Management # of lines, # of items, # of SKU, # of locations, delivery speed, lowest price Assess sales and profits, collaborate, connect with customers, develop and share insights 22 The Transformative Role of IT

23 Planned upgrades and 1 st time implementations in core areas of information technology highlight the growing importance Using and okay as is Plan to upgrade Plan 1 st time implementation Investment Activity 73% 57% 47% 44% 40% 37% 23 The Transformative Role of IT

There is widespread agreement among distributors about the need to position and leverage IT more aggressively Actual use of IT Preferred use of IT Use IT as a

24 There is widespread agreement among distributors about the need to position and leverage IT more aggressively Actual use of IT Preferred use of IT Use IT as a competitive weapon one-third of distributors would prefer to use IT as a competitive weapon, vs. only 8% that currently do so 24 The Transformative Role of IT

Distributors must leverage Information Technology as they look to transform their

and where necessary make strategic investments Leverage IT to transform the organization

and tools Capitalize on web-enabled capabilities pushing beyond e-commerce Explore alternative

25 Distributors must leverage Information Technology as they look to transform their organizations for the New Economic Environment Asses business value, build the business case and where necessary make strategic investments Leverage IT to transform the organization getting closer to customers and suppliers Empower the sales force with information, insights and tools Capitalize on web-enabled capabilities pushing beyond e-commerce Explore alternative delivery and pricing models Outsourcing Cloud Software as a Service Virtualization 25 The Transformative Role of IT

26 As we now look forward there are two primary trends we believe distributors must understand and should be assessing Green Business Expanding Role of Government Investment Regulation Taxes 44% see green business having a more significant impact 61% see government regulation having a more significant impact 26

Leading distributors are taking decisive actions and

Decisive Actions for an Uncertain Economy Latest

27 Leading distributors are taking decisive actions and investing to position themselves for a complex future Decisive Actions for an Uncertain Economy Latest iteration of Facing the Forces of Change Available via the N.A.W. website: Guy Blissett Wholesale Distribution Lead IBM Guy.Blissett@us.ibm.com (917)