Even as the dust begins to settle from one disruption, supply chain organizations are getting ready to handle the next. But lately, their response is impacting much more than the transactional push and pull between supply and demand. According to McKinsey and Company, with a digitization of the supply chain they have the capacity to save 75% of lost sales, reduce transport and warehousing costs by 30%, and decrease 80% of administrative costs – all while cutting inventory by 75%.
One supply chain leader of a consumer durable goods manufacturer stated that raw material prices are rising dramatically, as are the prices for inbound shipping to move components into the factory. Another supply chain leader of a manufacturer of fast-moving packaging materials said that more than one supplier of key raw materials (fiberglass, plastic resin, etc.) has declared force majeure events in order to justify factory-crippling shortages.
The pandemic is only one part of the reason behind this new reality. If anything, it has amplified, in the worst way possible, the importance of supply chain continuity to the success of communities and businesses. A lack of technology completeness, deep expertise, and visionary innovation played a direct role in the fragile connections, transparency gaps, invisible risk, and limited predictability that plagued brands worldwide.
Rethinking the Relevance of ERP for the Supply Chain
When considering why their company first implemented its enterprise resource planning (ERP) system, supply chain leaders can quickly identify why their operations are unstable right now. ERP technology is historically focused on connecting seemingly disparate departments – such as administration, finance, HR, procurement, manufacturing, warehousing, sales and marketing, and customer service. It provides limited support for optimizing how changes in demand and supply impact the ability to serve at a reasonable cost.
Unfortunately, this initial purpose of ERP has led to implementations that do not give supply chains the unique capabilities they need to optimize their processes. This mindset has driven every update, upgrade, and customization for decades, even with the introduction of process automation, data-driven analytics, and best practice-based management.
Now supply chain leaders are demanding more from the technologies they use. They can’t afford to use an overly complex, rigid, unscalable, and latent ERP to run operations that can shift and become disrupted at a moment’s notice. Even if the system becomes cloud-based, it’s unlikely that it can be as event-driven in its response to disruptions as is needed to operate a resilient enterprise.
Does that mean the end of ERP for the supply chain? More and more large enterprises are turning away from ERP for supply chain with the full support of their IT and finance leaders because it is more apparent than ever that this is the right thing to do.
Optimizing the Power of Data to Solve Today’s Challenges
When speaking and working with our customers, we hear that ERP systems do not provide the depth of supply chain planning experience alone. What’s often missing is the ability to access the right data and analyze it in the context of the current function’s challenges, requirements, and risks.
Global guitar maker Fender turned to Logility for supply chain-specific solutions to support the real-time forecasting capabilities and direct visibility needed to understand how supply constraints impact sales revenue and use that insight to optimize business outcomes. Best of all, the technology was easily integrated with its existing ERP system, providing a single, user-friendly experience. In addition, the implementation simplified the company’s complex operations to the point where it has the flexibility and control to know where opportunities exist and act on them to move the business forward.
Before Logility, The Carlstar Group had been reliant on a fluid, unreliable mix of ERP system-generated data, error-prone spreadsheets and rumor to operate the business. Outdated information created operational headaches related to inventory planning and back-order tracking. Logility provided instant visibility into sales and operational performance, enabling business leaders to spot trends earlier and make coordinated decisions supported by a single version of the truth. “Our inventory value has dropped $10 million due to better visibility of obsolete inventory thanks to Logility’s pre-built supply chain solutions,” explained The Carlstar Group’s CIO.
By leveraging data in more meaningful ways, supply chain organizations can navigate analytics and scenarios more intuitively. The true value of this exercise is best found in exploring new data sources in the context of the function with the assistance of artificial intelligence and machine learning.
We often meet supply chain organizations that discover, for the first time, the amount of data they were sitting on and no one was using. It can be quite an awakening. For Sensient Colors, it was the moment when leaders understood how much visibility was lacking due to the business units using different ERP systems, capturing data inconsistently, and keeping information siloed.
Overcoming Supply Chain Issues with the Right Platform and Services
While it might seem odd that the way data is consumed can make a difference in how a supply chain operates, it makes perfect sense once it is analyzed in context. A set of interconnected plans for what to make, what to buy, and what to move based on the most up-to-date and comprehensive set of supply chain data, known as a digital twin of the physical enterprise, is one of the most beneficial outputs of a supply chain platform. Supply chain managers can then analyze data in many new ways to arrive at a single version of the truth for the supply chain. And more importantly, they can relay that narrative to business executives in ways that are highly effective, easy to understand, and satisfying.
Read more here about why an ERP system is not enough to overcome the complexities of the modern-day supply chain.
Senior Vice President
Scott Abbate is a senior vice president with Logility, with more than two decades of experience diagnosing supply chain planning shortcomings and prescribing solutions. Scott has helped over 150 enterprises document the positive financial impact of attaining high P&L and Balance Sheet maturity in business cases for supply chain digital transformation.