Expert WP Managing Inventory Demand and Uncertainity with ERP

Toolbox.com Expert Guide to Managing Inventory, Demand, and Uncertainty with Modern ERP Solutions

December 2013

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Ziff Davis | White Paper | Toolbox.com Expert Guide toManaging Inventory, Demand, and Uncertainty with Modern ERP Solutions

Executive Summary

Enterprise resource planning (ERP) solutions have evolved from highly customized, one-off systems employed by large-scale manufacturers to an entire range of comprehensive business management products with mature offerings for nearly every vertical. However, recent advances in logistics and real-time asset tracking, as well as the increasingly global nature of manufacturing and distribution operations have brought a renewed focus on ERP in the industry where it all began.

This paper will explore the benefits of modern ERP implementations specifically as they relate to supply chains, logistics, inventory, and demand for manufacturers and distributors. It will further illustrate how ERP can play a critical role in improving efficiency, streamlining processes, and leveraging new data sources around supply chain and inventory management, regardless of the size or scale of an organization’s operations.

While this paper specifically deals with distributors/wholesalers, aspects of manufacturing including supply chain management, distributed manufacturing processes, and direct sales/distribution overlap considerably with broader discussions of wholesale distribution. In this context, the paper will also look at distribution-related ERP functions in the manufacturing industry.



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Managing Inventory and Demand

The term “distributor” covers an almost impossibly broad range of businesses. Depending on whom one asks, distributors are anything from major online retailers to middleman parts suppliers in the manufacturing sector. For the purposes of this paper, distributors are businesses that sell products wholesale, whether for retail sales or as parts of other goods.

While this definition doesn’t narrow things down very much, it does expose four major focus areas for business-to-business (B2B) distributors:

• Generating demand for their products,

• Ensuring that they have adequate product available to meet immediate demand,

• Controlling inventory to keep overhead low, and

• Ensuring timely, efficient delivery of product to customers.

Looking more specifically at ways in which a typical, mid-sized distributor might make use of ERP, it becomes clearer why distributors would choose software with features or modules specific to the industry.



In the figure above, a distributor in France must coordinate shipments to facilities worldwide. This sort of global reach is no longer unusual for even relatively small distributors, nor is the need to coordinate worldwide supply chains, manage traceability, and assure quality across sub-distributors.

It is this complex network of distributors and supply chains, along with more ordinary financial management functions that initially spurs most distributors to explore advanced ERP software. Sage ERP X3, for example, has built-in capabilities for managing contracts and subcontracts that allow distributors to navigate intricate partnerships and changes in ownership and distribution rights inherent in multinational operations..

Regardless of whether a distributor is selling bulk widgets or supplying airbag components to an automobile manufacturer, ERP systems have become indispensible tools for simply (and, in many cases, automatically) handling all aspects of a distribution operation. More to the point, in addition to managing internal operations, as ERP systems do for many organizations across all verticals, specific ERP capabilities for distributors streamline workflows for sales, warehouse management, and order fulfillment.

Tracking Demand

All of the elements of a distributor’s operations are tightly coupled, requiring an unusual degree of information sharing across lines of business. If a distributor’s goals are to generate maximum customer demand (i.e., sales), minimize warehousing costs, and fulfill orders as quickly and efficiently as possible, then the organization requires integrated systems with tools for high-level analytics as well as detailed reporting and granular workflows to coordinate demand, inventory, and supply. These tools must also be sufficiently flexible to allow distributors to be agile in meeting out of the ordinary customer requirements.

Whereas product management or the cultivation of particular capabilities often drives workflows in many organizations, sales sits at the top of a distributor’s information funnel. Informing strategic planning and tactical decision-making across the organization, the sales components of ERP systems specifically adapted for wholesale distributors should reflect this differentiation.

Customer Relationship Management

Customer Relationship Management (CRM), though available from many vendors as a standalone application, is increasingly showing tangible returns when it is used as part of a fully integrated ERP system. Workflows and normalized data stores ensure that teams from marketing and sales right through finance and legal have access to the latest customer data and can work together to close deals.

When these highly integrated systems are also specifically adapted for the needs of distributors, CRM modules can better support critical aspects of the wholesale business. In particular, contract management requires far greater attention in B2B-focused industries than in B2C verticals. The best ERP systems for distributors allow for easy changes to contract



terms and integrate with other data fields to improve planning and forecasting and ensure that contracted deliverables are available at any given time.

Because contracts are often negotiated individually with customers based on many factors ranging from order size to delivery schedules, CRM modules also support flexible terms and horizontal integrations with sales and order fulfillment modules. Automated workflows driven by contracts, orders, and shifting customer needs ensure that nothing gets lost in translation between sales teams other business lines and make documents transparent and readily accessible to all who need them outside of the sales teams. This transparency also works in reverse with sales consistently able to match customer requirements to available inventory, pricing data, and future product availability.

E-commerce and integration with customer systems E-commerce in the context of wholesale distribution is significantly different from more traditional B2C online sales. While customers can often place wholesale orders online with distributors and ERP e-commerce tools even interface with credit card gateways, few consumers deal with purchase orders, short-term financing (e.g., net 30 or net 60 payments), or quote generation in the way that distributors and their wholesale customers must.

More importantly, electronic commerce for distributors often involves integration of ordering and payment systems with various client ERP tools. When Ford, for example, needs to order truck tires from its suppliers, 100,000 all-season light-duty truck tires are not purchased on a manager’s corporate Amex. Instead, business rules implemented in the automaker’s ERP system trigger the automatic ordering of a week’s worth of tires when inventory at the plant drops below a specified level. Robust distributor ERP systems will initiate appropriate workflows to manage orders entered via APIs and connector modules in this way. For distributors, e-commerce is about far more than processing credit card payments and web forms. E-commerce in all of its forms is a key driver, then, of:

• Operational efficiency;

• Automation, and;

• Transparency for both clients and distributors.

Accounts receivable

Automated ordering, seamless generation of quotes and invoices, and carefully planned workflows implemented in modern ERP systems add considerable value for distributors and their clients. Ultimately, though, accounts receivable departments need accurate, up-to-date information about client orders, payments, and contracts to effectively manage income.

Notable ERP systems with specific distributor modules, like Sage ERP X3, support accounts receivable functions from credit checks to automated reminders and collections notices.



Account aging, complete invoicing capabilities, and flexible customer interactions are all hallmarks of a modern, distributor-centric ERP implementation. In fact, accounts receivable modules should dovetail seamlessly with more traditional CRM features, allowing businesses to build strong working relationships with clients, protect their financial interests, and dispense with manually created invoices and customer correspondence.

Does a customer want all of their invoices consolidated? Broken out by line of business? Generated monthly? Replaced by bills of lading? Salespeople and accountants should both be empowered to give clients what they want and need while still retaining complete financial visibility and control via their ERP systems.

Business intelligence and forecasting

That visibility, in fact, is at the center of the most complex, useful, and critical functions related to distributor sales. At the most basic level, ERP systems are databases filled with customer data, order histories, payment information, etc. For distributors, such data form the basis for ERP business intelligence tools, allowing wholesalers to:

• Anticipate customer needs and demand cycles;

• Develop both ad hoc and scheduled queries for tactical and strategic planning;

• Increase sales with intelligent targeted marketing and a well-informed sales force, and;

• Opportunity tracking with existing and prospective customers.



Managing Inventory and Supply

Distributors face an ever-present dilemma: How can they ensure they have adequate inventory to quickly meet customer demand while ensuring that warehousing costs stay low? While CRM

components of ERP systems have garnered a lot of attention among distributors lately, robust systems for carefully managing inventory as a function of sales and anticipated demand are just as critical.

The interrelatedness of sales with product databases, purchasing, warehouse management, inventory, and order fulfillment is perhaps the best argument for implementation of comprehensive ERP systems among distributors.

Product information

Across business lines, wholesalers need immediate access to updated product information. Spec changes to virtually any product handled by a distributor can have a ripple affect from sales right down to shipping and receiving and customer service. As with many businesses, siloed data and information that must be updated in multiple databases creates too many opportunities for miscommunication with customers, problems with orders, and challenges with following up which makes centralization and consolidation of product information a top priority for distributors.



Purchasing and accounts payable

As middlemen, distributors aren’t just concerned with collecting on customer accounts. Rather, wholesalers must walk a fine line, balancing cash flow from sales with inventory purchases. Modern ERP implementations give distributors the tools they need to walk this line profitably. Analytics and clear reporting features let decision-makers adjust and scale purchasing quickly to compensate for changes in demand and avoid shortages (which hurt customer relations) or excess inventory (which drives up overhead).

Manufacturing components and JIT

The 1980’s saw dramatic changes in manufacturing practices, not the least significant of which was JIT, or “Just in Time” inventory management. Whereas manufacturers previously kept substantial inventory of parts and raw materials on hand, JIT shifted the burden of managing inventory to distributors. The most effective distributors who could deliver a week’s, a day’s, or even an hour’s supply of materials depending on the particular industry would win lucrative contracts. Those who could not adapt were left behind.

The prominent role distributors now play in modern manufacturing has been cemented by the emergence of software systems that help manage the complex logistics of JIT practices. Newer hosted ERP systems with powerful APIs that can connect distributors and manufacturers automatically mean that even smaller distributors can compete in this fast-paced environment.

Warehouse management

Although distributors always seek to minimize inventory whenever possible, warehouse management remains a fundamental component of distributor-centered ERP. ERP systems can provide distributors with snapshots of inventory on hand, facilitate sampling and quality control measures, and automate replenishment on fixed schedules or based on demand.

If warehousing is something of a necessary evil for distributors, then the right ERP solution can mitigate the challenges associated with maintaining sufficient inventory. ERP functions in the warehouse can even incorporate management of non-stocked items, internal supplies that aren’t for sale but are required for distributor operations, and lifecycle monitoring for perishable goods.

Logistics and Shipping

None of these sophisticated systems, however, are of any use if products can’t ultimately be delivered to customers.

Order management and fulfillment

Above all, distributors must respond to their customers with flexibility, accuracy, and transparency. ERP modules customized for the wholesale distribution vertical should be able to support rapid changes to orders, flexible billing and invoicing, and straightforward access



to order status data. What parts of the order are ready to ship? When will backordered items become available? What metrics will improve delivery times going forward? Decision makers at all levels of a wholesale organization should be able to leverage their ERP solution and answer these questions easily, as well as provide feedback to customers, either automatically or with a few clicks.

Supply chain management

Distributors now face two different aspects of supply chain management (SCM), both of which are readily handled by comprehensive ERP systems. The first is management of their own supply chain, ensuring that goods are moving from their own suppliers for resale to their customers. For many distributors, specific goods may never enter their warehouse and instead be shipped directly from supplier to customer. Again, ERP systems designed or customized to suit wholesale distributors should be able to accommodate new business models and flexible sales with and through partners, while still maintaining appropriate transparency for the distributor and customer.

The other aspect of SCM with which many distributors now find themselves tasked is actually managing the supply chain as a service for their customers. This approach is newer but is catching on as manufacturers look to focus on their core competencies and reduce time to market with new products while outsourcing details like SCM to trusted partners. Here too, modern ERP systems are both comprehensive and flexible enough to manage SCM more broadly and open new revenue streams for distributors.

Systems integration and tracking

Finally, just as APIs in many ERP systems allow customers to place orders directly and/or automatically through connections to distributor systems (and for distributors to replenish inventory automatically), so too can ERP systems integrate with those of couriers and delivery services. For distributors, the job doesn’t end when a shipment leaves the warehouse or a partner drop ships products directly to a customer. It ends when the customer accepts the goods and distributors would be remiss if they didn’t keep customers up to date on the status of any shipments.

More recently, RFIDs and other means of automated tracking for individual goods and packages are also generating real-time location data. This so-called M2M (“Machine to Machine”) communication can often be integrated into ERP systems and give organizations a competitive advantage over other distributors who lack access to real-time information about their products

Transformation through the Right ERP Solution

While ERP began in the manufacturing sector and wholesale distribution came of age right along with manufacturing, a surprising number of distributors still aren’t fully leveraging enterprise resource planning solutions to streamline their businesses. Without comprehensive



ERP, distributors must rely on documentation created by hand, utilize disparate information systems for managing several parts of the distribution process, and miss out on the improved logistics made possible by direct connections to external systems through APIs.

So what should a distributor look for in an ERP solution with wholesale modules?

• Flexibility across business lines to quickly accommodate a variety of customer needs

• Macro and micro views of supply chain information, quality data, customer interaction information, sales pipelines,

• Business intelligence components like dashboards, statistical analysis, predictive analytics and workflow automation.

The key message here is that ERP has become an indispensible tool for many industries and vertical markets. Demands on distributors are now such that ERP should be approaching ubiquity in this vertical as well. The emergence of cloud-based hosted ERP solutions means that distributors can now start taking advantage of modern ERP tools without major capital investments.



About the Author: Chris Dawson

Chris is a writer, educator, consultant, and technologist, focused on the effective use of web and mobile technologies for large businesses. In particular, his wide range of experience in education and training, marketing and SEO, data analytics, and web-based voice and video have left him with unique perspectives across several verticals. Chris has done everything from teaching high school math to analyzing clinical drug trial data to heading up US operations for an Indian startup.

About The Sage Group plc

Sage Group plc is a leading global provider of business management software to small and medium sized companies, creating greater freedom for them to succeed. Sage understands how and why each business is unique. We provide products and services that suit varying needs, are a pleasure to use, and are secure and efficient. Formed in 1981, Sage was floated on the London Stock Exchange in 1989 and entered the FTSE 100 in 1999. Sage has over 6 million customers and more than 13,380 employees in 24 countries covering the UK & Ireland, mainland Europe, North America, South Africa, Australia, Asia, and Brazil. For further information please visit: www.sage.com

For more information about Sage in North America, please visit the company website at NA.Sage.com. Follow Sage North America on Facebook, Facebook.com/Sage, and Twitter, Twitter.com/SageNAmerica.

Sage 6361 Irvine Center Drive Irvine, CA 92618-2301 866-530-7243 www.NA.Sage.com/Sage-ERP-X3

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Expert WP Managing Inventory Demand and Uncertainity with ERP

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