Charting the Future of Distribution
Texas A&M Industrial Distribution Program Encourages Students to Think Innovatively
Distributors are constantly exploring ways to gain a competitive edge in the marketplace and to recruit new talent that will help drive the company into the future as baby boomers enter retirement.
The Texas A&M Industrial Distribution Program provides pivotal resources in both of those areas. Long respected as one of the premier programs of its kind in the nation, A&M has upped the ante by adding a Talent Incubator and increasing the hands-on interaction between its students and distributors from various industries.
Inspiring Innovative Thinking
The Talent Incubator was created by Barry Lawrence, Ph.D., program coordinator and professor of the Industrial Distribution Program, with an idea and a handful of students. It was based on the premise that, despite the increasing popularity of the dotcoms, there would still be a tremendous need for traditional distributors. But to be competitive, they would need to think outside their traditional boxes.
It also solved two of the university’s ongoing challenges:
• A&M really wanted to engage in formal undergraduate research projects but had struggled with the concept. While students often were involved in various types of research, many times they were doing it on their own without faculty members being fully engaged. As a result, corporations didn’t give it the weight they would give to an officially sanctioned project.
• In addition, companies interested in recruiting Industrial Distribution (ID) graduates often wanted insight into the best candidates. “Ethically, I can’t make that call from among our 800 students,” notes Lawrence. “On the other hand, if we had a program that essentially hired students into an elite organization, that would send a pretty clear message to potential employers. So it’s of great value to companies that are recruiting next-generation leaders.”
The Talent Incubator is designed to function at the level of an organization like a global supply chain lab. Professional researchers were put in charge of it, led by Esther Rodriguez Silva, Ph.D., TEES research assistant professor and director of the Talent Incubator Program, who organized the group along a project-management basis. It runs on a nine-month academic calendar from September through May. To kick it off, the university required that the Talent Incubator have a five-year funding commitment from industry partner companies — all 10 of those positions were sold within months of the announcement.
“The energy and excitement associated with our undergraduates often goes beyond what industry professionals might have because they are looking at concepts through fresh sets of eyes, with few preconceived ideas,” Lawrence says. “They want to bring innovative solutions to the market and are thinking outside the box because they don’t know what the box is yet.
“It’s about transitioning to a world where products and services have to be relevant to remain competitive. Thought leadership is extremely important to this process. We have some projects that are following more traditional distribution models, but also some that are highly creative and stretching new boundaries.”
Real-world Classroom Experience
As part of the ID program curriculum, Mark Johnson, associate professor of practice in the Engineering Technology and Industrial Distribution Department, was chosen to lead courses on enterprise resource planning (ERP) systems and supply chain management.
“Our faculty was doing the best we could with what we had,” says Johnson. “But we wanted the classes to be cutting-edge and true-to-life. When the opportunity arose to partner with Mincron and use their technology solutions, it was exactly what we needed to raise the bar. The feedback we are getting now compared to when we didn’t have Mincron’s support is night and day. It’s been invaluable.”
As part of Mincron’s partnership with A&M, Education Specialist Patty Baley was named the university’s account manager. She spends a lot of time on campus answering questions and working with the staff as well as students. The program designed a junior-year course on ERP systems as a way for students to get hands-on involvement with distribution management software. To prepare, Baley trained the professor and graduate assistant on Mincron’s Smart Distributor ERP solution.
“The way the course is set up, the professor conducts lectures about aspects of the system in class, and then the graduate assistant leads a hands-on lab to reinforce what had been taught in the lecture,” Baley explained. “To help get them off the ground, I worked with the professor and the graduate assistant on PowerPoint presentations and on real-world examples from our customers using the system that would help them understand how Mincron’s solutions apply to each operational area of a distribution company. I sat through the first semester of lectures and labs to help them fine tune their strategies and message, and as a support system in case any questions came up that they might not yet be familiar with.”
For one of the labs, Baley came up with an idea to make signs for various students to wear in a role-playing exercise — things like “customer,” “vendor,” “sales person,” and “warehouse.” They used chocolate candy as the product and watched how the system managed the product from the time it was ordered and received from the vendor, stored in the warehouse, and then ordered by and shipped to a customer.
“It gave the students a much clearer visualization of the system and how it works,” said Baley. “And it was ideal timing for the students. They were given the project of creating an item, creating a customer and creating a vendor. Then, they wrote sales orders, bids and contract orders to see how the system allocates stock or not based on the transaction. Finally, they ran a Recommended Order Report to see the system reordering the product.”
Johnson noted that the partnership with Mincron, and resulting ERP course, “allowed students to learn much more about the crucial role software plays in distribution, which ultimately provides a more effective background for our students. And having hands-on experience using an ERP system gives them a very marketable skill to add to their resumes as they enter the job market. It’s about teaching them to be proactive decision makers. We are training our students to be executives, and while most of them won’t be going into the IT side of a distribution business, this gives them a solid understanding of that department’s importance and the analytics that it can provide. This software is an excellent tool for them to use to identify any problem areas and implement new processes and procedures that will increase their company’s competitiveness.”
Mincron also facilitates opportunities with some of their customers for students to tour their facilities, learn about their operations and get a firsthand look at what happens on a daily basis. It’s also a chance for the students to see Mincron software in action and what it really does for a distributor outside of the classroom setting.
“We are successful in preparing our students to make a contribution to their future employers because we give them an experiential learning environment here,” says Johnson. “That requires more resources, but we have partners such as Mincron who support it. The benefit for those companies is that they are able to get their product in front of students from the beginning, so when students are in the workforce, they can very well recommend the partners they have experience working with — and be able to give firsthand reasons as to why they are superior.”
Building Block for the Future
The roots of Texas A&M’s Industrial Distribution Program date back to 1956. It got an early boost a few years later when J. R. Thompson, an Allen Bradley distributor from Houston, infused industry relationships and funding into the program and Don Rice, Ph.D., was brought on board to lead the program. With a mission to ensure students had a broad view of distribution, they developed a highly successful curriculum model that put the program on the map. As its reputation spread, A&M drew interest from distributors across a wide range of industries that led to internship programs, regular recruiting visits and, ultimately, the hiring of A&M graduates.
Benefactors Thomas & Joan Read also played an important role in the program’s development by endowing the Read Center for Distribution Research & Education — the only one of its kind in the world, in the late 1980s. At that point, the program had grown to about 500 students. The addition of the Read Center meant that students could gain cutting-edge, real-world knowledge through professional development courses that were based on the most important issues of the day for distribution.
“All of this just continued to add to the reputation that A&M had built with this program,” says Lawrence. “The demand for the type of information we could provide through the Read Center was great, and we started investing even more time and resources into research and consulting in the mid-1990s.
“That led to the development of a library of books that were focused on the art of distribution. Previously, there wasn’t much available, so faculty members had used books written for manufacturing, retail and other such environments and then adapted them to fit the distribution courses they were teaching. But the significant body of knowledge on operational excellence we had amassed thanks to our firsthand research and consulting was the basis for some of our first books on the subject.”
The potential impact of those types of courses led many distributors to enroll key employees in the program so they could bring that knowledge back to their companies — or hire A&M team members for consulting projects.
As Lawrence describes, most distributors had been sales-focused, and there hadn’t been a whole lot of dialogue when it came to operations. However, in order to be competitive and profitable, distributors needed to shift some of that emphasis on sales to exchanging dialogue on what they had found to be best operational practices.
The Professional Development arm of the program draws about 1,000 students per year for various certifications and executive strategic sessions.
“Distribution executives come here to design their growth strategies for the next year,” says Lawrence. “We focus on fundamental things that are really specific to each of their job responsibilities. We want to give people something that will not only benefit their companies but that they can use as they build their future.
“When you mix industry professionals who have so many years of expertise with our young undergrads, masters students and Ph.D.s to work on projects and research together, it’s so valuable. The industry professionals are very much a part of the research taking place; they are participating, not just observing.”
Today, Texas A&M’s ID program has 780 undergraduate students. Its Professional Association for Industrial Distribution (PAID) student group has more than 700 members and is the third largest on campus. (The famed Corps of Cadets is the largest.) PAID runs two career fairs each year with an average of 65 companies taking part.
“Distributors realize what a great recruiting opportunity this is,” notes Johnson. “Larger companies traditionally have had an easier time getting on students’ radar because of name recognition. But it was difficult for students to even connect with smaller distributors. This evens the playing field, so to speak, and gives students a broader perspective of what choices are out there. Our program is proud to have nearly a 100 percent placement record and nearly 90 percent retention rate. It’s a great win for everyone.”
Undergrads have an opportunity to take part in a global study abroad course each year. It is a project course that pushes them to plan and execute the projects. They’ve done things like product introductions, territorial growth and e-commerce initiatives.
There is also a Master of Industrial Distribution program that began in 2001. All students are full-time working professionals, and it is done almost entirely online. They do one week of residency at A&M each year plus a global trip. Five major companies supported the global class with projects last year.
In describing the unique learning environment that the Industrial Distribution program offers, Johnson says. “We bring students together, give them a task to do, and allow them the opportunity to fail while I, or other members of our team, are flying cover. We put them in a position to perform so they can learn and encourage the ones who are trying to hide from taking those scary steps. In the end, you have to be willing to accept some criticism, but it teaches the students that they can be successful and make the right decisions, which gives them the confidence to speak up and participate with their companies after they graduate.
“They also get a chance to see how easy it is to point fingers of blame when things don’t go according to plan — and how hard it can be to take charge. They realize the influence a leader can have on a project and the difference that a good leader can make in the performance of a group.”
A New Level of Learning
Armed with reams of knowledge; dedicated faculty members; nationwide and industry-wide connections with distributors; enthusiastic students; and critical partnerships with associations, organizations and service providers like Mincron Software, Texas A&M hosted its first consortium in 2006, called Pricing Optimization.
“One of the key things we learned from that study was that distributors can realize an incredible impact from pricing,” Lawrence describes. “When we added this to the inventory best practices that we were encouraging, it became clear that distributors who adapted best practices to their needs could make a lot of money — at least in the short term until too many others copied it.”
That was a light-bulb moment for the program and for distribution. “We started really focusing on profitability and what the potential was for distributors,” says Lawrence. “Realistically, distributors are capable of implementing three to four best practices over a three- to four-year period. So we wanted to determine which best practices had the most impact so that distributors would be able to choose more wisely what they invested their time and resources in. The failure rate for best-practice implementation is incredible, even though many companies shared consultants. We learned that it all came down to ROI (return on investment). If you could determine the ROI on a best practice, you could demonstrate and provide a profitability road map that would drive implementation.”
The findings of that first consortium led to questions that drove a second one. And that pattern has continued on, with the findings generated during one consortium leading to more questions and target areas to study. Along the way, as word of these consortiums spread, A&M joined forces with National Association of Wholesaler-Distributors (NAW) in a partnership under which NAW members would support the consortium and the NAW Institute would publish books on the findings.
Here is a look inside the consortiums that have been held to this point:
• Optimizing Distributor Profitability essentially created a framework to describe and document best practices. It linked practices into individual business processes that could actually be measured and linked to return on investment.
“Once you measure the business process, it gives you something that you can connect to the income statement and balance sheet,” notes Lawrence. “At that point, ROI is just a few steps away. We found that the average distributor could double their earnings and triple their net return on assets by implementing the top three or four best practices.”
Out of the seven best practices identified and studied, sales — once a distributor’s primary focus — was the most worrisome. That finding led to a third consortium on Sales and Marketing.
“We were concerned that there wasn’t a lot of information on the best ways for distributors to run their sales and marketing departments,” explains Lawrence.
• The next one was on growth, which proved to be hugely successful. The topic encompassed everything studied to date plus business development. Innovative growth has become critical to the future of distributors.
• Optimizing Channel Compensation came next, focusing on the manufacturer-distributor relationship. The consortium sought to link the supplier to the competitive efforts of the distributor.
• It was followed by Optimizing Human Capital Development, which addressed the critically important human resources issue. The new market dynamics and millennial generation will reshape distributor models, and the consortium was able to address those changes and many other fundamental human capital best practices.
• Next came Optimizing Value Added Services. It examined how the foregoing trends were converging to reinvent distributors’ service offerings. The consortium defined services and how to monetize them.
• The current consortium is called Optimizing Business Analytics. Its premise is to recognize that a distributor’s ability to capitalize on their resources will define their future success.
“We believe that distributors are being reinvented,” says Lawrence. “The open question is, what type of company will they become? This consortium is trying to shed light on how analytics processes will support and alter the form of future distributor models.”
Mincron Software is participating as one of A&M’s partners in this important consortium.
“While consultants can add to the body of knowledge, much of the information they gather is proprietary,” Lawrence said. “But with consortiums like the ones we host, our findings are published. That means they can be used for the future of our students, our partners and all of distribution. The organizations that support the consortium benefit by developing a deeper and more focused understanding of the body of knowledge. Being a part of the process that is coming up with knowledge for the future is a whole lot more important than studying it later.”
Much of successful distribution revolves around the question of who is adding value and how distributors should sell and/or price their value. It also involves navigating inherent hurdles like economic crises, the dotcom boom and bust, generational workforce changes and much more.
“Distributors are going to reinvent themselves as value-added providers,” says Lawrence. “It’s still unclear if they’ll be defined as a distributor of a product or of a service. What is clear, however, is that distributors have to make sure in this new millennial age that they remain relevant. They’ve got to communicate with customers and give them a reason to communicate back by offering the knowledge, solutions and capabilities that customers are seeking.
“We also believe that distributors will become more diverse, and the manufacturer-distributor relationship may change. Some manufacturers will play the commodity game, while others will be part of the solutions and value-added process. Distributors will have to be selective regarding with whom they partner.”
And while online sales just add to competitive challenges faced by distribution, there is still a need for their function. “Distribution is still very necessary,” says Lawrence. “Its basic functions will remain the same — transportation and storage. What is going to redefine them are their value-added services in a knowledge-driven economy.
“Today, we’re at what I call the nexus of the millennials and the readiness of technology,” says Lawrence. “The possibilities get so vast that you don’t know what to think. That’s one of the benefits companies realize when they work with our program. We get their issues out on the table, talk about them and, by working together with different sets of eyes on them, are able to help them see their direction more clearly. In a sense, we help them become fluent in it. But it takes effort and the right partners. As Albert Einstein once said, ‘If we knew what we were doing when we started, we wouldn’t have had to do the research.’ ”
Mincron Software Systems is a full-service provider of complete ERP software solutions for wholesale distributors and serves customers with care, training and implementation. More than 1,700 customer locations throughout the U.S. and Canada rely on Mincron to help them distribute $18 billion worth of durable goods annually.