Disruptions in supply chains, whether localized or widespread, are almost inevitable at some point in any for-profit or nonprofit organization. Currently we have all been subjected to supply chain chaos, with the global pandemic disrupting to greater or lesser degree the vast majority of supply chains on the planet.
In this article, we will discuss how to optimize ERP to speed recovery from a supply chain disruption when it occurs, as well as how to mitigate the impacts of supply chain disruption when it occurs in the future.
The Current Scene
Supply chains have been disrupted in a variety of different ways. In many businesses, one major area of breakdown can occur in fulfillment processing. Taking the example of COVID-19 disruption, when businesses were shut down and employees were sent home, this left at best only a skeleton of a business’s fulfillment team remaining on site to fulfill orders.
With many products, increased demand meant inventory was sucked through the supply chain faster than anybody predicted, leaving a gap in product availability for the consumer.
Another apparent disruption contributor is supply chain optimization. When you hear of supply chain optimization, that usually means less inventory because of things like JIT (Just-In-Time) inventory management, designed to make a business’s on-hand inventory ‘leaner’ and thus less expensive to stock and maintain.
It has been considered to be one of the “best practices” to optimize supply chain by having a lot less inventory on hand; not just for your business but also for your vendors and the vendors’ vendors and further upstream. Unfortunately, this makes the business more susceptible to disruption.
Plant managers and factory owners, in attempts to cope with and mitigate such disruption, are now looking to diversify their sourcing by locating more than one source for each of the goods and services the company needs.
But in truth, such major disruptions of a business’s supply chain points to a lack of adequate contingency planning and accurate forecasting. How a business plans and how a business forecasts into the future is going to have to be different.
Analytics and Forecasting
The question is, can analytics and forecasting help predict a supply chain disruption?
Supply chain analytics and supply chain forecasting are based upon models, and models result in a dependable level of prediction. Because we do not know what the future is going to entail, forecasting and analytics tools become extremely valuable. As one example, predictive supply chain analytics provide the capability to perform risk analysis assessments.
While you may have forecasting tools and planning tools, there is always the need for the human element to evaluate the resulting forecast and plan so that the analyst or manager can tailor decisions to the company’s needs.
For an example of a question generated by recent events, what really is a safety stock number? Using basic supply chain planning and inventory planning, specifically, what is that safety stock number? Most of the companies we are working with are increasing those numbers.
Our clients are interested in supply chain analytics and forecasting tools for their ERP system at this time. These tools answer the question of how to bring diverse supply chain data points together so a manager or an analyst can look at it as a cohesive whole and make better decisions.
Optimizing Supply Chain Components with ERP
The next question is, what are the primary components of a supply chain that can be optimized with ERP?
We like to think about ERP as a conceptual framework, because ERP is not just a single application anymore. ERP consists of multiple apps that are put in place to manage and automate business processes. When looking at supply chain optimization, we are looking at PLANNING, SOURCING, INVENTORY, PRODUCTION, and LOGISTICS.
We touched on PLANNING above. Almost all supply chain management software includes optimization functionality for supply planning, production planning, demand planning, and sales and operations planning.
With SOURCING, ERP is only as good as the data that you put into it.
There is an empirically derived principle called the 80/20 rule, also called the law of the vital few, which states that for many events, 80% of the effects or outputs are often derived from 20% of the causes or inputs. This principle is broadly visible in business activities: 80% of sales come from 20% of clients; in community fundraising, 80% of the fundraising target comes from 20% of the donors. As manifested in supply chain sourcing, 80% of supplied materials come from 20% of vendors. This means you better nail down your sourcing strategy on those vital 20%.
ERP can help you keep track of different vendors that can sell you the same part, with the same part number. This gives you the ability to track parts in systems. As well, you can look at terms and conditions from vendors.
Regarding INVENTORY optimization, having the right inventory number now is not just vital, it is a must-have. If you don't have accurate inventory, you will be confronted with supply chain disruption. Maximize the inventory data that you have and make it as accurate as possible.
PRODUCTION optimization is accomplished through automation, monitoring of line stoppage, and a variety of supply chain production management tools to increase efficiency and productivity throughout the production line.
With LOGISTICS, ERP tools provide an understanding of what really is there, such as how much capacity you have on logistics. For example, how much trucking is required? How much space do you need to fill up a truck?
There is real value in having this data fully defined and understood in your system so managers can make decisions at the push of a button. Fortunately, ERP can provide that level of control over supply chain optimization.
Recovering from Supply Chain Disruption
To recover from supply chain disruption, one of the first actions to immediately take is to look across your entire supply chain and identify where you have the biggest dependencies. Here are the points you should immediately address and resolve.
- Find out what the vendors’ plans are over the short term to get back up to speed. It is going to be more and more important to have frank conversations with the people and the organizations that you rely on the most.
- If you are shut down and you can’t immediately take action to restart operations, find out if there is something you can do right now to optimize your ERP supply chain software tools. Do you have proper analytics and forecasting tools in place? Do you have a plan for when you can restart?
- If you have not already done so, map your supply chain in full. If you have done so previously, do a thorough review of it. You may spot some deficiencies or roadblocks that have not been identified or properly handled in the past.
- If your employees do have some capacity or availability, have them address data integrity. Now is the time to get your data cleaned up: get your inventory item list nailed down, get the total number of your inventory accounts and get them accurately reflected in the inventory database.
- Another key action we are suggesting with our clients is streamlining workflows. Almost every ERP supply chain optimization software package provides this type of capability.
- Now more than ever, e-commerce should be a vital piece of your supply chain structure. How do you create multiple channels where your customers can get information from you and place their orders? You should be accelerating plans to spin up e-commerce solutions right now.
These are some immediate actions you can take. The important approach is to take actions that lead towards you being actively back in commerce. Don't be a victim suffering in a state of inaction because of unknowns.
Ask someone like us to help optimize your ERP. We can provide guidance as to what ERP tools to select for supply chain optimization.
Future Trends in ERP Software
The recent wide-spread disruption across so many supply chains guarantees that there will be increased investment in supply chain analytics and forecasting as part of ERP implementations.
There is another lesson to be learned here — one that is leading to a changing trend for enterprise software — wherein ERP software vendors will only offer cloud-based ERP software going forward. The current trend is that very few customers are buying on-prem software, and it is almost exclusively going to be software that runs in the cloud.
If you want to go shopping for ERP software, there are some great opportunities right now. We do not think the price of software is going to come back up to where it was before. There are so many software companies and currently it is such a competitive environment.
We have talked to many software vendors and because demand is going down, vendors are willing to offset that with decreases in prices.
We are here to help you, and so we provide free consultations to discuss particular needs and concerns.
Here at ERP Advisors Group, we are technology independent and have helped hundreds of organizations find the right solutions to meet their unique needs.
For help with ERP software selection and implementation related to supply chain management, request a consultation.