Summit Electric Lights Up with a New ERP System

Summit Electric Supply Co. Inc. is an independent wholesale distributor of electric industrial electrical equipment and supplies headquartered in Albuquerque, New Mexico. This company was founded in 1977 and employs well over 600 employees and generates an annual sales revenue upwards of $400 million according to recent reports. As per the latest reports this company operates in 5 states with a service center in Dubai, Sales at Houston and marine division in New Orleans.

                The primary products distributed by Summit include motor control, wires and cables, lighting, wiring, power protection equipment’s etc. The company procures the goods from the manufacturer and supplies it to the customers and thus effectively acting as an agent between the two parties. Since the incorporation of the company in 1977 the business has grown briskly and this exposed serious limitations with the legacy systems that were in place for sales, purchase and back-end reporting orders. The legacy systems used only a fixed number of unique identifiers and also was limited to a fixed number of locations and this meant that the staff had to reuse these numbers. Another challenge that Summit faced was that these legacy systems were unable to compile and integrate the sales and purchase orders and instead had to be done manually. As the business grew and the orders grew exponentially and processing a nightly inventory was impossible in the limited time. The other major issue was that the company lacked business intelligence tools that could generate reports for identifying growth areas and evaluate profitability. Apart from these issues there was also an issue where the business was losing return on investment (ROI) from a flawed chargeback process. There are usually thousands of chargeback agreements between the distributor and the supplier and every time a chargeback is invoked, the right supporting agreement and deal should be identified with the legacy process it was done manually. All these chargeback agreements had to be reconciled with the appropriate chargeback agreements which took them an entire month after which this enormous physical copy had to be handed to the vendors who would pour over it for the next two months. In some cases some chargebacks were missed invariably thus resulting in a lost revenue opportunity.

            All the above major issues drove the need for Summit to go shopping for a new ERP system. They soon partnered with the German company SAP for the integration of their business process using the Enterprise resource planning (ERP) system because SAP comparatively had more experience dealing with distribution business. The main priority with this new ERP system was scalability and inventory visibility. Summit needed the ERP system to handle a large number of stock keeping units (SKUs), expedited order processing, unique delivery models, distributed inventories and product handling among other regular functions. Inventory management was one of the top priorities because the company needed to know how much of each unit was available in the warehouses and when should they order the suppliers to replenish the stocks. A overcome this issue and stay current on the inventory, Summit had the updates run more frequently in periodic intervals. Summit also had another business model in which temporary warehouses were setup at the job sites for large clients thus expediting the delivery of its products at a convenience. Though the inventory was owned by summit, the units in this temporary inventory should not figure in the standard inventory. This issue was addressed by introducing a parent-child warehouse model thus preventing the sale of the units in the subparts of the main warehouse. Summit

Also implemented SAP’s Net Weaver BW data warehouse solution to use the data for better business intelligence reporting and analysis.

            The main advantage of implementing the SAP business model was the significant ROI after implementing the SAP Paybacks and Chargebacks application, which at the end of each business day reconciled the billing activities and compared them against all the chargeback agreements and when there is a match the system creates a separate chargeback document and can even submit the information to the vendor with the appropriate chargeback document. This new system even had the capability to create consolidate chargebacks on a daily and monthly basis thus eliminating the cumbersome process of compiling using excel sheets. With the implementation of this system alone Summit was able to increase the chargeback claims to over 118 percent over the legacy system thereby boosting revenue.

            Summit has tried to maintain a lot of flexibility in the new system while operating in the SAP business model because recreating the legacy systems can be time consuming and expensive and at the end of the day IT used to serve the business needs with practicality and efficiency.

References:

Management Information Systems: Managing the Digital Firm (13th ed.). Laudon & Laudon, J. P. Prentice Hall.

Summit Electric Supply Finds the Right ERP Fit, 2011: Dave Hannon: SAP Insider

Timeline: https://www.summit.com/about-us/Summit-Electric-Supply-History