Warehousing and Distribution Firms at Odds Over Technology

May 14, 2015

These are challenging times for many of Canada's warehousing and distribution companies. Customers are demanding better service, higher quality and lower prices. Costs are rising, and revenues are much more unpredictable. Good staff is hard to find and even harder to keep. Some companies see technology as the way to overcome these issues and push their businesses forward, but deep-seated skepticism and wariness over costs are keeping others from pursuing similar opportunities.

These perspectives were explored in Warehousing woes—and wins, a recent report by BDO. In this report, BDO looked at the results of MM&D magazine's industry survey as well as insights gained through roundtable discussions with industry leaders.

Interested in tech, but not ready to embrace it

Technology was a hot topic in the roundtable discussions, and one that stirred up very different views, remarks Kerri Plexman, Partner in BDO's Transportation, Warehousing and Distribution practice. “Participants were eager to discuss trends they felt they couldn't ignore, especially e-commerce and social media use,” Plexman says.

The rising popularity of online shopping has compelled many companies to ensure they're available around the clock to meet the increased service levels that customers demand. Other firms shared their efforts to use social media to connect with their customers and employees. Whether these social media efforts provide meaningful value to the business isn't yet certain. Part of the problem may be that companies are jumping into social media without a clear strategy or objectives, making it very difficult to determine if the work is paying off.

Despite all the talk, warehousing and distribution firms seem to be rather more ambivalent about actually adopting e-commerce, social media and other forms of technology.

Companies should be cautious when dismissing innovations that could improve their business processes or ability to compete.

“There's definitely a lot of skepticism in the industry, especially when it comes to new IT systems and new ways to track and manage goods,” says Jim Krahn, Partner with BDO Solutions. “The prevailing view in the roundtable discussions was that the systems and software companies use today are 'good enough.' There's little interest in upgrading.”

Indeed, the companies surveyed by MM&D said they allocated an average of 3.76% of their operations budgets to technology and other capital investments. Companies simply aren't convinced that new systems would deliver the improvements, savings or competitive edge needed to justify the spend. At the same time, however, they acknowledge that they could use their existing systems more effectively.

Why so wary?

Companies' wariness about investing in technology stems in part from current uncertainties. Firms are learning their customers are no longer interested in long-term contracts that provide secure, stable revenue. Today, customers are only willing to sign short-term deals measured in months or even weeks. This revenue volatility makes it very challenging to make long-term plans and investment decisions.

Other firms' reluctance comes from poor experiences in the past. Delays, cost overruns—or worse, systems that simply failed to work as promised— have made these companies distrustful of technology solution providers and their products and services. They reason that it's better to stick with tried-and-true tools rather than risk losing money on the promise of something new.

“Technology scares many in this sector because it depreciates so fast,” explains Krahn. “In three years, you can sell a forklift and still recoup some value from it. You can't do that with your customized package tracking software, and that unnerves some people.”

Techno-skeptics and technophiles: Who wins?

While there may be deep ambivalence about technology's role in the warehousing and distribution sector, BDO discovered that there are companies unwilling to stand still and play it safe. Having a defined business case, with clear requirements—asked for by clients, mandated by stakeholders or required by regulatory bodies—and a focus on bridging technology features to meet these requirements, will have a large, measurable impact on the company and overcome some of the skepticism in the sector.

Plexman tells of a roundtable participant who was certain that the company's heavy investment in RFID technology had improved his business and opened up new growth opportunities. “Yet despite what they heard, several others simply scoffed at the cost,” she says.

Of course, techno-skepticism isn't always a bad thing. A sense of caution can help companies avoid missteps and unnecessary spending. But too much caution can hold companies back.

Companies should be cautious when dismissing innovations that could improve their business processes or ability to compete. “Organizations do not need to be leading edge or take unnecessary risks, but they do need to be technology relevant,” Krahn observes. By staying in the mainstream of what is available in their markets, firms can employ new technology to overcome workforce challenges, deliver better quality service and respond more quickly to changes in customer needs and demands. Taking smart risks today will help Canadian warehousing and distribution companies make sure they're not left behind tomorrow.

The debate over technology's role in warehousing and distribution isn't over yet. In time, however, competitive pressures will no longer allow Canada's warehousing and distribution companies to rely on aging systems to avoid investment. Change is inevitable.

To Learn More:

To learn more about how BDO can help your transportation, warehousing or distribution company with these and other challenges, contact your local BDO office or:

Bob McMahon National
Retail and Consumer Business Leader
905 272 7818
bmcmahon@bdo.ca
Kerri Plexman
Partner, Transportation,
Warehousing and Distribution Practice
416 369 3104
kplexman@bdo.ca
Jim Krahn
Partner, BDO Solutions
403 231 5440
jkrahn@bdo.ca

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