Multichannel business managers frequently voice the desire to have one system or software package that is capable of managing the entire enterprise, encompassing all functional areas. Enterprise resources planning (ERP) systems have been available for years. Because the multichannel phenomenon—traditional brick-and-mortar businesses reaching into direct marketing, and traditional direct-to-customer companies developing brick-and-mortar stores as well as a Web presence—is so recent, it has in many cases outstripped the ability of software vendors to keep pace.

Having a single computer system control all functional areas in a business and use a common customer, inventory, order, and item database makes perfect sense, and the potential synergy between channels and the ability to maximize the customer experience are clear opportunities. Unfortunately, the search for and implementation of such a solution has frequently proved difficult.

The push to provide an overall multichannel solution has generally manifested itself in two ways. Traditional ERP vendors, whose genesis was in manufacturing, have tried to develop functionality geared to the specific needs of multichannel companies. Existing niche vendors in the direct-to-customer or retail worlds are trying to broaden their offerings to include more functional areas and look more like true ERPs. Both approaches have met with limited success so far. In general, niche or best-of-breed solutions fit more complex environments, while the ERP solutions better fit the very broad but less complex environments.

You can read the full article here: ERP Software in the Multichannel World.

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Mr. Bob Betke, a vice president of F. Curtis Barry & Company for over 10 years, holds a degree in industrial engineering. Bob has 30+ years experience in strategic and business planning; project management; design and operation of fulfillment and distribution centers, as well as manufacturing and retailing.

As I discussed in Part 1 of this article, it is important that you find a company that suits your needs. A company that provides due diligence services in the multichannel retail arena will help you investigate the feasibility of, or provide support for, mergers, acquisitions, and/or investment opportunities. My firm, F. Curtis Barry & Company, helps potential investors conduct multichannel acquisition due diligence evaluations of the operational areas related to warehouses and contact centers and their related facilities, systems, staffing and processes.

Improving Portfolio Companies: Post-acquisition Due Diligence

Once an investment has been made, issues similar to those covered in the Pre-acquisition Due Diligence stage need to be addressed. Unless the investor intends to keep the business running just as it did before the investment, it will be necessary to develop plans for change and improvement. F. Curtis Barry & Company helps clients maximize the value of their portfolio companies by conducting an operational audit that will help them discover potential problems and implement improvements.

The first step in this audit process is to conduct a thorough and methodical evaluation of all of the operating areas within the business to develop a list of potential improvements. This list should then be defined to include the cost, savings, risks, timelines, and any other related factors that can be used to prioritize potential changes. This “Discover and Fix It” list, which should focus on reducing costs and improving service levels, can be built on work done during Pre-acquisition Due Diligence or as an independent step. If it is an independent step, all of the areas covered in the Pre-acquisition assessment should be looked into again as the list of prioritized potential improvements is developed.

Investors should develop plans that reflect the needs for future growth with a 3–5 year horizon. Decisions about which ideas to implement should be based on justifications using both current and future sales volumes. It will most likely not be possible to do everything at once, so pick and choose your battles wisely. Maximizing the current operation should come before investing in change. Basing justifications for investment on a sub-optimized current operation is counterproductive. The best use of the time available after an investment is rather to make the most of what you have, look for the “low-hanging fruit,” and concentrate on getting the basics right. For instance, if an investment involves putting two or more companies together, one obvious place to look for improvement is in the elimination or reduction of duplicated efforts.

Implementation Plan

A final step in the process is to develop a transition or implementation plan that details the steps that are required for implementation, the person accountable for completing the plan, and a timeline. Without such a plan, all of the prior work can be wasted. It is also vital to provide a single accountable resource to project manage the implementation.

With the future financial well being of those involved in the investment process, it is imperative that you do all of the homework required to make a wise decision. After the investment, it is equally important to maximize the return on the investment by discovering potential improvements and implementing them.

About the Author
Bob Betke is a vice president of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in assisting multichannel businesses with pre- and post-acquisition due diligence. Learn more online at: http://www.fcbco.com

Begin by finding a company that provides due diligence services to potential investors in the multichannel retail arena to investigate the feasibility of, or provide support for, mergers, acquisitions, and/or investment opportunities. My firm, F. Curtis Barry & Company, has been working in this market for many years. Our perspective is one of operational consultants for multichannel retail businesses —companies that operate some combination of direct-to-customer sales (catalog and e-commerce), retail (brick-and-mortar), and/or wholesale channels.

Investment decisions should be based on the best information available. A mistake in the initial evaluation process can be costly in the long run, even fatal, to successful investment. Most investment activity is based on the belief that improvements can be made to a business that will warrant the expenses incurred. An operational assessment evaluates a business’s potential, pinpoints ways to reduce current operating costs, identifies inherent risks, and estimates the costs that would be required to make improvements.

The financial aspects of a potential investment rightly receive the most emphasis. However, many other areas, if not addressed, can have a negative effect on the overall financial picture. F. Curtis Barry & Company applies its multichannel business expertise to focus on that part of the due diligence process relating to the operations of the target enterprise. In the context of the multichannel retail industry, the term “operations” refers all activities related to fulfilling customers’ orders and meeting their expectations. This includes merchandising, marketing, information technology, warehouse operations, and call (contact) center functions.

We conduct an operational assessment as part of due diligence to evaluate investment potential, determine the necessary costs to make improvements, and identify any inherent risks. As required, F. Curtis Barry & Company also provides operational evaluation of completed investments to support the improvement process.

Pre-acquisition Due Diligence: A Checklist

F. Curtis Barry & Company helps potential investors conduct multichannel acquisition due diligence evaluations of the operational areas related to warehouses and contact centers and their related facilities, systems, staffing and processes. The following are considered:

1. Determine Cost Per Order and Measures of Productivity
In order to evaluate the effectiveness of the operation under study, we develop a calculation of the cost per order. The cost per order is a good benchmark to determine how productive an operation really is. It can include direct and indirect labor, facility costs, and packaging materials for the warehouse, with the addition of other specific costs for the contact center. Comparing the company’s cost per order to that of others in the industry or to past internal trending costs gives a good picture of which direction the business is headed and also how it stacks up against the competition.

Because factors such as wage rates and productivity levels affect costs, they must also be considered in an assessment. In order to reduce potential bias and misinformation caused by varying wage rates when comparing cost-per-order benchmarks, we also suggest that true measures of productivity using some unit of measurable work and the corresponding man hours involved be included. True productivity measures of warehouse and contact centers can give a good picture of how the operation really compares to others and whether there is any room for improvement.

We always recommend external benchmarking as a starting point for comparing operations, but the real key is to research true internal productivity measures comparing actual activity over a time period against some level of standard of performance expectation. This internal measure is as important as the external one, in that it points out trends as well as opportunities for further study based on changes in performance or failures to meet expectations.

2. Evaluate the Facilities
A second area for evaluation is physical facilities. Analyzing how efficiently a facility is used and determining its true operating capacity help in evaluating potential improvements and the business’s ability to meet the demands of growth. Both the contact center and the warehouse should be evaluated in terms of how well the space is utilized and how effective the overall layout appears. A review of the flow of materials through the warehouse can tell a lot about efficiencies and future opportunities for change. The level of automation employed and its appropriateness to the business is another indicator of performance.

The operational assessment should also consider how many facilities are needed and what functions they should perform. The way work is being completed at existing facilities and comparisons of the processes and practices used to industry best practices may identify areas for potential improvement that can yield major savings.

3. Identify Future Growth Needs
Can the target company meet future growth demands? Due diligence can discover pressures that will be placed on facilities, staffing, systems, etc., so investors can make sure no major problems will arise through supporting future growth.

4. Assess Customer Service Capabilities
Most Pre-acquisition evaluations should also include customer service levels. A good hard look at service level standards and actual performance against these standards is a critical piece of an overall assessment of how well a company is performing. Metrics such as order turnaround time, call abandonment rates, e-mail response times, and returns processing order accuracy are all measures of how well a multichannel business is actually doing.

5. Review Business Systems & Software
In order to rate the operating level of a potential investment, F. Curtis Barry & Company explores the infrastructure system support available to the business being considered. A review of the software and the corresponding functionality provided is a good measure of the ability of the business to support current needs, and more importantly, its ability to support future changes. A system that is inflexible or does not meet current operating needs is a warning flag that indicates significant investment in time and money might be required to match business needs and implement the assumptions of productivity improvements and cost reductions. The rapidly changing nature of the multichannel world, especially the e-commerce channel, makes flexibility mandatory. Make sure you are investing in a platform and software for order, inventory and warehouse management systems that can meet tomorrow’s needs.

6. Evaluate Inventory Details
The largest single asset of multichannel businesses is inventory. Accordingly, we review basic inventory measures such as turns and ageing in order to gauge how well inventory is being managed. We suggest a review of the top 10% and bottom 10% of SKU sales to measure how effective the forecasting process is. We also review any liquidation practices along with a measure of cost recovery.

7. Meet with the Staff
The final process in evaluating a business is a relatively soft one, but still critical: The staff should be interviewed to gauge the work culture. Unless the business is going to be closed or moved, it is unlikely that the current culture will be easily changed. Talking with employees at all levels of the operation, allows us to determine what degree, if any, of difficulty an investor might encounter when implementing required changes. Don’t underestimate the importance of the human factor in the evaluation process and in determining the value or potential of an organization.

In Part 2, I will discuss Post-acquisition Due Diligence and what to consider in an Implementation Plan.

About the Author
Bob Betke is a vice president of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in assisting multichannel businesses with pre-acquisition and post-acquisition due diligence. Learn more online at: http://www.fcbco.com