For years, the distribution industry in the UAE relied heavily on personal relationships. From phone calls to handshakes, to the constant flow of WhatsApp messages, business was done between companies located in the industrial areas of Al Quoz, Mussafah, and Jebel Ali. This highly personal approach is fine for a company with sales of AED 20 million; it is based on the commitment of a few employees who have what is referred to as “tribal knowledge” of the company.
At some point however, as a company scales up to the AED 100 million or 400 million level, there are physical limits to how much can be done manually. As a company grows, what was previously a personalized service, becomes an operational burden.
The issue is no longer identifying new customers, as the overall regional economy is strong, but rather filling those orders quickly enough. Manual processing of orders, which is typically seen as an administrative task, has become a major bottleneck limiting UAE distributors from expanding their businesses in a sustainable way.
The Mathematics of Manual Failure
Manual order processing has the drawback that it is directly related to administrative staff. The number of administrative employees required to manually process double the number of orders is two times as many employees. Thus, in an environment of rapid growth, the rate at which returns on revenue diminishes.
While order volumes grow, the complexity of entering orders for data purposes remains static; therefore, it grows exponentially. A distributor who handles 50 orders per day may be able to capture errors using human oversight. However, a distributor who handles 500 orders per day cannot.
In addition, at a large enough scale, the “WhatsApp and Excel” model generates a disconnected landscape of data. Orders are stuck in chat logs or email inboxes, not visible to the inventory management team until manually entered into the Enterprise Resource Planning (ERP) system. It is during the latency period – i.e., the time gap between when a customer places their order and when the warehouse becomes aware of the customer’s request – that stockouts, shipping errors, and unhappy customers occur.
The UAE Context: Workforce and Compliance Pressures
Beyond simple inefficiencies, reliance on manual processing in the UAE market presents a number of unique risk factors.
1. Workforce Continuity and Knowledge Retention: The knowledge regarding customer pricing tiers; the acceptable or preferred substitution options for products; and delivery conditions (i.e., the “delivery nuances”) related to each distributor is stored within an employee’s brain as opposed to a company’s system(s). Therefore, when employees leave (and they will), that intellectual capital leaves with them as well. Digitizing this business process allows the process to survive the loss of that employee.
2. Federal Tax Authority (FTA) Compliance: As a result of VAT implementation, the level of tolerance for invoice inaccuracies has declined dramatically. The primary reason for generating credit notes and invoices as corrections relates directly to manual data entry. In today’s stringent regulatory environment, an Order Management System (OMS) that relies on people manually entering accurate Tax Rates or Tax Reference Numbers (TRNs) is a Compliance Risk. Organizations in mature stages of development use Digital Ordering Systems to automate tax logic, thereby, ensuring their invoices are compliant with Federal Trade Authority (FTA) regulations prior to reaching the Warehouse.
3. The “Shadow Channel” Risk: Informal ordering by means of WhatsApp is very common in this area. Although the buyer finds the convenience appealing, it creates an opportunity for the distributor to have an informal ‘shadow’ communication channel with the buyer. The informal ordering can also circumvent checking of the buyer’s credit as well as reserving of inventory in many cases until several hours before the order is formally placed. This can result in the allocation of stock that has been ordered prior to when the stock becomes available, which results in the seller making false commitments and causing reputational harm to the buyer.
Reframing Digital Maturity: Governance, Not Just Efficiency
The boardroom has an inaccurate assumption that Digital Ordering is basically about “Customer Experience” or marketing. The Head of Operations should view digitally mature leaders in the GCC through the lens of Governance & Control when implementing B2B Portals.
Leaders who are digitally mature in the GCC do not implement B2B Portals just to appear modern; they do so to ensure compliance with Business Rules which manual teams usually disregard.
- Credit Control: A credit control digital system will prevent the sale of an item if it is over the credit limit prior to the order being placed; the system will either freeze the order until payment is received or decline the order altogether. The sales representative who manually places the order can easily bypass automated systems by overriding the credit limit; this is often done to close a sale.
- Pricing Discipline: If a sales representative manually changes the price of a product, they are reducing their company’s profit margin. “Digital systems” force the use of approved price lists that require the approval of executives to be changed.
- Inventory Allocation: Once a digital order is placed, the system immediately reserves the inventory needed to complete the order; this prevents other clients from purchasing the same items as they have already been reserved.
Therefore, the move away from manual orders is not an IT initiative, but rather an operational governance strategy. It moves the locus of decision-making from the individual judgments of a single Sales Administrator to the codified rules of the organization.
The Financial Implications of Inaction
Although the costs associated with operational friction are visible (the cost of correcting errors, the value of the capital being utilized for inventory that has a low probability of selling based upon inaccurate forecasted demand), many times the costs associated with these inaccuracies are hidden within a company’s ledger (e.g., the value of the salesperson’s time utilized for manually entering order information).
According to our prior evaluation of leakage of profit (as described in The Silent Killer in Your Order Book), these inefficiencies are not just operational inconveniences. They are net profit subtractors and the “cost to serve” a customer through manual processes is much greater than it would be through automated/digital process methods and as margin’s compress this difference will become a competitive barrier.
Self-Assessment: Is Your Order Process a Bottleneck?
To assess whether your existing infrastructure is limiting future growth, evaluate the following performance metrics of your operations. The more than two of the above questions that you answer “NO”, the most likely that your manual processes are limiting your ability to scale.
- Scalability: Will you be able to handle an increase of 30% in your order volume for next month without increasing the number of administrative employees?
- Visibility: Are you able to view the total dollar amount of all orders currently “in process” (those received but not yet added to your ERP) in real-time?
- Accuracy: Is your order entry error percentage (the percentage of orders requiring a return or credit note) at or under 1%?
- Sales Focus: Do fewer than 10% of your sales team’s hours per week go toward entering administrative data?
- Continuity: Would your ordering process continue with no interruption if your longest serving customer service representative quit today?
The Path Forward: Assessing Operational Readiness
A shift toward digital ordering is unavoidable if UAE distributors are going to take their next step in expansion. But if you purchase software with no knowledge of the operations that drive it, you’ll likely fail.
You need a very detailed process audit of what’s currently being done operationally, an understanding of what drives customer behavior, and a strategy on how to move data from the customer to your ERP.
We recommend you to do an Internal Operational Readiness Audit to find out what friction exists within your company today and which business rules must be codified, before seeking for vendors.
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