Manufacturers and distributors leverage ERP software to manage core areas of their businesses such as financials, production, or sales. However, the more advanced features, required for logistics or warehousing management, are not always available within an ERP system. To address these business needs, ERP and best of breed software vendors offer competing but standard solutions to this business segment of the marketplace.
Best of breed vendors deal exclusively with supply chain management systems, covering either the entire supply chain (warehousing, transportation, demand management) or only a portion of it. ERP vendors, on the other hand, either introduce advanced supply chain management features into their systems or create stand alone ERP for distribution solutions.
These solutions, while adequately addressing the specific business need, are far less than ideal. In both instances, manufacturers and distributors are obliged to invest in two separate solutions, each requiring costly implementation and ongoing maintenance services. Consequently, companies that need to manage their supply chain are confronted with significant business challenges – how to balance costs, effectively manage their supply chain with added supply chain management (SCM) functionality and minimize the potential business disruption of working with several software solutions.
Addressing these challenges, however, is not a straightforward process and requires companies to carefully assess the complexity level of their individual supply chains. This step is critical for obvious reasons. A complex, global supply chain with numerous partners that cater to a diverse clientele through a large distribution network requires a supply chain management solution that can effectively respond to its complex needs. On the other hand, a smaller manufacturer and distributor, which predominantly produces and sells goods to a local, moderately sized market, would require a simpler, far less complex SCM solution.
An example of a small distributor that buys and sells goods locally, whose supply chain needs are limited to the management of purchasing and the administration and tracking of inventory would be very adequately serviced by the distribution solutions within ERP and the accounting solutions offered by packages such as Sage Accpac.
In comparison, a very complex supply chain will require a much more intelligent and sophisticated approach in order to satisfy the multiple and complex demands of large-sized manufacturers and distributors. Such companies address tasks such as, correctly estimating product need versus market demand, the management of inventory and warehousing, the administration of a shipping plan that prioritizes based on contract terms, lead times, or the type of goods, transportation management for fleets of trucks and goods destined for sea shipping, and finally and most importantly, an effective sales and operations plan which coalesces all the business tasks in a way that improves productivity and profitability. All these business requirements can be delivered by the best SCM solutions, but ERP will also be required to support the company’s financial management as well as its back office operations. To maximize efficiencies, a good practice should include utilizing SCM solutions only in environments that they are best suited to serve, for example warehouses, distribution centers, and retail stores. ERP solutions, on the other hand, should be used to consolidate sales, for purchasing, and for processing financial information (usually within the purview of the regional and global headquarters of the company). If both ERP and SCM are used indiscriminately in all locations, a lot of time and effort will be wasted on duplicating the effort required to keeping the data up to date and consistent across both solutions.
Perhaps the most challenging SCM conundrum rests with medium sized manufacturers and distributors. In many instances, their supply chain is neither simple nor complex enough to be managed using the options presented above. Additionally, the ongoing evolution of the company ( growing or shrinking with their market) adds to the challenge of properly handling their supply chain management. For this type of enterprise, present day supply chain needs must be examined, but forecasting and researching future needs and business objectives is equally important. This will allow a company to make intelligent choices when deciding to invest in technology. It will allow them to take care of present needs as well as proactively thinking about future investments in technology that will streamline their management while controlling costs and enhancing their overall operation.
In conclusion, manufacturers and distributors cannot avoid all the challenges that arise in addressing supply chain management requirements with ERP and SCM solutions. However, some thoughtful consideration with regard to the present and future scope of the supply chain, as well as researching the optimal mix of solutions to service those eventualities will ensure a positive and stable work environment in the company and contribute to its overall business success.
Contributed by Gabriel Gheorghiu – Experienced consultant and analyst focusing on business software and customer interactions