Distributors Lukewarm on IT

The mood of distribution industry executives facing this year’s IT challenges can perhaps best be described as waning optimism, judging by Forrester Research Inc.’s November 2004 North American Benchmark Study. The study indicates that distribution execs are well aware of the challenges they face: rising fuel prices, aging truck drivers, and the lifting of textile and apparel quotas. A full 70% of the distribution execs surveyed expect their IT budgets to remain flat or lower in 2005 than in 2004; 52% of the respondents surveyed in all industries expect 2005 to be challenging, and only 12% expect it to be a very good year. Last year, a similar survey found 17% of respondents looking forward to a very good 2004.

This year, distribution executives foresee sluggish growth and a corresponding stagnation of IT spending for new investments, with about 27% of their overall budgets allocated for IT. That IT spending, in the distribution sector at least, is more likely to go toward supply chain planning and financial systems and other software that will help control costs and increase efficiencies. In fact, the 9% of planned IT spending earmarked for applications software in 2005 is triple what it was in 2004.

Not surprisingly, business intelligence tools are of interest to only 23% of Forrester’s distribution respondents, compared with 34% of respondents in other industries. Optimizing supply chains and responding to regulatory requirements have boosted distributors’ demand for related software: Forty percent of distribution execs expect to invest in financial applications, compared to only 32% of executives in other industries. Similarly, supply chain management tools will be a significant IT budget item for 28% of distribution executives, versus 22% in other industries.

The report concludes that distribution companies are hardly in a budgetary position to snap up packaged apps that may or may not all be useful, and technology vendors will have to come up with strategies that fit this situation.

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