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GENERAL BUSINESS CONSULTANTS SPECIALISTS IN " SYSTEMS" AND MORE-PROFITABLE OPERATIONS - For Distributors, WHOLESALERS, Manufacturers
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RECENT ARTICLES Concise, helpful articles. For easier reading, print them first. Scroll down to the article of interest. DO YOU REALLY NEED A NEW SYSTEM? NEW WAREHOUSE MANAGEMENT TECHNOLOGIES BEAT THE OLD ONES How to Avoid A Warehouse Management System Horror Story Don't Sign That System Contract -- Until Its Changed to Include Protections Why Some Systems are Decreasing Customer Service, Margins and Inventory Profitability HOW TO MODIFY A SYSTEM TO MAXIMIZE INVENTORY-BASED CUSTOMER SERVICE AND ROI WHAT LISTS OF SOFTWARE DON'T SHOW CAN KILL A DISTRIBUTOR GREAT SOFTWARE DOES NOT MANAGE INVENTORY EFFECTIVELY SYSTEM CONTRACTS: ADD SPECIFIC PERFORMANCE GUARANTEES TO AVOID PROBLEMS
DO
YOU REALLY NEED A NEW SYSTEM?
Making the critical decision about replacing a computer system has always
been difficult because it involves subjective, intangible factors as well as
dollars. And now it can be more confusing because the decision should consider a
new kind of "system" -- Application Service (AS). With AS, a
distributor does not pay a large sum up-front for a license to use ERP software;
nor is it necessary to purchase a new, larger server. PCs are used, usually via
the Web, to access software and data on a computer residing at the company that
provides the Service. The distributor pays only for the resources used (e.g.,
the amount of processing done), which can be less expensive than owning a
system. Based on experience, here are the steps to take to make a
non-emotional, unbiased, cost-effective decision. 1. Create a list of the reasons why replacement of the
current system is being considered; call them "goals." It may be
possible to achieve these goals without getting a new system. 2. Define the planned and expected growth and change at
the company. 3. For the current system, identify where improvements or
changes in user job-functions and/or procedures/controls could achieve some
goals listed in step 1. Also determine if enhancements to the current system
could achieve some goals. 4. Based on steps 1 and 2, define all the features that
are desired in a new system. Then determine the availability of suitable new
software and the availability of an Application Service. 5. Identify savings,
benefits and efficiencies that only a new system or AS would yield. 6. Identify where improvements or changes in user
job-functions and/or procedures and controls could produce some benefits of a
new system. 7. For the current system, determine which enhancements
would be needed to provide the same financial savings and intangible benefits
that a new system or AS would. 8. For each software enhancement identified in steps 3
and 7, estimate the direct cost, the value of internal time involved, and the
resulting savings and benefits. Also estimate the level of risk of success. 9. Judge whether the system environment is structurally
suitable for all the enhancements being considered; whether the current system
is user friendly and easy to use; the adequacy of software support. 10. Determine if the current server could handle enhanced
current software. If not, estimate costs for any hardware expansion or
replacement hardware, taking step 2 into account. 11. For each enhancement, do a cost-benefit analysis, and
classify it as immediate, mid-term, or not worth doing. 12. Determine if the current server could handle new
software. If not, estimate costs for any hardware expansion or replacement
hardware, taking step 2 into account. 13. Add up the cost of all the enhancements classified as
immediate or mid-term. 14. Estimate the true future cost of using the current
system, as enhanced/expanded, the savings and benefits from enhancements, and
the net cost (savings) 15. For a new ERP system, estimate the true cost, the
savings and benefits it would produce, and the net cost (savings). 16. Repeat step 15 for an AS. 17. Use steps 9, 15 and 16 to make the big decision --
including whether to license software or use an AS.
NEW WAREHOUSE
MANAGEMENT TECHNOLOGIES BEAT THE OLD ONES
New kinds of warehouse picking technologies can produce
greater savings and benefits than bar code readers. And, they can be bolted on
to distribution business (ERP) software or on to warehouse management software (WMS),
and work in conjunction with bar code readers. Let's look at how these new
technologies work -- after explaining "WMS." Bar Code Reading is Not a WMS
WMS is special software with functions that bar code reading alone does
not provide. For example, WMS logic and data determine where to put away
received items, such as bulk, that are not stored in permanent places, in a way
that minimizes put away and picking times; determine the least-time path for
picking an order, even when storage locations (e.g., bulk) have changed; alert
someone to replenish a picking slot, and define which slots to pull from;
determine how to re-slot a warehouse to reduce labor effort. Some ERP packages
offer an extra-cost WMS module, or have WMS features built-in, but the add-on
WMS packages have many more features.
Its important to note that for a WMS to work well, many warehouses need
to be re-arranged and/or tight procedures and controls need to be implemented.
Without such preparations, a WMS can reduce productivity and result in more
errors that hurt customer service. NEW PICKING TECHNOLOGIES
Voice Directed Picking (VDP). A
picker wears headphones and a microphone, attached to an wireless computer worn
on the person's work belt. Each person is assigned their own wireless computer,
and teaches it his/her speech patterns. When an order is to be picked, the main
business system sends data to the VDP computer-server, which in turn transmits
that data to the wireless computer of the system-selected picker. The wireless
computer in turn transforms that data into audible commands -- the picker is
told where to go, what to pick, and how much to pick. As he/she picks, the
picker talks into the microphone, identifying what was picked and the location;
the portable computer transforms the speech into data, and transmits it to the
computer-server, which in turn transmits it back to the main system for
verification. The picker is immediately "told" about any picking
errors. VDP can also be used for put away.
Pick to Light (PTL) involves a display device
that is mounted at the front of the shelf on which an item is stored, and all
the display devices are wired together. When an order is to be picked, the main
business system sends data to the PTL computer-server, which illuminates a light
on the display device for each involved item; the device also displays the
quantity to be picked. After an item is picked, the picker presses a button on
the device to indicate that the item has been picked. When the button on all the
item-specific displays have been pressed, a master display device illuminates a
green light to indicate that the picker is ready for the next order; a red
master light indicates there is an error that needs to be corrected. As buttons
are pressed, data is transmitted to the computer-server, which in turn transmits
it back to the main system. As
for other picking technologies, a warehouse needs to be specifically arranged
for VDP or PTL, and tight procedures and controls need to be implemented.
How
to Avoid A Warehouse Management System Horror Story
A Warehouse Management System ("WMS") can increase productivity
and picking accuracy, which can cut costs and improve customer service. But its
very tricky to find a WMS with the right combination of helpful
features and long term cost. Its easy to spend a lot of money, when a
cheaper system can produce the same savings and benefits. And, often changes to
the warehouse are needed before installing a WMS or it won’t
produce savings or benefits. This article outlines the steps a distributor should take to avoid the
pitfalls of an unfamiliar process that can result in selecting the wrong WMS,
overpaying, and setting it up in a way that makes things worse. Up-Front
Planning and Prep
Involve
top management, because a WMS impacts customers as well as employees -- even if
that means a top manager has to learn something about computers and WMS. Organize
a team consisting of someone from top management, all warehouse managers and
supervisors, MIS management, and the people responsible for sales order entry
and customer service. Estimate
growth and identify expected changes for the company as a whole and for the
warehouse. A WMS must be able to handle future
company and warehouse needs as well as the obvious current ones. Tighten
warehouse procedures and controls for receiving, put away, etc., for information
and product-flow. Do it now. Failure to do this is the primary reason for WMS
horror stories. Determine
if the main business system has the functions and data that are
"expected" by a WMS; e.g., expected arrival date of a PO. Furthermore,
the data in the business system must be very up to date and accurate. Estimate
long term costs: software, education/training, bar code equipment and spares,
annual support fee. Be
conservative when estimating personnel reductions, personnel avoidance, and
other cash savings. Don't ignore
the impact of non-cash benefits, such as happier customers. SELECTION AND INSTALLATION Define
detailed long term WMS needs. Without such a list it is impossible to judge
whether a particular WMS contains specific needed functions; and impossible to
compare different systems. Solicit
written bids. Ask WMS vendors to categorically compare their software against
the list, and to quote all the costs involved. Examine
each vendor’s bid, for cost, missing features, and prior experience with
similar distributors. Narrow the field to two or three WMS, and then ask those
vendors to demonstrate their systems. Call a few references of the vendors, and
visit one or two references
of each vendor. Select
the most cost-effective
WMS, based on long term cost of ownership and non-financial facts such as the
degree of software suitability (vs. the list of needs), and vendor experience. Before
taking delivery, the vendor should make any planned WMS modifications, and
create any programs needed to interface the WMS with the main business system.
Test it all, using real data for the test, which should be conducted by
the people who will be using the new WMS.
Don't skimp on user training. A WMS is so complex that the only way to
learn more is to spend a lot of time in formal classes and on-site training
sessions.
Don't Sign That System Contract -- Until Its Changed to Include Protections Converting to a new system is so complex that many things can go wrong before, during, and years after installation; years after the vendor has been paid. But no vendor contract protects against typical problems, because a vendor’s contract contains vague "best efforts" terms that are slanted in the vendor’s favor. Vendor contracts don't protect against problems such as promised capabilities that aren't delivered, excessive lateness and poor installation support. This is a summary of some of
the kinds of protections a distributor should -- and can -- add to a system
contract. These protections are referred to as specific performance guarantees
(e.g. a promise to correct any software bugs that are causing critical
problems); they replace best efforts. This article also outlines a strategy for
getting desired terms and conditions. TERMS
AND CONDITIONS Define
all words and phrases that might be subject to misinterpretation. List in
detail everything to be provided: hardware, software (including third party
packages), any modifications to be made by the vendor to the software, training
and education, data conversion, installation help, post-installation software
maintenance and support, etc. And define the cost of each.
If the software will be modified by the vendor, define the process that
will be followed.
Define the procedure for delaying installation.
Specify the
conditions under which payment is made. Wherever possible, tie payments to buyer
approval; e.g., approval of converted data.
For the application software (business programs), define
permitted and prohibited uses in as much detail as possible. In
addition to the warranties that the vendor provides or passes through, define
performance warranties for hardware, software and services. Define how
performance is measured, and what happens when a warranted condition occurs. Warranties for infringement
are needed because a court can bar the use of the infringing item, which could
leave a distributor without a working system.
In order for vendor and distributor to plan ahead and work in a
coordinated fashion, a schedule of tasks and completion dates should be
included. Don’t forget the “go live” date.
Define the situations that permit termination of the contract, and the
consequences of termination. And define what would happen if either party went
bankrupt before the system went live. Also define steps that would be taken if
either party breaches the contract. A NEGOTIATION STRATEGY
To get specific performance guarantees, a distributor will have to either
amend the vendor's contract or replace it with a new document. If the vendor
reacts to the amended or new document by saying "take our contract or leave
it", find another vendor.
Once negotiations start, it is important that the person negotiating not
get so emotionally involved that he/she makes compromises not in the favor of
the distributorship. Before compromising, consider the likelihood of a problem
occurring and the impact of the problem; compromise on unlikely, low-impact
problems, but not on likely, high-impact problems. Also before compromising,
determine if and how the issue in question is related to other terms and
conditions in the contract.
Why Some Systems are Decreasing Customer Service, Margins and Inventory Profitability Some distributors spent a fortune on new systems, only to discover months later that the business performance got worse, not better – or at best, didn’t increase. Other distributors have been using the same systems for many years, but still aren’t getting “the numbers” they could, and are not aware of the reasons for under-performance. This article looks at a few functional areas where mistakes and omissions are depressing customer service and profits. Matrix
Pricing. Distributors that have recently set up new systems with the same
matrix settings that were in the old systems, and never changed them, are
leaving money on the table. And distributors that have older systems but don’t
regularly review and revise matrix settings are also losing out on some profits.
Even the largest customers should not be given the largest discount or
smallest markup on all items they buy. Almost as bad for profits is giving the
best deal on all the items in a family or grouping. A price should depend on the
“real %GM” and velocity. Real % GM is the traditional %GM adjusted for costs
of doing business (such as free or subsidized delivery). Fine-tuning matrix
pricing can result in a loss of sales, but the $ GM should increase – which
should be the growth objective. Inventory Management. Mistakes
made in entering data about a customer return or exchange could impact the level
of inventory, and perhaps the level of customer service for the item in
question. Many different kinds of mistakes involving data entry can easily be
made, so one step to improving inventory levels is to install procedures and
controls to minimize those data entry mistakes; and detect and correct them
before inventory data is impacted.
Another kind of “mistake” that impacts inventory is accepting vendor
deals without calculating the financial impact of the deal, and the impact on
warehouse operations.
Another import task that gets back-burnered to time pressures is the
maintenance of various system “parameters” that affect the accuracy of
system-calculated forecasts, lead times, safety stock values and Economic Order
Quantities (EOQ). Other important parameters determine whether the system should
even make a calculation; EOQ should not be used for many, many items. Key
parameters should be reviewed/revised quarterly; especially those that affect
all items, all vendors, etc.
An important task that many users don’t now about is the review of
sales data that will be used by the system to calculate purchasing requirements.
Even though most systems do some filtering of data oddities, no system can clean
up all distortions in data. Warehouse Operations. Data mistakes made in the warehouse (e.g., incorrectly entering a substitution) can have a bigger impact on the level of inventory (via automatic purchasing functions) and perhaps customer service than those made in the front office. Here too, procedures and controls are needed to minimize data mistakes and detect/correct those that do occur. Procedures and controls are also needed here to minimize product-related mistakes, such as putting a received item in a wrong slot. (But unlike the office, this is a place where advanced technology can be used to drastically reduce the level of errors.)
HOW TO MODIFY A SYSTEM TO MAXIMIZE INVENTORY-BASED CUSTOMER SERVICE AND ROI Distributors who are using inventory management software
that can be modified may want to change it in ways that reduce inventory
shortages and excess. That in turn would increase the level of customer service,
and decrease inventory investment. Other benefits of these changes include
reduced purchasing efforts, rush orders, expediting, clearance sales and returns
to vendors`. And, warehouse space would be freed up, and less effort would be
needed for receiving, put-away and counting; staffing might be reduced. Here is an outline of some of the changes -- which are all
meant to function automatically, so little or no human intervention is needed.
Analyze order history data for unusual data that would distort inventory
levels, and if a condition is within a pre-defined tolerance, adjust the data;
if a condition is outside the tolerance, list the item on an action report.
Calculate safety stock based on target service level and the factors.
that can result in not having enough planned stock on hand when its needed.
Allow for trends when calculating lead time.
If the history data for an item is outside the tolerance, don't calculate
safety stock or lead time or a forecast; list the item on an action report.
If the history data for an item contains too many gaps, don't calculate
safety stock or lead time or a forecast; list the item on an action report.
Treat very slow moving items differently than items that move fast, but
don't require human intervention -- treat them automatically.
Let the system determine the most accurate method of forecasting
The system can determine the most profitable service level.
Identify items for which the service level is too high.
Calculate the true cost of buying more than is needed now, vs. waiting
and buying later. Calculate whether a deal is too good to be true for the distributor (its always good for the supplier). WHAT LISTS OF SOFTWARE DON'T SHOW CAN KILL A DISTRIBUTOR A
client recently mentioned that company "A", with sales of some $400
million, had been forced to sell because it had to operate its business manually
for several weeks after switching over to a new ERP system. During those weeks
it took so long to answer customers' questions (price and availability, order
status, etc.), take orders, fill orders, handle returns, etc., that the company
lost a very large customer. That loss resulted in a technical default on their
largest loan agreement, and the bank refused to modify the terms. When my client
mentioned the name of the ERP system, it rang a bell -- I had recently seen it
on one of those lists of software packages supposedly meant for distributors. This
article describes some important system selection considerations that are not
addressed in lists of software.
Suitability for a Distributor.
The conversation related above reminded me of another software package that
appears on most lists, and is being aggressively marketed. It was thrown out by
two distributors who couldn't get it to work right, and the vendor was sued by
at least one other distributor. Three other distributors are, even after a few
years of use, still unable to get it to work right in one critical functional
area -- in spite of enlarging their system-related staffs, an expense not
anticipated. Most systems are not difficult or costly to install and use, but
some really are not meant for distributors, no matter how many lists they appear
on.
A distributor is not a distributor.
Some systems are really great for one narrow segment of distribution, but not
good for other segments. A look at lists of features for such niche software
would not reveal this condition.
Cost of Installation.
Another system on some lists has earned the unenviable reputation of billing for
far, far more hours of professional installation services than quoted. At least
two distributors terminated the installation process before the bills became
unbearable, and two others filed lawsuits against the system vendor. The vendor
of a different system refused to provide more installation help to two
distributors who didn't want to pay more than had been originally
quoted/estimated; the distributors opted not to proceed with the installation,
even though they paid the license fees.
The very weakest link.
Several of the packages that appear on most lists are not licensed by the
well-known authors, nor do the authors provide the installation and
post-installation support. These packages are re-licensed by, installed by, and
supported by re-sellers. Its the capabilities of the re-sellers that usually
mean the difference between success and failure (assuming that the package
itself is suitable). Unless a re-seller is listed as the vendor, most lists
provide no information about a package's re-seller. And, since the contract may
be only with the re-seller, if something goes wrong, the author may not be able
to help much (and certainly wouldn't assume financial responsibility).
Post-installation Support.
This is critical because all systems are relatively complex, and no matter how
much training occurred before going live a high level of support is usually
needed for 12 to 18 months after going live. Yet some vendors have a reputation
for slow and/or unquality support, and many re-sellers are support-challenged.
Functions and features.
Even the most detailed lists of software packages show only a cursory
description of a package's functions. But the devil is in the details, and
reliance on a software list to determine which systems to examine can result in
wasted time when the project team discovers that a software package is not
nearly as robust as it seemed. Worse, if a package is not examined in detail
before licensing it, a lack of needed specific features would not be discovered
until the system is paid for and in use.
Adaptability.
Related to features is the ability to interface third party software packages to
an ERP system. At least one vendor has gone out of its way to make life
difficult for existing users who want to interface packages not sold by this
vendor.
Viability.
Obviously there has been much consolidation in the packaged software industry,
and the pattern will continue. But no list contains the information needed to
judge whether an author is likely to remain independent -- or be bought out, and
its package relegated to obscurity (no enhancements, and dwindling support).
Software re-sellers are much less viable than authors, and seldom is one bought
out -- they usually go out of business.
List Objectivity.
Some authors of lists seem to have relationships with some of the vendors of
listed software. A relationship may not be financial; there can be a quid pro
quo arrangement whereby each party promotes the other. References may not be useful. One would think that the problems described here could be avoided by calling references already using the packages in question. However, experience has shown that vendors seldom provide the names of unhappy users; certainly not the names of users who have filed lawsuits. And even if names of questionable references are provided, most unhappy references adhere to the old saying "if you have nothing good to say, say nothing."
How to avoid the unpublished problems. Find someone who knows about many
different systems and where the hidden problems are; someone with extensive
hands-on experience objectively evaluating systems, and getting references to
talk about their true experiences with systems; someone who can negotiate a
contract with specific performance guarantees. Contract Terms and Attitude. Obviously, all contracts created by system vendors protect the vendors when a conflict arises with distributor-users. But most contracts do not even address problems that can and do occur – its like the vendors are trying to hide the potential problems. And some vendors have a dangerous attitude toward contract negotiations – take it or leave it.
GREAT SOFTWARE DOES NOT MANAGE INVENTORY
EFFECTIVE
LY
The most expensive, sophisticated software package will not automatically
result in an optimal level of inventory – a high level of customer service and
inventory turns, but with low inventory investment. To achieve an optimal level,
and maintain it, employees educated in the principles of effective inventory
management must understand how to set certain “parameters”, then set them
and keep them set right. Here are some tips about principles of inventory
management and setting key parameters.
The Basics. Too often I work
with users who have been well-trained in the rote mechanics of using the ERP
software package that literally runs the distributorship, but were not educated
in modern inventory management principles. Important principles include the
relationship between customer service level and inventory level, and the meaning
of the “normal statistical” distribution (bell curve) that plays a role in
the calculation of safety stock and the adjustment of data on odd sales events.
A principle related to purchasing, and so indirectly to inventory management, is
the “Line Point” (LP), which is not another term for Order Point (OP). The
LP is the OP plus sales forecasted for the buying cycle (time between buys).
Items that are above their OP but below their LP should be purchased only when
those items are needed to make a purchase minimum or would result in a purchase
discount that would be larger than the cost of
inventorying those items for longer than usual. Another
basic that is sometimes skipped is the setting of parameters. When the system
was first installed, the users were too busy to determine what values to set
parameters to, so the system went live with “default” values (on average
good for all distributors, but not good for any specific distributor). And, of
course, these users are still too busy to investigate the values and change
those that are not right for the company – if they could even do so without
first learning the principles of effective inventory management. Qualifying
Historical Data. Although most systems adjust historical data to remove
oddities before using the data to forecast future sales, the scope and amount of
an adjustment depends on the values of certain parameters. In addition to the
common oddities of unplanned sales “spikes” and “dips”, there can be
periods of no sales (perhaps due to stock outs, perhaps not), sales spikes
caused by promotions (perhaps followed by decreased sales), and sales dips that
reflect a large quantity of returns; and more. The values of parameters
determine whether an oddity will be adjusted, and the extent of that adjustment
(and that extent may increase or decrease with the size of the oddity). Users
should not set these parameter values until they understand the specific
oddities of the distributorship’s sales and how those specifics relate to the
available parameters.
Forecasting.
Many systems come with several different formulas for forecasting future sales
(by using history). One of those formulas is the “default” – the one that
will be used unless someone selects another formula. Life would be easy if one
formula, the default or otherwise, could be used for all items, but that is very
rarely possible. Even the use of one formula for all items in a particular
product line would save time, but that too is seldom possible – because every
line has its slow moving items, and they cannot accurately be forecast with the
same formula that works well for fast moving items. As with the setting of most
parameters, it is necessary to select different formulas for different items –
unless the system can automatically select the “best” formula (based, of
course, on parameters that define “best”). Formulas that are easy to
understand but not accurate include averaging and weighted averaging (where
users set the weights – emphasis factors.) Wherever possible, use the more
sophisticated formulas, even though someone still needs to set related
parameters.
And if a system measures the accuracy of an item’s forecast (sometimes
called the Mean Average Deviation, or MAD), accuracy reports should be reviewed
quarterly – to determine if parameters should be changed or a different
formula used.
EOQ is Dead, Long Live EOQ. For some items, EOQ (Economical
Order Quantity) is inaccurate; items with a very low unit value relative to the
cost of procurement, and items that sell infrequently. For these kinds of items,
EOQ would calculate a multi-year supply or a quantity of zero, respectively. A
better way to handle both kinds of EOQ-inappropriate items is to use the dynamic
Min/Max feature of the system, whereby the system uses history to determine the
values of Min and Max. But before doing so, research the system’s Min/Max
formula, and determine what the Min/Max parameters should be and if Min/Max
would produce realistic results. Avoid using manual Min/Max because it is not
dynamic, and so takes a lot of effort to keep up to date as sales patterns
change.
Safety Stock.
Safety stock can account for a large portion of an item’s quantity on hand,
and for too many items, the quantity on hand is seldom less than the level of
safety stock – which means that the safety stock is not being sold, and is
dead inventory. One reason that related parameters are sometimes set wrong is
that some people do not understand principles for calculating safety stock: 1)
safety stock is kept in case sales exceed forecasted sales; 2) the level of
safety stock does not depend on an item’s velocity; 3) the level of safety
stock for an item should be mainly in proportion to the volatility of its
activities; 4) the level of safety stock should be based on the item’s target service level.
Lead Time.
Lead time may be the most difficult value to determine, because it is basically
beyond a distributor’s control; and because some lead times are seasonal, even
though sales of the items are not. But that is no excuse for not examining the
default values of related parameters – which are often set with the assumption
of constant lead time. Where a system contains optional sophisticated formulas
for calculating lead times, those formulas should be investigated, compared to
vendor performance, and used wherever possible. Even if there are no
sophisticated formulas, related parameters should still be set in the context of
vendor performance.
SYSTEM
CONTRACTS: ADD SPECIFIC PERFORMANCE GUARANTEES TO AVOID PROBLEMS One
impact of software “aggregators” buying system providers is that price
competition has decreased, so the prices paid have increased. A more ominous
impact is that the contracts of the survivors now offer fewer protections to
distributors – not that they really offered many before they bulked up on
rivals.
Here are some of the issues that must be addressed in any system contract that
protects a distributor. Addressing them involves adding specific performance
guarantees to the vendor’s agreement.
Viability.
No software company can afford to market, support and enhance several different
software packages. Sooner or later, the stable will contain only a few packages.
But, its not safe to assume that the package with the most user companies will
be one of the survivors; nor is it safe to assume that the most feature-rich
package will survive. Even the continued release of enhancements does not
guarantee that a package will remain viable.
License transfer.
Long before software companies started buying up other ones, distributors
started buying up other distributors. This trend is likely to continue, but some
system contracts give the system provider the right to deny or restrict the
transfer of licenses to an acquiring distributor. Such preclusion could result
in a potential buyer walking away from the deal to buy a distributor who wants
to sell.
Installation services.
People who use on-line auction sites like eBay know that sellers get more money
by selling at a low price but over-charging for shipping. Some software
companies play a similar game by under estimating the number of hours needed to
assist a distributor in changing from the old system to the new one. Its like
handing the vendor a blank check. Similarly, some software companies excessively
increase their annual support fees.
Third party software.
Even though the large software companies own many software packages, there are
some functions not found in any of the owned packages. These functions are
handled by third-party software packages that a software company provides. Some
of the third-party packages work well with some of the owned packages, and
others don’t work so well. Some of the third-party software packages were not
designed specifically for distributors, and may not address the needs of
distributors. And because third-party software was not created by a system
vendor, what would happen if a distributor is sued for misuse by the author of a
third-party software package? Help
with problems.
When the system is down, or some critical function stops working properly, what
kind of help would be provided? If the vendor’s people accidentally corrupt
the data in the system, who pays for restoring it to its proper form? How
quickly would the problem be resolved? How can business be conducted if the
system is down or corrupted for a week? Do you want to stake your business on
best efforts promises?
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