Avoid a Six-Figure Mistake: Choosing Dealer Software

Steve Epner, Brown Smith Wallace, Consulting Group

It’s easy to ignore your business computer system — until something goes wrong. For many of us, computers are something in a back room that provides the data we want, when we want it.

As we become more sophisticated in our businesses, we expect more from our systems. As the next generation of owners and managers come into the business, they will demand more as well. They have grown up with automation and have much higher expectations. These expectations, combined with tight inventories, tight money and pressure on all aspects of a dealer’s business often lead to the belief that a new computer system is required.

Dealers want and need systems that help them make more money. With diverse product lines, new options and requirements for early ordering, increasing profits from well-run service operations, and other opportunities to improve business, updated application systems may make sense. They can make it easier to take advantage of the money-saving options available to dealers.

Return on Investment

It’s often difficult for a dealer to see the ROI from a computer purchase/license. It is much easier to understand the value of a service truck, additional shelving or more efficient assembly tools. (To begin with, read the sidebar at www.rurallifestyledealer.com, “How Much to Spend.” This will give you a better perspective for understanding the value of a new application package.)

For many of the functions a system can provide, there are measurements that will help justify or validate its purchase. For example, a better inventory management system may provide the ability to reduce inventory levels. For every percentage drop in the value of inventory, it is easy to measure how many dollars are added to the bottom line.

Systems that are able to forecast and analyze customer-ordering patterns have been known to reduce inventory levels by 5-50%. More importantly, it can be done while improving customer service levels.

Within the warehouse, allowing the computer to determine where items are to be stored can reduce space requirements. Companies have eliminated plans to expand physical space with better management of how the current space is used.

CRM (customer relationship management) functions may increase the success rates for sales. Better information on sales and costs can increase gross margin percentages without any loss of customer satisfaction. Implementing customer report cards can draw attention to low margin or expensive customers and assist the company in improving profitability.

Products that can be sold without local support might benefit from Internet-based sales functions that can be used to open new geographic marketplaces. Product and supplier report cards can help focus efforts on the most profitable areas of the business and identify commodities or services that should be eliminated.

It is important to consider all of these factors when initiating a selection project. There are hidden opportunities to improve the business that will provide real bottom-line returns. Make sure to examine all of these possibilities before making trade-offs between the many investment opportunities that are available to dealers today.

Avoiding a Big Mistake

So what does a dealer have to do? The process is not difficult, but it does require commitment. It can be rigorous or simple — but if not done correctly, the end result can be disastrous. Following are a few steps that can help you avoid a six-figure mistake.

First, keep in mind that selecting a business system is a decision about your future, and the future is not static. Top management must be committed to the process and the selection decision must be completed within 6 months. Implementation should start immediately with a goal of being operational within 3-6 months after acquisition. Longer projects no longer work as the opportunities, requirements and economy inevitably change.

Computers and associated business software are management tools that work only if they support the long-range goals and objectives of the organization. In many companies, corporate goals are only vaguely defined and often not written down. Consider using this project as an excuse to develop a much-needed strategic vision of where you want to be and how the dealership will grow.

At a minimum, be able to answer the following questions for yourself and potential vendors:

• What do we want to be known for?
• Who are our customers?
• What makes us better or different?
• What do we need to do to maintain or improve our position in our
  market?
• What do we know about what our competitors are doing?

A ‘Clean’ Start

Installing a new business management system is also an opportunity to clean up your processes. A favorite saying among computer geeks is: “If you automate garbage, all you get is faster garbage.” Address the way you operate with an open mind. Take advantage of new capabilities and techniques. Dealers who spend large sums of money customizing programs to make them operate, “just like we’ve always done it” are wasting money, setting themselves up for failure and missing out on best practices.

Customizing only makes sense if you have a proprietary process that gives you a competitive advantage in the marketplace. In that case, make sure the money you spend will not be used to give every other dealer the same advantage. If you choose a customized application, negotiate to keep those applications confidential and for your use only.

Consider performing a “Process Review” to identify and eliminate non-essential activities from the work being done. For every activity, ask yourself: “What value does this add for my ultimate customer?” If the answer is none, eliminate it as quickly as possible. This is not something you want to carry into the future.

The Selection Team

A most critical step is to assemble a team to help with the selection. This is important to reduce the burden on any one person and make sure you get the input you need from around the company.

Select trusted employees from every part of the dealership. They know what’s needed to get the work done. They’re the ones who will live with whatever system is implemented and they will do a much better job if they played a role in choosing it.

The responsibility for problem resolution cannot be delegated. Whenever there is a disagreement on the answer to a key question, questions of priority or decisions related to finances or personnel, direct input and resolution from top management must be available in a timely manner.

One of the most important bits of advice we can give is to celebrate your successes as you go along. Let the staff know that you appreciate the extra work the project involves. Publicly thank them for meeting deadlines and doing a good job. Use these public announcements as a way to keep the whole company informed. A no-surprise environment helps the project work smoothly.

System Requirements

Successful selection requires that you be able to describe the most important functions for your future. This list allows you to compare alternatives in order to make a good business decision. For most dealers, an informal request for information (RFI) combined with “scripted demos” will provide the greatest potential for a successful selection process.

A solid requirements list and a coordinated demonstration plan will force the system vendors to concentrate on what you need, not what’s in their best interest to sell. It is critical that you control the conversation and keep the process focused on your needs and wants for the future.

Start the process by asking yourself the following questions:

• What are the most difficult things for us to do?
• What do our best competitors do that we want to do?
• What are we known for doing better than anyone else?
• What new things do we want to do?
• What seems to waste the most time?
• What can we do to be an easier dealer for manufacturers to work with?
• What can we do to be an easier dealer for customers to work with?

The answers to these questions will give you a list of required system capabilities. For each answer, provide as much detail as possible. It will help your vendors determine if they can support your needs. (See “Maximizing Your New System’s Potential” at www.rurallifestyledealer.com for functional ideas to help you think of new things you may want to do with your business management system.)

You can use this project to really examine the opportunities to increase your integration with trading partners. Call suppliers and ask about APIs (application program interfaces) that allow third-party systems to fully integrate with their proprietary systems. This can be a much more effective solution than buying different applications to work with each manufacturer.

Creating the RFI

Creating the RFI is as simple as:

• Describing your business: This can usually be done in as little as 1 to 3 pages — make sure to include the size of your operation and volume of transactions that are processed monthly.
• Providing information on the timing of your project: When you need a response; how long you will need to review proposals; when you can schedule demonstrations; and when you think you will make a decision.
• Creating a list of system requirements.
• This document is then sent to potential vendors. It allows them to quickly decide if you are a good fit for their products. Be careful, in tight economic times every opportunity can be forced to fit. If they believe they can help you, then they will complete the response as requested.

Finding Vendors

Deciding who to send the RFI to can be daunting. Remember, you will have to review all of the responses. Too many vendors will overwhelm you. On the other hand, you do not want to leave out a vendor who might provide the best solution. A compromise is needed.

Start by talking to other dealers. Find out what they’re using. Then ask similar dealers in other industries what they use. There may be a competitive advantage in finding someone who understands equipment dealers and has best practices you can apply to farm equipment retailing from another vertical market.

You can use the list of vendors at software4distributors.com for companies who are experts in wholesale distribution. The site is a free resource and provides tools to help with selecting software candidates for consideration. (A listing of potential suppliers is also provided in this Special Report. Please see “Guide to Selecting Management Systems Software” at www.rurallifestyledealer.com.)

When you’re ready, send each a copy of your RFI. Give them about 2 weeks to respond. Ask them to be brief and to include the following:

• A discussion of your specific needs and describe how they will
  accomplish each.
• A price range for a company
  of your size.
• A one-page summary about their business, background and knowledge.
• A one-page discussion of their financial position and strength of the company.
• Description of a typical implementation (time, cost and support).
• A list of at least three references with similar sized businesses, preferably equipment dealers.

The goal is to reduce the field of suppliers to three or, at the most, four vendors. More than this will be too confusing and will not add sufficient value to be worth the extra time. For most dealers the fourth vendor is their current supplier. Unless you are having a great deal of difficulty with them, there is a possibility they can respond to your requirements for the lowest overall cost and with the least disruption of your operation.

The First Pass

Review the response from each vendor as it arrives, and quickly eliminate any that do not respond to your specific requirements. While price should not be a determining factor up front, you can eliminate any alternative that is way out of range.

Use the team to help read and react to each viable response. Most cases, the vendors will self-select and you should not have many that are clearly inappropriate. If you do, just eliminate them.

Have your team rank the responses and give them the task of reducing the field to no more than 4 alternatives. This may take some effort, but it will be worth the investment. If this step is done correctly, every remaining vendor will be capable of supporting your needs. The final decision will be made from the group of winners.

Scripted Demonstrations

Once a short list is established, it’s time to work toward a final decision. The most important task is to see a demonstration of the software you would be using. This is critical.

In order to make sure that each important function is shown, you need to establish a list of what you want to see and in what order, to make it easier to follow the demonstration.

For example, we suggest following an order from the identification of a prospect — if you are going to integrate a “Customer Relationship Manager” — through the sales cycle. See how an order is taken, what reports are generated, how equipment is ordered or relieved from inventory, what happens on delivery, any follow up reporting and the back office transactions that support the process.

Do the same thing for any service components of the business: rentals, repairs, etc. See how the system will work in your business. Schedule the demo in such a way that each area of the business can see the parts that affect them. Only the project leader should sit through the whole thing.

With today’s technology, demonstrations no longer have to be in person. Various web-based products allow demonstrations to be viewed interactively. Most will allow the user to take control and actually try the system. If a vendor wants to come to your location, that’s fine. The same rules apply.

The last thing to do is create a scoring sheet for each person who will watch a part of the demonstration. For each detail that they believe is important to their success, there should be room to evaluate how well the demonstration meets their expectations, whether the application looked easy to use, and how well they think it will work in your environment.

Making the Decision

Frequently, there is more than one good answer. Picking the best one can be difficult. Now it is time to do some reference checking. Have a couple members of the team from different areas in the business call a counterpart in at least two of the reference sites.

Keep the conversations short as you do not want to interfere with the reference’s ability to do their job. Understand that if you ask, “How do you like the system?” that you will get the company line. No one will give you a bad reference to call. Instead, ask the reference the following two questions to get the most valuable information possible:

• We are ready to buy the XYZ system and want to know if there are any hints you can give me or things you would have done differently to make implementation and startup easier
• Can you recommend any persons we should ask for as part of our implantation team?

Take all of the information and let the team decide. Who do they think will provide the greatest potential for success? That vendor then becomes the primary candidate in consideration. But do not let the second-place vendor go until the negotiations are final.

Negotiating the Final Deal

Negotiation is the final step before implementation. Be careful of setting up an adversarial relationship. Remember that the vendor will become the most important member of your team in terms of getting the greatest value from the system.

Where possible, use an outsider to help with the toughest points. It can be a lawyer or someone knowledgeable in computer contracts. At the end of the day, most of the issues have a financial component. If you want maintenance charges to be delayed until startup, then that will affect the amount of discount you can receive.

Work on all of the issues at the same time so the vendors can determine the cost of each point. It will be easier for them to give you final pricing. Once you make a deal, stop looking back. Get the team excited and move forward. Get the new system in place and let it help you to do better in the future.

Steve Epner is founder and president of the Brown Smith Wallace Consulting Group, which specializes in assisting clients with the integration of strategic business planning, information systems and tactical requirements.

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Maximizing Your New System’s Potential

You already know the basics, here are a few cost-recovering applications lying in your system and waiting to be used:

• Service contract
  management
• Service dispatch and scheduling
• Equipment rentals
• Floor planning controls
• Customer history records
• Methods to stay in
  touch with customers
• Forecasting
• Customer portal (so your customers can track orders, receivables, repairs, etc., using a web site tied to your application system)
• Integration (computer to computer) between the purchase order system and the supplier’s order entry system
• Integration (computer to computer) between the order entry system and the customer’s purchase order system