Digitalization & Value-Added Services Will Define Distribution w/ SAP

“We have seen distributors really catching up as it relates to technology. Digitalization has been a key topic across the entire industry. Cloud seems to be the big equalizer, because the software can be staged at really low setup costs. There's not an innovation tax anymore that companies need to pay.”

SAP’s Global VP of Wholesale Distribution Magnus Meier shared this sentiment and much more with us on today’s episode. He joined Chief Marketing Officer Lindsay Duran for a deep dive into the current state of wholesale distribution, challenges that distributors are facing, and how technology and value-added services are the key to success in 2023.

Watch our recent webinar with Magnus: Moments of Opportunity: Margin & Revenue Growth in Distribution

Featuring
Magnus Meier

Magnus Meier

Digitalization has been a key topic across the entire industry. We have seen players really starting to leapfrog others. All those tools that were considered very sophisticated in the past and were mainly leveraged by the market leaders and the thought leaders in the industry are now being looked at and adopted in the upper mid-market already. Cloud seems to be the big equalizer.
- Magnus Meier

Episode Transcript

Magnus Meier: Distributors are intermediaries in the supply chain and they will be challenged for their role. Marketplaces and Amazon were the boogeyman for quite a long time now for the industry, and we'll see more marketplaces pop up. They will commoditize the product centric business model, but even Amazon realizes that a pure product-centric play will only get you that for.

Distributors will continue to differentiate by adding value, either offering valued services, or even offering entire end-to-end solutions.

Lindsay Duran: Welcome to B2B Reimagined. My name is Lindsay Duran, and I'll be your host for this episode. I'm joined today by Magnus Meier, Global VP of Wholesale Distribution at SAP. Welcome to the podcast Magnus.

Magnus Meier: Thank you very much, Lindsay. Looking forward to our discussion.

Lindsay Duran: Magnus, before we dive into our primary topics for today, I'd like our audience to learn a bit more about you.

What is something that people wouldn't know about you if they only looked at your LinkedIn profile?

Magnus Meier: There’s a sneaky little entry there around Aikido. Yeah, so this is a big [00:02:00] passion for me. It's a martial art, a Japanese martial art. And I have a national teacher license for it. I love to work out with children and adults that are learning this art, that are trying to, to grow with this art.

Yeah. It's, it's lifelong learning. It really has an open community because you can go to any Aikido school in the world and go there to train and to be part of that community. So that is really near and dear to my heart.

Lindsay Duran: That's so interesting and in all our conversations, Magnus, I don't think I knew that about you.

How long have you been doing that?

Magnus Meier: I think it's, in the US I'm doing it pretty much for 16 years, but I've been doing different types of martial arts my entire life already.

Lindsay Duran: Excellent. Thank you for sharing. Can you give our listeners an overview of your professional background and tell us more about SAP's wholesale distribution business unit?

Magnus Meier: I started my career 24 years ago at SAP, in [00:03:00] Germany. As the warehouse consultant for retail. And after a short while, I moved over to Japan actually, and there was responsible for the go-to-market for retail, for wholesale distribution fast moving consumer goods, that included fashion for the go-to-market.

And in that particular region was very interesting because all the cultures are so different and how they live the business models, it's also different from what we see in the Western Hemisphere. And from there I headed back to either Germany or the US and I decided to go to the US and the rest is kind of history.

I'm now here for 19 years already. And I'm heading the global wholesale distribution team at SAP in the moment. We have a twofold role. One is what I call the road to market. Where we work together with our partners like yourself. And try to understand how you [00:04:00] add value to this industry, but also we look behind the curtain and try to understand what SAP solutions can do for the industry.

So we can filter those out. That can actually make a difference. And the other role that we have as an industry business unit is we manage the road to product. So I'm in constant contact with industry organizations, with our customers to understand where the journey is going so we can make sure that investment dollars or development dollars are being funneled in the right way so we can improve the product and keep it relevant for the industry.

Lindsay Duran: Thanks for that, Magnus. We wanted to have you on the show to discuss the current state of distribution, the challenges the distributors are facing and how they can really optimize commercial performance in 2023 and beyond.

So let's start with the not so great news first, what challenges are threatening revenue and profitability and distribution as we head into 2023.

Magnus Meier: Yeah, I [00:05:00] think the main concern everybody has is that there's still a lot of volatility in the system. A lot of the echo effects that we saw coming after the Covid pandemic have eased up.

We probably heard about the supply chain disruption, right. The container ship backlog has significantly reduced. We've both seen that the container costs have dropped down. Lot of things that were on back order are now slowly being caught up. But all of that, of course, is not coming without a price.

So the inflation, the potential recession that people expect to happen down the road is definitely having an impact. And everybody's trying to, to work around these elements as good as possible. Whether it's on the business side or whether it's on the government side. We, for example, have seen that the administration just recently decided to prevent the railway worker strike, right.

Because I think one [00:06:00] of the main motivations that we might see a flare up of the supply chain issues that we have been facing over the last year. So there are still a lot of things out there that could throw a wrench into the entire system, and we will see a lot of ripple effects coming here or there.

But I think overall we are striving or we're working towards a little bit more stability.

Lindsay Duran: I think volatility though might be the new norm. It seems as though once we get over one challenge, we move right on to the next one. But certainly one of those challenges, and I know something that's weighing heavily on everyone's mind is the economy.

How has inflation impacted your customers and what are your thoughts on the fear of a potential recession?

Magnus Meier: If we put it in perspective, yeah. Times have been much worse if we look back 15, 18 years. And I think we have been a little bit [00:07:00] spoiled of our economic environment over the last five to 10 years.

So, compared to this good environment that we have, everybody is anticipating a little bit more doom and gloom ahead. Even though I'm still hoping for a soft landing. If we can figure out how to balance inflation, employment numbers and the fed rate, yeah, that would be something that will play into the economic reality that we'll see as a result of that.

But having said that, inflation is here. And it will take a couple of quarters to get it further under control and as long as this persists, businesses need to be able to deal with higher prices. Higher interest rates, but there will also be opportunities We see, for example, the layoffs in the tech sector, that technology capable technology experience, talent is now available [00:08:00] and distributors can go out there and hire those to drive their innovation projects for them.

So there's definitely opportunities and risk at the same time.

Lindsay Duran: That's a really interesting point that you bring up about available talent now that perhaps might have been more difficult for distributors to recruit in the past, let's say, two to three, four years that is now readily available and can perhaps help distribution businesses really accelerate their digital transformation journey. So now they can bring in a talent pool that can, that can really help with that. That's a great, I think, silver lining and for any folks who were part of the unfortunate layoffs in the past few months, that may be an, an area of opportunity to look to.

So that's a, a great point. Magnus, how can wholesale distributors, given the, the headwinds that they're likely facing, heading into 2023? The fact that they've already been dealing with a significant amount of disruption and volatility, [00:09:00] how can they get started addressing some of the commercial challenges in their business?

Magnus Meier: I think it's important that distributors start or continue to clean up their house. Distributors came, I would say, in a fairly healthy way out of the COVID pandemic. And we have seen a lot of distributors make the investments that were necessary to lift their business to a more modern, a digital platform, and they need to continue to do this, this cleaning up of the house that involves not only the business, but it also includes the data that's the business generates through transactions, and also the processes that's run these business, whether it's.

Having a handle on the inventory position here, managing the cash position a little bit more clearly. Or to better understand what their specific [00:10:00] differentiators are, by which they attract customers to their business. The last two years we are talking about scarce supply and distributors are being able to take a stronger position by securing that supply by working with customers as well as suppliers in a strategic fashion. Now that we move in the new time here, the inflation recession time, again, this volatility introduces new rules. As you said, and distributors need to understand how they can can work with us. One thing I think that is fairly clear is that price will remain one of the key levers that they have.

Lindsay Duran: Absolutely. And as you talk about different areas of the business, whether that's inventory or better managing cash flow or managing price, how do you advise distribution businesses to think about their digital transformation journey or digital transformation roadmap [00:11:00] and what they should prioritize that we'll have the most impact fastest.

Magnus Meier: I think for distributors, they should look what helps them to smooth out their oscillations. What we were talking about the volatility before, and this volatility will remain in the system. We just don't know where it goes. But if you are able to understand which direction the pendulum might swing, and if you are able to manage those oscillations of risk accordingly that will give you a leg up towards your competition. For example, implement planning practices. A lot of distributors are still working on a fairly operational level. Make sure to lift it to a tactical, strategic level, and if you are there or when you are there, make sure that you include your customers and suppliers in these planning practices.

There's a lot of tools out there, not only on [00:12:00] business planning. Yeah, inventory. But also when we talk about price optimization like we did before, there are intelligent technologies out there that already have optimization technologies in their belly. If you wanna say it like that, and can use this technology, leverage some templates, leverage the knowledge that those companies bring to the table to give you a headstand and to mitigate the volatility.

Lindsay Duran: Speaking of, of pricing technology and maybe even more broadly, technology that's, that's helping to drive commercial value in the way of revenue operations and intelligence technology as well. How would you characterize the industry's willingness or eagerness to adopt these types of tools and get out of the kind of spreadsheet based approach that they've long relied on?

Magnus Meier: Yeah. That ties into what I said before. After Covid, we have seen distributors [00:13:00] really catching up as it relates to technology. Digitalization has been a key topic across the entire industry. We have seen players really starting to leap frog others.

In a nutshell, I would say all those tools that were considered very sophisticated in the past and were mainly leveraged by the market leaders and the thought leaders in the industry are now being looked at and adopted also, I would say in the, in the upper mid-market already. Cloud seems to be here the big equalizer. Because these tools, the software can be configured at really low setup costs, there's not necessary an innovation tax anymore that companies need to pay. Innovation costs, innovation tax by the means of risk of failure. The maintenance of the software is outsourced to the solution provider.

There're really [00:14:00] accelerated templates out there, so we see a lot of players that are using the cloud for easy staging and integration of these sophisticated, intelligent tools.

Lindsay Duran: I think that's a great point. And the cloud really is kind of the, the great equalizer in order to make more powerful software tools accessible.

Zilliant and SAP have have been strategic partners now for several years. Magnus, how do wholesale distributors benefit from this technology partnership?

Magnus Meier: One of the roles for the IBU is to be the bridge to market. So we consider ourselves as the guardian of what really makes sense for the industry.

Customers always have a choice. And particularly in the pricing space, that is an area where you see a lot of major players out there. But not every player has the same quality or relevance [00:15:00] or fit for certain industries. Certain players out there, they're better suited for hospitality, often manufacturing.

But in our role as industry business unit, we really go through detailed assessments to understand which of the solutions is really the best fit for all. And this is really what brought us to this partnership. Where we say, “Hey, Zilliant has a great solution for wholesale distribution. They have the references. They know what they're doing across all the different subsectors, whether it's industrial or whether it's food, high tech or pharmaceutical. They know what they're doing. They have templates available. They have a consulting practice available.” So we put our stamp of approval on that.

Acknowledging the expertise that Zilliant brings to the table. But at the same time, we also have an exchange on the product side. To make sure that Zilliant on one hand is [00:16:00] leveraging latest and greater as it relates to integration to SAP, and we ensure them that the quality long term is there as part of our Industry Clouds solution portfolio.

Lindsay Duran: And many of our customers are, in fact, SAP customers in running SAP ERP, many different versions. And that integration between having a pricing system of management and integrating that back into the pricing system of record into SAP, I think is, is a critical capability for companies that are looking to really up-level their approach to pricing and be able to respond to market conditions that update prices faster, which will continue to be important as we head into 2023.

More broadly speaking Magnus, do you have any predictions for distributors or for the wider economy heading into the new year?

Magnus Meier: I think certain things will never change. Distributors are intermediaries in the supply [00:17:00] chain. And they will be challenged for their role. Marketplaces and Amazon were the boogeyman for quite a long time now for the industry and we'll see more marketplaces pop up and that will commoditize the product centric business model.

Yeah, but even Amazon realizes that a pure product-centric play will only get you that far. Distributors will continue to differentiate by adding value. Either offering value added services or even offering entire end-to-end solutions. But we will also see on a national level. For example, with the infrastructure act that was passed earlier this year, that there will be kind of a localization of end-to-end supply.

And distributors that were really experts or that are experts at sourcing need to make sure that they understand how their business network [00:18:00] is actually changing in this new environment. What are the new manufacturers? Yeah, what are new business paths? They need to manage a variety of business networks on the supplier side, but also on the service provider side to offer holistic solutions to their customers.

Lindsay Duran: We recently had Susanne Adam, who is a counterpart of yours at SAP speak at our Mindshare Europe customer conference in Barcelona. And one of the things that she talked about quite a bit was the importance of sustainable practices and sustainability in distribution. Can you talk more about the role of sustainability and how distributors can be I'll say environmentally responsible, corporate responsible, but really focused on sustainability and using that to drive value for their customers?

Magnus Meier: Sustainability is definitely a key topic not only for that industry, but pretty much for, for everybody on this planet. We, [00:19:00] we see what's happening around us and that's a corporate responsibility that everybody needs to take there as well as it relates to distribution, with a heavy footprint. On the logistics side, we will see a lot of electric vehicles. Trucks playing into that because of the storage locations. We will also see ways how they can be managed, more energy efficiently, but all the roof space also would allow, for example, for generating solar energy.

Yeah. So those are very key activities that every distributor can push forward. In addition to that, we will see sub segment specific elements, looking for example, into the agricultural distribution segment. We see distributors that are really pushing for sustainability as it relates to, to farming projects.

How you can utilize [00:20:00] spaces in multiple ways. Yeah, not only for farming, but also for generating. So this is the third sub segment specific element that I see evolving more and more where there will be a lot of creativity coming in that makes really for a really innovative segment. Yeah, and again, I would like to beat the drum here a little bit for talent to look into distribution because there's a lot of innovation opportunity there.

They're leveraging more and more technology and there are a lot of purpose-driven businesses out. that should be checked out by college students and young professionals alike.

Lindsay Duran: I think that's a great point. Magnus, before we close today, do you have any final parting thoughts that you'd like to share with our listeners?

Magnus Meier: I think the rain will clear out sooner or later. Yeah, the economy will continue to evolve at a breakneck speed, but now really is the time to do [00:21:00] all those heavy lifting projects that you guys already have budgeted. So you really have an agile cloud platform in place and this allows you then to be ready for the future.

I would really say “Carpe Diem” is the motto of these times. Don't put the foot on the brake pedal, but really move forward and get ready for the future.

Lindsay Duran: I think that's great advice. Magnus, thanks for joining us for this episode. I hope that you'll join us again on a future episode of the podcast.

 

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