Bedrosians Tile & Stone enhances scalability with Dynamics 365

The huge volume and range of their product lines allow Bedrosians to meet the requirements of any project—commercial, institutional, industrial, or residential. It’s no wonder they wanted to modernize and streamline their operational and business processes to continue to deliver high-quality tile and service to match. What they couldn’t have known is that they were embarking on the project at a time when they would need the agility and flexibility of the new system to weather a coming storm.

When the team decided to go live with Dynamics 365 in mid-2020, they had no idea that a global pandemic would spur a huge spike in home improvement and repair spending. According to a study by the Joint Center for Housing Studies at Harvard University, annual spending on improvements and repairs to owner-occupied and rental properties grew by 23 percent, or $495B in US dollars, between 2019 and 2021. The surge in demand, volatile supply chains, and sudden shifts in business variables wrought havoc elsewhere. Thanks to Dynamics 365, Bedrosians experienced their most profitable year in the company’s history.

Before Dynamics 365

When Bedrosians Chief Information Officer Nirbhay Gupta sought a replacement for the company’s 30-year-old legacy system, he had very specific requirements in mind. Chief among them was the ability to seamlessly integrate with Bedrosians’ custom-made, highly industry-specific point of sale (POS) system and its advanced warehouse management system (WMS) from Manhattan Associates.

The legacy system was at the end of its life and presented many obstacles to realizing the company’s financial potential. In assessing barriers to revenue growth and higher profit margins, Gupta identified these key pain points:

• Lack of flexibility: Sales representatives lacked an accurate view of material costs, potentially resulting in misvaluing products and selling at lower margins—or even a loss.
• Lack of visibility into inventory: The company was at risk of promising products they couldn’t deliver or losing sales opportunities while inventory was in transit.
• Outdated demand planning and forecasting: Lacking accurate demand forecasting, Bedrosians struggled to find that “just right” inventory-on-hand formula, often finding itself under or overstocked. With lead times as long as six months or more, the need to have accurate inventory levels—and visibility into them—couldn’t be more important.

The team used multiple spreadsheets to prepare a demand plan and entered purchase orders manually, both long and laborious processes. Sales suffered when stock wasn’t available. With overstock taking up space in the distribution centers and showrooms, the company was forced to reduce prices to move it, sometimes resulting in a loss. The massive 10,000-item inventory was impossible to keep up with. Pandemic surges only amplified the sporadic nature of the business. Without accurate demand planning and forecasting, Bedrosians was rendered reactive and vulnerable to market whims.

The new enterprise resource planning (ERP) system would have to optimize financial, inventory, purchasing, and planning capabilities to streamline the movement of their globally sourced inventory and deliver affordably priced products “from the quarry to the countertop.” The ERP would have to provide better user experiences while also enhancing visibility between distribution centers, stores, and online marketplaces. Presciently, Gupta wanted an ERP with the flexibility and agility to allow Bedrosians to adjust quickly and confidently to sudden shifts in business variables.

After an extensive review process, only Microsoft Dynamics 365 met all the company’s demands.

Laying the groundwork for success

As a family company with loyal, long-term employees, Bedrosians knew from the start that a successful implementation would need strong leadership and user-friendliness. The implementation team took care to ensure the new solution would be easy to adopt, instituting best practices and offering training. Bedrosians wasn’t about to let the old guard go in favor of a workforce more familiar with Dynamics 365. Thanks to their approach, the company suffered very little attrition because of the move. Employees are satisfied with a user interface that stands out from peers like Oracle NetSuite.

Implementation partner Real Dynamics implemented a key best practice that contributed to the project’s success. The team conducted an extensive production simulation test with 1,000 scripts processing more than two months of real transactions. They not only learned customer ordering behaviors, they were also able to catch the challenges that come with seemingly endless combinations and permutations of transactions.

Because of their unique industry needs, Bedrosians began their digital transformation with their nuanced POS and ancillary WMS. The flexibility of Dynamics 365 together with Azure Service Bus made integrating with existing platforms a breeze. The near-real-time integration allowed for rigorous automated testing. The result was 100% reliable integrated transactions.

Today, the company’s 40 branches are in production with Dynamics 365, with Supply Chain Management for inventory management, procurement, sales order management, planning optimization, product information management, and demand forecasting (based on Azure Machine Learning), and Dynamics 365 Finance for financial and project accounting, and Commerce for headless commerce and marketplace integration.

Winning constructs

Here are some of the benefits Bedrosians Tile & Stone is seeing because of Dynamics 365:

Artificial intelligence and machine learning for demand forecasting

The decision to use standard out-of-the-box functionality made implementation smooth, even though it was done completely remotely using Microsoft Teams. A more complex element of the implementation was also one of the most exciting—AI-based demand forecasting with Azure Machine Learning. Using roughly five years of purchasing history to train a best-fit statistical model, Azure Machine Learning precisely tunes the model with flexible, preset parameters, then generates a forecast. With planning optimization, the new microservice-based master planning functionality in Dynamics 365, the purchasing team uses the generated demand forecast to make data-informed decisions about what inventory to order over the next six to eight months. Planning optimization runs every 15 minutes to balance the supply and demand signals as buyers place orders throughout the day.

What used to be a manual and rather artful process based on what “felt right” is now an automated, scientific forecast based on historical data and industry trends. As a distributor, one of the company’s major costs is inventory. Data-driven insights to calculate optimal inventory on hand cut costs dramatically. Dynamics 365 ensures that Bedrosians is proactive on the purchasing side of the business and has the right inventory at the right time, allowing them to capitalize on sales opportunities despite months-long lead times—and incidentally, saving buyers a significant amount of time. Azure Machine Learning models work with operational data in Dynamics 365 to keep inventory aging to a minimum and accurately forecast demand to get products into the hands of contractors, designers, and homeowners.

Increased profitability through visibility

Inventory visibility is crucial for sales representatives to make and close deals. But knowing how to price products to optimize profit margins, especially in a volatile market, requires a deft combination of visibility and flexibility that only Dynamics 365 can deliver. Prior to implementation, sales professionals had a limited view of material costs and adjusted pricing to what they believed would result in profitability. However, without visibility into handling, shipping, and other costs, their adjustments sometimes resulted in a loss for the company. With Dynamics 365, they can quickly adjust prices to respond to the changing supply chain and shipping and vendor price increases to ensure a profit.

Implementation partner Real Dynamics developed a custom-made commissionable cost feature in Dynamics 365 to aggregate the total product costs separate from inventory cost. Commissionable cost uses estimated costs, like freight, handling, and transfers from distribution centers to warehouses, and manages rules for mark-downs and mark-ups by item group, item category, or store location, to protect margins as the market changes. Allowing sales representatives to base their strategies on commissionable cost removes the burden of calculating costs and prices and wasn’t possible in the legacy system. With the Dynamics 365 solution, the sales team remained agile and easily adapted to wild material cost swings throughout the pandemic. Moreover, commissionable cost is decoupled from material cost where it needs to be, so it doesn’t impact the inventory cost in the system that’s used for financial reporting.

Power BI gives executives and regional managers the same view across different levels of the enterprise. Dashboards track KPIs and enable quick decision-making. Users can now see for themselves data that used to require the IT team to build a custom report. As Gupta says, “If you can’t measure it, you can’t improve it,” and Power BI empowers the team with the data and insights they need for fast decision-making and sales strategy. The ability to be proactive and act quickly gave Bedrosians a critical competitive advantage throughout the pandemic—one that continues today.

Improved process and controls

Contractors and installers purchasing materials for jobs typically don’t have a high credit limit. The legacy system lacked processes and controls to manage credit limits and approvals for special orders. The California-based credit team had to review each transaction using highly manual processes involving a series of phone calls, emails, and file updates, resulting in delays in order processing. Now, with Dynamics 365, Bedrosians can automate credit limits by defining projects. Stores can seamlessly serve their customers without delay, no matter their time zone, and without putting salespeople in the position of making risky credit exposure decisions or losing a sale.

Similarly, with so many custom products to source for their customers, it’s especially important that stores can create purchase orders for special orders with non-stock items. What used to require a lengthy approval process for these special orders can now be procured directly. Sales representatives can get vendor quotes and create a purchase order, which automatically routes to approvers based on preset rules. The approvers can easily respond from any mobile device, keeping the customer order on track and financial controls in place.

Headless commerce

E-commerce is a newer channel for Bedrosians but has experienced explosive growth, rising to the number two performing channel in two short years. In addition to the company’s branded e-commerce site, customers can easily shop Wayfair, Lowes, Amazon, Walmart, and Houzz with up-to-date inventory thanks to seamless headless commerce integration with Dynamics 365. As the popularity of DIY home improvement projects continues to rise, Bedrosians can quickly and easily stand up in a new marketplace to expand its customer reach.

Designs for the future

Bedrosians Tile & Stone looks forward to continuing its digital transformation with Microsoft and Dynamics 365. Building on the momentum of its successful implementation, they are already in the process of adding new capabilities like landed cost, further optimizing margins and customer service.