Uh-huh. You heard me correctly.
The status quo for implementing supply chain planning (SCP) solutions is to get the enterprise planning system/upgrade into place first. But we have one very compelling reason why you should rethink that order…
The rapid savings from implementing SCP solutions can actually fund your new ERP or WMS system and start generating value immediately – versus 24 months from now.
Blue Ridge has worked with many wholesale distributors where this was the case. Right now, we’re wrapping up a successful rollout with a national wholesale tire distributor that is doing just that.
Rather than delaying their SCP implementation, the customer installed SCP first, which uncovered immediate areas where they could (and did) make tweaks to free up significant working capital within the first 90 days, including:
- Optimized forecast accuracy & replenishment cycles
- Reduced inventory costs – up to 20%
- Improved customer service level improvements – about 3-7%
- Reduced carrying cost
- Increased productivity by replacing manual processes
- Enhanced functionality around hub/spoke distribution networks
- Established supply chain analytics aligned to ‘big-rock’ company metrics and S&OP processes, including pricing
SCP solutions can handle all the intricacies that affect inventory management — materials planning, acquisition and overhead costs, safety stock, etc. in a way that ERP/WMS never will.
The Over-Simplification Trap
We like to call it the ‘over-simplification trap’ and it usually happens like this…
There’s a mandate from upper management that says, “Umm, Yeah… I’m gonna need you to just go ahead and look for an ERP system. Oh, and if you could just use it for supply chain planning too, that would be GREEAAATTT.”
Uh, ok.
The company installs the system without properly vetting the solution to find out its true supply chain planning capabilities and limitations. Things don’t always translate well in these big systems, so the demand planners fall into a trap – a very expensive system that does not actually fit their business.
ERP systems over-simplify supply chain planning. Their basic function is to roll up forecasts from a lower echelon and use that as the signal up to the supplier. Kind of like this: “If you sell 5, then order 5.” Well, guess what? That doesn’t work if the item comes in a box of 12!
Also, it doesn’t tell you to order other complementary items to scale economic buying power. What you sold has almost nothing to do with what you’re gonna order from your supplier.
The ERP/WMS just does what it does best; big Financial and Manufacturing Planning Modules. It way over-simplifies what you do. You might as well take your red stapler and move to the basement.
The Earlier, the Better
The earlier you install SCP, the better position you’ll be in to unravel demand volatility. The massive complexities which retailers and distributors are facing mean it’s time to act on SCP right now.
An ERP system at its core cannot handle the complexities of today’s demand planning teams, so there’s no point in waiting. Companies that think otherwise will end up with high safety stock in order to get to the customer experience they need.
The Latest, or the Easiest?
When executives do punt on SCP, it’s usually because they want to install the latest ERP. What they’re really doing is investing in the easiest. Sometimes it’s a situation where demand planning is forced into a cobbled-together system that’s a leftover resulting from a merger or acquisition.
In any case, we usually find that in the long run, these companies are no better off than they were before. That magical pie in the sky rarely actually happens because the system never really fit with supply chain planning processes to begin with.
Supply Chain Now was joking in a recent podcast with Mike Mills about his perspective on this:
“Why would you want to move the wrong amount of inventory around more efficiently? Almost always, you have the wrong inventory levels; then you physically engineer additional warehouse space based on the presumptions of that inventory. You go right-size the warehouse space, but service levels are still in the tank, and you don’t know why.”
It’s All About Depth
The big problem here is that ERP systems are a mile wide and an inch deep. These systems are great for Finance and Manufacturing Planning, but ERP/WMS tools have no concept of basics like supplier constraints, building orders to fill a truck, order cycle optimization, joined ordering, etc. You’re basically buying to meet a manufacturer requirement, not actual demand sensing to meet your strategic goals.
On the flip-side, functional SCP solutions miles deep and an inch wide. They are purpose-built and highly focused on delivering results directly attached to your team’s goals. The two approaches have very different processes and problems. Hence, they require very different technologies to solve them.
Going deep allows you to segment real demand from the stochastic (or random) forecast – what’s real, what’s not? You can analyze each customer transaction down to not only how much to buy, but why, when, how… analyzing items that are bought with other items, and the various influences on purchases, such as price/willingness to pay, etc.
Most importantly, getting SCP in place early will help you easily understand ‘What would you have sold if you’d had the product in stock?’ This level of knowledge allows you to drive savings in all areas of the business which, in a lot of cases, can be used to fund the very upgrade projects that originally distracted you from the real, immediate value!
“It’s a great feeling to be able to walk into your CFO’s office with a hard-and-fast figure of cash savings from SCP.”
Eye on CX
In addition to economically optimizing things, implementing SCP right now is low-hanging fruit for achieving your customer experience (CX) goals.
SCP tools have the ability to weigh the inventory management strategy against desired goals for CX – what is it gonna cost you? And if you have the inventory available to meet those service goals, what additional sales will it bring your business (and is it worth it)?
What to Do With All that Cash?
Different companies will get different results from their SCP implementation. It really depends on your financial goals and what you want to get out of it.
For some of our customers, the goal is a Reduction in Force (RIF) – something that’s perched high on the priority list for companies desperately seeking pandemic survival tactics. For other customers, it’s a desire to scale their current team, free up cash for new acquisitions, or any combination of these.
How much is possible?
- In an extreme case, we’ve had a customer go from 24 buyers/replenishers to 10 after implementing SCP
- In another example, a customer held flat on headcount while doubling the size of their business
- One of our European customers, Harmonie Norge was able to open up $1.45 million, which is being used to fund a future WMS project. Read the case study here
So what about you? Click here to schedule 15 minutes to discuss how fast and easy it is to see financial results from SCP? Who knows… maybe your department can fund the company’s next technology initiative? Or maybe SCP will fund your next raise! 😁
Related Post:
Never Trust an ERP or WMS Solution for Supply Chain Planning
