Our white paper on Costa Rica as a Nearshore software service solution and how our services came to be of greate service to a local food distribution company.
1. How Small Food Distributors Can Reclaim Control of
their Business: The Surprising Outsourcing Solution
By
2. Introduction
Food and beverage distribution companies are the lifeblood of society. Without the efficient
opperation of thousands of food distributors, their partners, sales people, warehouse personnel,
route drivers, equipment, quality control and information technology, we'd go hungry. Literally.
However, food distributors have to battle against lower margins, competitive pressure, high fuel
costs, changing consumer patterns and the current economic environment.
Things are hard for America's food distributors.
Information technology solutions, such as reporting software and mobile hand-held systems,
implemented as part of a well-planned strategy to increase visibility into their business, make
food distributors more responsive to their customers, and decrease billing cycles, can provide a
viable solution to some of the above problems, but implementation can sometimes prove to be
very costly, especially for smaller locally-owned distributors.
These same technology solutions can also be very rigid, making customization to the particular
needs of each distributor even more costly and complex.
However, there is some light at the end of the tunnel. America's small and medium food
distributors, and their technology providers, can now take advantage of a new type of outsourcing
boom to cut costs while implementing sophisticated technology solutions normally reserved for
only the largest companies.
When the word "outsourcing" is mentioned, this conjures up images of projects sent to India, the
Philippines, Russia or the Ukraine, the late-night hours, language barriers, project overruns, and
misunderstandings which have been the source of legendary project failures.
Smaller companies and their technology providers have naturally become reluctant to even
consider outsourcing, believing it requires the resources of really large companies with well-
staffed IT departments and full-time CIOs to oversee and manage.
This couldn't be further from the truth.
Costa Rica, traditionally known as the small Central American country with beautiful beaches and
a cost-effective destination for American retirees, has emerged as an outsourcing powerhouse
that offers many advantages for small and medium-sized U.S. companies wanting to implement
sophisticated customized information technology solutions that up till now have been out of their
reach.
The goal of this special report is to explore some of the industry trends affecting small and
medium-sized food distribution companies, discuss the new Costa Rican outsourcing trend as a
solution to this challenge, and invite food distribution CEOs and their information technology
partners to actively explore this opportunity.
3. Industry Trends Affecting America's Food Distributors
Food distributors face several issues that have made it harder to make a profit, increase
marketshare, and beat their competition.
1. Higher Transportation Costs
Though fuel costs have leveled-off since their highs in 2008, they are still much higher than they
were during most of the 2000s. High fuel costs have contributed to the increase in food
transportation costs. Food costs have gone up as well, but not at the same rate as fuel costs,
putting increasing margin pressure on food distributors.
2. Changing Demographics
The baby boom generation is getting older and demanding more convenience. The growth of new
generations who lack the talent to cook has also increased the demand for prepared foods. Food
distribution companies now have more UPCs to manage and sell. Keeping track of these items and
ensuring maximum market participation in each category also adds to the cost and complexity
experienced by food distributors.
3. Increased Globalization
Contributing to the increase in food diversity and complexity is the shrinking of global markets
due to globalization. This has increased food diversity and added to food flavors and textures,
making the merchandising job at the point-of-purchase more complex.
4. Increased Competition
Due to a tight labor market up till a few years ago, and increasing mergers and acquisitions,
competitive pressure has been growing, driving down margins and forcing manufacturers,
distributors and retailers to become more efficient.
5. Food Safety
Recent food safety scandals and the threat of bio-terrorism has imposed increased regulatory
pressure on the food industry. Food traceability standards have emerged as the industry solution,
and this has also contributed to the complexity and cost of the food supply chain.
6. The Downturn in the Economy
Consumer shopping habits have changed dramatically over the last two years due to the downturn
in the economy. According to a 2009 study by the Information Resources, Inc. entitled "Times &
4. Trends: A Snapshot of Trends Shaping the CPG and Retail Industries," 83% of shoppers now
decide what they're going to purchase before visiting the store, up from 60% in 2007. Price
consciousness and coupon clipping, especially amongst millennials (those 30 years and younger),
have also gone up, and they're making more frequent, shorter trips to the store. These consumer
shopping changes have motivated manufacturers to collaborate more closely with retailers, and
distributors have to become involved in this collaboration or risk redundancy.
Managing These Trends: The Distributors' Need for Data
The above changes have made it necessary for distributors to leverage technology to give them
insights into every aspect of their business. However, not only should distributors have an insight
into every aspect of their business, but they need to have insight into what's going on at the retail
level, and share information with the manufacturers they represent.
Food distribution companies are often family-owned businesses that have been in business many
years, and may have even been passed on from one generation to the next. Here are a few
attributes of traditional distributors that could be impacted by information technology:
1. Two-tier Distribution Model
Many food distributors use a two-tier distribution model. They serve as the master distributor for
a CPG brand for a given territory, such as a metropolitan area or a rural area, and then they
assign routes to independently owned sub-contractors or micro-distributors who may own a
delivery van or a small fleet. These master distributors are often at the mercy of their sub-
contractors regarding sales information and activity at the store and consumer level. The
increasing need for collaboration between CPG companies, their distributors, and the retailers to
perform product marketing, customer marketing and in-store merchandising is requiring
distributors to implement information technology processes to know what's going on at the retail
level in order to control activity at the point-of-purchase and provide data to the manufacturer.
2. Manual Back Office Procedures
Most distribution companies have some type of ERP or accounting system that is either specialized
for the food distribution industry, or has been customized. However, there are still many manual
processes, such as data entry for orders brought in on note pads by route drivers, printing of
inventory reports, pricing pages, and invoices, and the creation of Excel spreadsheets that
provides limited data on sales and profitability. Most distributors know these processes could be
automated with hand-held devices and configurable reporting tools, and are aware of the need to
have detailed data on route efficiency, UPC performance and inventory turns, detailed cost and
expense analysis, and sales analysis per retail outlet, route driver and UPC. However, they have
either been deterred from implementing them due to the high cost involved, or due to the
complexity in implementing a solution, not to mention the lack of an IT department.
3. Unique Business Processes
Even when food distributors decide to embark on a technology upgrade they often find currently
available systems are inflexible and costly to customize. Many of the thousands of food
distributors across the United States are independently owned and operated businesses and
operate their own unique business processes. Business owners are often frustrated when they
attempt to implement pre-canned solutions that don't quite fit their particular needs.
5. Increasing Control and Visibility with Mobile Solutions and
Management Dashboards
To have full control over their distribution system, enable quicker response to the needs of their
retailer customers as well as consumers, and to provide valuable operational and market insight
for management as well as to their food manufacturing partners, small and medium-sized food
distributors should implement a mobile solution combined with a reporting or business intelligence
system.
1. Increasing Visibility and Performance Across the Supply Chain
By implementing a mobile solution that is connected in real-time to the company's back office
systems, food distributors can increase their visibility and control of the supply chain, and share
the data with their food manufacturing vendor/partners. Mobile devices in the hands of route
drivers:
• Provides instant feedback from the point-of-purchase that is immediately synchronized
with the company's ERP or accounting system.
• Provides route drivers with the list of customers they have to visit that day.
• Allows route drivers to issue invoices on the spot, saving time and effort creating invoices
and stuffing envelopes.
• Enables last-minute route changes to be transmitted from headquarters to route drivers.
• Allows route drivers access to the product catalog, allowing them to cross-sell and up-sell
at the point-of-purchase.
And many other benefits. You can probably think of dozens of additional functions that can be
performed with the use of hand-held devices.
2. Data to Feed Daily Business Decisions
By implementing reports or management dashboards to make sense of the enormous increase in
additional data points collected via these mobile devices, management now has access to
actionable information so they can make daily, weekly and monthly decisions to increase sales,
take advantage of new market opportunities, get rid of poor performing brands, improve route
driver performance, increase market share and increase profitability.
Here are examples of data points managers can start to track with management dashboards:
• Sales per product line.
• Sales per route.
• Sales per store, restaurant, hotel, snack bar.
• Performance of point-of-purchase displays.
• Slow moving inventory.
• Popular items.
• Market threats.
However, according to John Schiaroli of warehouse management consulting company The Beltech
Group, only about 20% of food distribution companies have implemented a system like this.
Schiaroli said that although small and medium-sized food distribution companies are increasing
their adoption of these types of solutions, the high cost of implementation has kept the majority
6. of smaller local and regional companies from taking action.
Outsourcing to Costa Rica: The Surprising Solution for Small and
Medium Distributors and their Technology Partners
As mentioned earlier, the word "outsourcing" can strike terror into the hearts of small business
owners in America. Horror stories from companies that have outsourced to companies in overseas
are legendary.
Some of the drawbacks to overseas outsourcing are:
• Mismatched time-zones. Companies in Russia, India or The Far East range in time
difference from 9 to 16 hours which makes for many sleepless nights on conference calls
with the overseas development team.
• Differences in culture. Differences in culture often lead to difficulties. U.S. companies
typically are looking for more than just a body shop: they're looking for expertise and
opinions. Some cultures have an aversion to saying "no" or providing conflicting opinions,
and a "yes" can sometimes mean a "no," which can be confusing to American companies.
• Communications difficulties. Often when outsourcing to overseas providers language
barriers present communications difficulties. Project requirements are either not
understood accurately by the outsourcing provider, or the U.S. company will find it hard to
understand what is being asked of them, leading to project delays and and work that is not
what the company expected.
• Long distances. American companies wanting to supervise and meet their overseas
development team often have to travel great distances to meet their overseas outsourcer.
10-18 hour airplane trips are typical, making travel an all-day affair. Overseas travel is
also very cost-prohibitive.
• Offshore outsourcing best suited for large companies. Many U.S. companies have
ended their outsourcing adventures in Asia or Eastern Europe because they were either a
small fish in a big pond, or the cost involved managing the overseas team was best suited
for a larger company.
Costa Rica: Nearshore Alternative or Heaven on Earth?
All joking aside, Costa Rica has been on the upswing for a while now amongst many American
retirees hoping to live the last years of their lives in an affordable paradise.
However, over the last ten years Costa Rica has been quietly making a name for itself in another
area: as a technology outsourcing powerhouse.
Known as the happiest place on earth according to the World Database of Happiness, Costa Rica
has quickly become the best place for American companies to outsource software development. It
is also an ideal place for small and medium-sized U.S. companies, including food distribution
companies.
Top 5 Reasons Why to Outsource to Costa Rica
1. Costa Rica is a Top Producer of Software in the Region
According to a May 25, 2009 article in nacion.com
(http://www.nacion.com/ln_ee/2009/mayo/25/economia1969584.html), Costa Rica is the 2nd
largest exporter of software in Latin America, after Uruguay. Costa Rica's educational system
7. develops talented bi-lingual engineering talent, serving as the intellectual brain power behind
Costa Rica's 300 software firms that are now providing outsourcing services to the U.S., Jordan,
South Africa and the U.K. Additional technical sitmuli have come with the opening of an Intel chip
plant in 1998, where 20% of Intel's chips are manufactured, as well as outsourcing centers by HP,
IBM and other firms.
2. Highly Educated Workforce
Costa Rica boasts some of Latin America's most highly educated populations. After making the
strategic decision to disband the military and invest in education, Costa Rica has become an
outsourcing powerhouse not just in technology but for call centers and business process
outsourcing. A key dimension to Costa Rica's talented workforce is fluency in English, which
makes for a smooth communications experience with American outsourcers.
3. Cultural Affinity
Costa Rica is a Western country, which increases cultural affinity with American customers. Costa
Rican engineers are not afraid to disagree with a client or to provide an opposing view or
constructive feedback, standard business practices in the United States. Costa Ricans grow up
with similar values, listening to the same music, and sharing many cultural similarities to
Americans.
4. Same Time Zone
No more sleepless nights, Costa Rica is in the Central Time Zone, just 1 hour behind the Eastern
Seaboard, and 2 hours ahead of the West Coast.
5. Just 3 Hours Away
It is always recommended to visit your outsourcing team before you hire them, and to drop in
every now and then to see how they're progressing. This is especially important on longer
projects. Costa Rica is just a 3 hour plane ride away from most major airport hubs in the United
States, making it an easy trip back and forth. But be careful: once you visit you may not want to
come back to the States!
What Food Distributors Should Look For in a Costa Rican
Software Outsourcing Company
Despite the good news about Costa Rica, as in any market where there are lots of choices you
need a checklist to narrow down your choices. Small and medium food distribution companies and
their U.S.-based technology partners should use the following criteria before choosing a software
development outsourcing provider:
1. Deep Food Industry Expertise
Before looking at technology expertise you should consider domain expertise. The company you
choose should not only have experience in the wholesale and food logistics industry, but also in
food traceability, especially if you deal primarily in perishables. Traceability has become a major
issue in the United States, especially with recent food scares and the threat of bio-terrorism since
9/11.
2. Satisfied Clients
Outsourcing companies should have a list of satisfied clients, either in the U.S. or in their home
8. country. Look specifically for situations where company CEOs or Presidents are able to state or
document, with confidence, real business value gained from the relationship with the outsourcer.
3. Understanding of Business Issues
Technology is never implemented for the sake of technology, and outsourcers should never be
just software developers. Look for a savvy outsourcing team that understands the business
impacts of implementing strategic software solutions as a way to improve business performance.
4. Bilingual Outsourcing Team
The project manager and lead developer should be completely bilingual, as well as fluent in
conversational and written English. This is a no exception requirement.
5. Certified in the Latest Agile Development Methodologies
Everyone has heard of software projects gone bad. The typical scenario is a software development
project that was due to last 8 weeks, but turns into a 6 month project! This is due to old software
development methodologies that are inflexible and require the complete solution to be mapped
out before any work begins. When new requirements are introduced due to market forces or new
ideas, the system is too rigid to change and thus has to be re-architected from scratch. New
"Agile" methodologies have arisen that are more flexible and produce results much sooner.
However, there are many pretenders in the field. Look for companies that have certified Scrum
Masters to ensure your Agile software development project is delivered accurately and on time.
6. Expertise in Service-Oriented Architecture (SOA)
Another important development in software development is the emergence of Service-Oriented
Architecture (SOA). This is a mindset that many software companies use when working in diverse
technology environments. Many small and medium food distributors already have some sort of
business management system, such as QuickBooks, Microsoft Dynamics Nav, Solomon, Great
Plains or AX, SAP Business One, Mas-90 or other proprietary systems or custom built solutions.
SOA utilizes flexible web technologies to connect to a diverse array of sytems to re-use their
functionality in new ways, instead of throwing out the old and replacing them with completely new
ones.
7. Certified in your Preferred Technology Stack
Many small and medium-sized food distribution companies have standardized on Microsoft
technology, such as the Microsoft Dynamics Suite, or by the use of Outlook as the company email
system, Windows as the company operating system, and custom built applications using C or
C++. As such, it's important to work with an outsourcing company that is a Microsoft Certified
Development Partner.
8. Partner that is the Right Size
As a rule of thumb, if your company is a Fortune 500 company, you should choose a large Global
2000 outsourcing partner. If your company is a smaller firm, you will get lost in the shuffle and
become just another small customer. You need to find a partner that fits your size so you can
command the attention you require.
ieSoft: Your Costa Rican Food Distribution Development Partner
Costa Rica has become like a supermarket of software outsourcing companies: too many choices.
If you walk up and down the virtual aisles of software developers you will find many wonderful,
9. talented and enticing companies. However, this makes choosing the right partner for you very
difficult.
Software outsourcer IeSoft has emerged as the go-to company in Costa Rica for the food industry,
both in Latin America and the U.S.
In business for for more than 6 years, IeSoft:
• Has implemented mobile and business automation solutions at 8 of Costa Rica's top food
distribution companies.
• Has built traceability systems for several agricultural processing firms.
• Develops software under the agile SCRUM methodology, with personnel who are certified
Scrum Masters.
• Is a Microsoft Certified Development Partner.
• Has a completely bi-lingual project team.
• Some of their clients have received international awards for the systems they developed
for them.
• Is a small and very focused company, enabling them to provide excellent one-on-one
attention to U.S. food distribution companies or their U.S. technology providers.
• Are experts in SOA, having integrated business automation solutions with their
customers' older proprietary custom-built systems.
• Is one of the founding members of the IT Innovation Group
(http://itingroup.wordpress.com/), a consortium of Costa Rican software companies,
sponsored by the Costa Rican IT Chamber of Commerce (CAMTIC) and the Costa Rican
export promotion department (PROCOMER), whose purpose is to research, create and
market innovative technhologies.
Case Study: Urban Distributors of Snack Foods
On of Latin America's largest snack food and tortilla manufacturing companies, Gruma
(manufacturers of Mission Tortillas in the United States), wanted more visibility and control of the
retail sales process. They mandated their major distributors in Costa Rica implement a business
intelligence and mobile sales force automation solution.
Two of their largest distributors in San Jose, Costa Rica's capital and a major metropolitan area,
led the way for the company's 8 distributors nationwide.
10. Gruma's largest distributor, Joma S.A., for example, was making daily deliveries to 5,000 grocery
stores, supermarkets such as Wal-Mart, convenience stores, restaurants and fast food places such
as Burger King and Taco Bell, through a network of 40 route drivers. Each one of the route drivers
was an independently owned micro-business that delivered food in different areas of the city or in
the surrounding areas.
Gruma's distributors had about a 90% market share in Costa Rica, but smaller suppliers were
keeping them from growing, and some were making inroads into their market. Additionally, in
order to keep growing, profit margins had to improve, and management at these companies had
run out of creative ways to improve profitability.
Respond to Customer Needs and Gather Data with Mobile Technology
Joma S.A., and fellow San Jose distributor Oro Blanco, realized the only way to increase sales and
profitability, as well as to provide the information Gruma needed, was to have tighter control over
the relationship with their own customers (the stores and restaurants) via the use of technology.
This required daily information at the point of sale such as returns, sales, performance of
individual brands, promotional displays, stores and route drivers, and it also required on-the-spot
invoicing to increase cash flow due to faster collections, as well as to free up resources at
company headquarters.
The companies did an extensive search for the right company to implement this solution, and
found IeSoft. Due to IeSoft's knowledge of the food industry, it's traceability experience,
flexibility, SOA and agile experience, they were the ideal technology partner.
IeSoft built a mobile sales force system that enabled the companies to issue their route-drivers
iPaq 256 pocket computers along with Zebra MZ 320 mobile printing devices. This system allowed
route drivers to:
• Check which list of clients to visit that day, instead of manually printing out a list.
• Record inventory at clients' location as well as expired product for returns, allowing
management to make timely strategic decisions on product placement on a store-by-store
basis.
• Generate invoices on-the-spot, eliminating the need for headquarters personnel to create
and send invoices.
• See sales-to-date, returns, visits, and performance vs. quota, providing route drivers and
their supervisors essential information on job performance.
Management Dashboards to Improve Management Insight into the Business
Route drivers returned to the warehouse by 2pm, at which time all the data such as invoices
issued, products returned, customers visited and other important data points was synchronized
with the companies' management systems and immediately fed into a management dashboard for
use by company executives.
The dashboards gave executives at the distribution companies a daily snapshot of their business,
starting at 3pm, 1 hour after the last route driver returned.
Managers were able to:
1. Set objectives.
11. The system allowed management to set yearly, monthly and daily goals and measure daily
monthly and yearly performance against these goals.
2. Analyze sales performance.
The management dashboards gave the companies insights into as many details as possible
regarding performance, such as sales per route driver, sales per brand, sales per customer,
performance of particular promotions or point-of-purchase displays, and performance vs. the
competition.
3. Data across the supply chain
The systems built by IeSoft allowed the distributors to see exactly what was going on at the point-
of-purchase: what stores, restaurants, or snack bars received less frequent visits, which ones only
ordered one or two items vs. the whole product line, performance of point-of-purchase displays,
and performance vis-a-vis the competition.
The insights gained allowed managers to increase control over aspects of their business they
previously had no control over, by allowing them to make daily decisions such as what customers
individual route drivers needed to visit more frequently, how to increase sales of different brands,
and how to improve point-of-purchase promotions.
Additionally, they were able to share this data with Gruma, enabling them to utilize the data for
further product development and product marketing.
The system was eventually implemented at all 8 of Gruma's distributors in Costa Rica.
Joma S.A. was so successful they were named winner of "The Bizz Awards 2009" in Costa Rica by
Houston-based World Confederation of Businesses, in recognition of their innovative solution.
12. Your Next Step: Your Personalized Assessment
• Do you feel you don't have enough information about what's going on in your business on
a daily basis?
• Would you like to make your company more efficient and more responsive to your
customers' needs?
• Would you like to invoice your customers sooner?
• Empower your sales people to make intelligent up-sell or cross-sell recommendations?
• Do you want to provide your vendors and customers with information that can help them
market their products more effectively?
• Do you want to implement a mobile salesforce solution, but haven't because you think it's
too expensive?
Find out how your company could benefit from a free personalized assessment of your
company, it's market, your product mix, and your technology environment by calling IeSoft
for a personalized assessment of your company's next steps.
This is a no obligation 30 min. to 1 hour assessment of your company's situation, and the
end-result will be a detailed roadmap on how your company can implement mobile and
business intelligence technologies to take your business to the next level.
Call: (506) 2283-8282
Or follow-us on Twitter: @iesoft
Facebook: ieSoft