CPIO White Paper Overcoming wholesale distribution challenges with ERP CPiO Part of the Waterdale Group of Companies
Contents i. ERP in a high-pressure environment...... p3 ii. Overcoming ERP reluctance....p4 iii. Improving inventory, stock and warehouse planning.....p6 vi. Supply chain and electronic data interchange.......p11 v. Managing customer demands... p13 vi. Ensuring compliance....p14 vii. Moving into the future with ERP.....p15 2
i. ERP in a high-pressure environment The UK has become a growth-focused environment and businesses are under pressure to rise to the challenge and expand. For wholesale distributors, the writing is on the wall that it s time to look outwards. Those that do this and do it well will be able to compete, while those that don t run the risk of becoming collateral damage in the quest for growth. In order to thrive, businesses can feel that they have to become masters at plate spinning. Wholesale distributors need to be able to manage inventory, stock and warehouse planning, supply chain and electronic data interchange (EDI), customer and vendor demands, and compliance, all across often complex organisational structures. Keeping these plates in the air becomes even harder when supported by old IT systems, which suffer from interoperability issues, and businesses find their best practices have become compromised overtime, leading to information silos and staff finding methods of working outside of the system to generate key information. To overcome these challenges, wholesale distributors require a robust Enterprise Resource Planning (ERP) system that is scalable. Some businesses have not had the opportunity to understand the value of modern software platforms and how they can help them overcome the common challenges of distribution. 3
ii. Overcoming ERP reluctance 58 per cent of best-in-class companies are implementing new ERP systems. Without the capability of accessing the right information on time, barriers to growth can appear greater. There is still relatively widespread reluctance among wholesale distributors to update to a modern ERP system. Aberdeen Group Julie Bruce, Sage ERP X3 Product Champion at CPiO Limited, suggests that this reluctance is in the main two-fold: i) concern about the investment needed ii) the impact of an implementation project on the daily running of the business. Benefits of an ERP system 37 per cent with updated ERP solutions are able to quickly adapt their systems to changing business conditions. Aberdeen Group End-to-end visibility of inventory Real-time information across all offices, enabling swift decisions Improved customer service levels More accurate forecasts Anytime, anywhere access Eliminates manual data input Wholesale distributor revenues and profits are so tight that they are somewhat reserved about changing from their current system because of the perceived cost and disruption to the business, she said. Figures show that new systems come with many benefits. In its The value of updating ERP: Maintaining modern technology report 1, Aberdeen Group explained that it is no coincidence that 58 per cent of best-in-class companies are implementing new IT software. 53 per cent of companies on the latest ERP version are able to utilise best practice. Sharing and integrating data with the extended enterprise is also better supported with current systems, with 34 per cent claiming they are able to complete this function, compared to 20 per cent that are on older models. Those with new systems, 42 per cent say they are able to collaborate in real time - 20 per cent higher than those with dated infrastructure - while 40 per cent can quickly access tailored reports (11 per cent more than old ERP users). Crucially for the new growth environment, 37 per cent with updated ERP solutions said they are able to quickly adapt their system to changing business conditions, compared to just 18 per cent that have not upgraded. 1 http://v1.aberdeen.com/launch/report/perspective/8801-ai-enterpriseresource-planning.asp?lan=us 4
People need to be aware of new best practices and the technologies that they could adopt to get a competitive advantage, Julie said. Some companies that have upgraded are seeing increased value from their customer base by using functionality made available in the new system to introduce improved processes in areas such as order entry. With the ability to receive orders through online web ordering or through integration with the customer s own EDI system, they are already seeing increased efficiency both in terms of customer service and internal cost. Furthermore, the ability to aggregate supplier orders (by grouping several customer orders into one order) provides a tool to improve purchasing negotiation power, the benefits of which could be passed onto the customer. Is this enough to convince a reluctant wholesale distributor that a new ERP system could have benefits for the business? Perhaps, but functionality in itself isn t always sufficient. Getting the right provider is of equal importance to ensure the right system, and rollout is risk averse and on time. It also requires an understanding of the challenges that could lie ahead and what ERP solutions can offer to help address them. 5
iii. Improving inventory, stock and warehouse planning What volume of goods and materials do we have? How much do we need? Where is it located? Is this where demand is? How does this affect my bottom line? These are the big five questions all wholesale distributors will have asked themselves at some point in time. Viewed collectively, they relate to inventory optimisation, stock visibility and warehouse planning. These three inter-related ideas cause wholesale distributors no end of significant challenges, which become more complex as the business grows. After all, the greater the volume of goods a company has to deal with and the larger the geographical space it has to cover, the greater the challenge to effectively manage and optimise inventory becomes. The big relationship: Inventory, stock and warehouse planning Inventory Inventory is an all encompassing term that includes everything that goes into producing items sold by a business, such as raw materials, machinery and the finished product. Stock This is a part of inventory and is the finished product. However, this can be a raw material if a business then sells this on to customers. Warehouse Planning This is about ensuring your products are in the right warehouse (i.e where they can be shipped to customers quickly at the least cost) and are laid out in the optimum way. 6
Inventory Inventory is the lifeblood of wholesale distributors. It is their greatest asset but also their biggest risk. Materials, goods, machinery, warehouses - all these things are incredibly vulnerable to damage, becoming obsolete, expiring and being in surplus. What s more, inventory needs to be purchased, stored and maintained, all of which costs the business and ties up valuable cash. To reduce risk, wholesale distributors need to create a balance between inventory cost, service levels and sales. This means getting the lowest possible inventory cost at the highest possible fulfilment of sales. Of course, inventory optimisation is easier said than done. There are two main barriers to optimisation: reconciling the different objectives across each segment of a company and managing the tentative nature of supply and demand. It is common for executives to be faced with multiple departments all wanting different things. For example, the sales department will often demand high stock levels and the delivery of products in the best time frame, versus the product developers and finance departments that want to keep inventory low to advance the roll-out of new products. Businesses also have to deal with unpredictable supply and demand dynamics. Problems in the supply chain can cause disparities between projections and reality, while a sudden economic downturn or uplift can also have an impact upon demand. Finding a balance between all of these factors can seem impossible but distributors need to remember that optimisation is, in its most basic form, about having the right resources in the right place, in the right quantity, at the right time to maximise revenue. Aberdeen Group observed in its Improving service level and business performance through inventory optimisation report 2 that understanding trade-offs is the number one capability in terms of the largest differential between the Industry Average company and the Laggards - 86 per cent and 36 per cent respectively. To get to grips with this, a high level of visibility, information collation and accurate forecasting is needed - something that can only be addressed through the right ERP system that is capable of running across different sites, departments or even overseas territories. 2 http://v1.aberdeen.com/launch/report/perspective/8855-ai-inventoryoptimization-performance.asp?lan=us 7
Sage ERP makes it possible to reduce stock-outs and lower excess inventory by 10-15 percent. If we have an ERP that not only has the ability to set up multiple sites and locations but also the flexibility of handling local statutory reporting for overseas locations on one central platform, then you re saving yourself from the onerous time-consuming task of reporting from a number of disparate IT systems. I like to think of ERP as having GLOCAL capability - Global but Local, Julie comments. Sage ERP X3 is a single database ERP with the capability of handling multi-site and multi-territory business requirements. Effectively the benefit to the business - whether local or global - is the ability to take a snapshot view of various subsidiaries in the different locations plus have an aggregated view of how the whole group is operating. This can all be handled through one single system thus decision making on how to best optimise its inventory becomes much more powerful. ERP certainly makes things easier and gives business control at every stage in the chain; this will boost profitability, lower costs, improve quality, allow a company to focus on continuous performance improvement and offer competitive guarantees through inventory optimisation. Research has also shown the right ERP system is capable of lowering the risk levels inherent in inventory. With Sage ERP it is possible to reduce stockouts and lower excess inventory by 10-15 per cent. Working capital will also be improved, while 15-20 per cent of cash tied into inventory can be freed up. Fill rates increase by between 2 and 10 per cent with Sage too and the time spent forecasting can be decreased by as much as 50 per cent, improving efficiency. 8
Stock 27 per cent of wholesale distributors have suffered interoperability issues between customers and suppliers when using old software. Aberdeen group Stock is a crucial part of inventory and it is arguably where the most value is stored. If there isn t enough, businesses could lose money. If it s not in the right place, delivery times increase, transport costs mount and customer experiences are harmed. If there is too much stock could become obsolete and businesses haemorrhage cash. To ensure stock levels are healthy, visibility is important. Being able to know what is in stock, what is available to promise or in quality control or even predicting stock outs is pretty crucial for buyer confidence as they are reliant on timely delivery with the right amount of stock, Julie explained. It can reduce time in the warehouse looking for unavailable items that they don t have - there s definitely a time-saving aspect. When stock is spread across multiple sites, companies with old IT systems struggle to get the level of visibility and accuracy they require. Stock visibility is a challenge for a business without integrated systems and so often they refer to off-system spreadsheets to gather key information, which is not in real-time at the front end. Often this causes time delay between pulling the data out into one single source to give a clearer view on the stock levels they ve actually got, on promise, on order, etc. across all sites. Aberdeen Group found that 27 per cent of wholesale distributors have suffered interoperability issues between customers and suppliers when using old software, making visibility challenging 3. With a new ERP system it is possible to track and trace stock levels across all sites ensuring there are early warning signs of stock-outs, potential stock-outs and surplus orders whilst creating bespoke reports to help with inventory forecasting. Anytime, anywhere access is also possible, reducing decision times. 3 http://v1.aberdeen.com/launch/report/sector_insights/8632-si-wholesaledistribution-logistics.asp?lan=us 9
Warehouse planning Wholesale distributors will struggle to optimise stock without proper warehouse planning and the risk of having goods in the wrong place, at inadequate volume is heightened. For example, there may be inventory in a warehouse with no demand over a six month period and a low forecast for the coming six months. This harms working capital, increases the risk of obsolescence and augments inventory carry costs. Warehouse planning becomes even more important when handling a large product mix and high volume goods. You may need to anticipate the demand of critical seasonal and non-durable items or frequent purchase items whilst understanding current stock levels, Julie said. It is about balancing; minimising the inventory levels to reduce cost whilst also maintaining a high level of customer service and customer satisfaction. This is especially important in verticals such the food industry or pharmaceuticals where there are expiry dates to track as well. By using the right ERP software, it is possible to drive workflow through optimum warehouse layouts. The systems also give the flexibility to change if necessary, while cutting out manual steps with things such as automated distribution of orders, invoicing, picking lists and delivery details. A modern ERP system helps drive the warehouse to more efficiently pick items, Julie summarised. It also helps keep shipping errors to the absolute minimum, saving companies money and protecting credibility. 10
vi. Supply chain and electronic data interchange 35 per cent of wholesale distributors suffer delays in decisionmaking because of a lack of timely information. As businesses grow so their supply chains are likely to increase in size. Wholesale distributors will be interacting with a larger amount of data and shipments, covering a greater geographic network. Consequently, companies are likely to incur additional costs and need to keep a cap on expenditure. Businesses need to have end-to-end visibility. Aberdeen group How can ERP combat supply chain challenges? By optimising inventory planning By providing reliable information on stock visibility By looking at individual product performance By improving product margins By providing more information on best performing suppliers By improving warehouse workflow By delivering better customer intelligence By supporting EDI Through this it is possible to identify areas where efficiency can be improved by automation or process changes, while ensuring all suppliers are tracked for compliance. It is also important to turn the spotlight on one s own processes. Julie explained that looking at the efficiencies of internal practices is a key challenge for supply chains. Internally, if your costs are kept to a minimum, more profits can be had from elsewhere. So that really comes down to the efficiency of warehouse processes, she said. It is also looking at the efficiencies of the business and getting some sort of common processes that are end-to-end. It is important to encourage collaboration across supply chains to help plan for disruption and effectively manage inventory. This often comes back to vendor relationships, which can be a challenge for wholesale distributors. 11
The distributor also needs to ensure that they have the correct mix of vendors in terms of quality, Julie elaborated. Through information around the vendor activity and the risk they are providing to them, the business can be confident which vendors perform best in particular product groups and know they are making the right purchase decisions. This is key to driving profits. With more supply chain partners comes greater amounts of potential data, which needs to be transmitted, collated and analysed swiftly. According to Aberdeen Group 4, 35 per cent of wholesale distributors suffer delays in decision-making because of a lack of timely information. Interoperability of old systems is often the cause of this. By using ERP driven data to their advantage through efficient reporting, the business can gain insight into vendor and customer behaviour and operational trends, helping improve relationships with consumers. This is beyond price and discounting, Julie said. By using ERP, a business also has the ability to profile its customers so it is able to get some sort of value strategy. 4 http://v1.aberdeen.com/launch/report/perspective/8801-ai-enterpriseresource-planning.asp?lan=us 12
v. Managing customer demands The demands of the modern customer are sophisticated, Julie said. They expect their requirements to be met with the right goods at the right price, at the right time, in the right place. Indeed, customer practices are changing, thanks to the rise of ecommerce and mobile devices. People now expect to make and manage their purchases anytime, anywhere, while receiving their services swiftly, with quick lead times. Although customers don t actually see what s happening in the supply chain, they still value product availability, Julie said. In fact they ve become so dependent on it that they would complain if the process of distribution suddenly broke down. Speed can t come at the price of service levels. Luckily, the right ERP system can help businesses adapt to the customer s need for speed while ensuring quality of products and services. ERP can help wholesale distributors attract and retain customers because they can rely on real time customer information, more accurate order entry, better pricing, cross-company product availability and shipping optimisation - whilst optimising demand driven supply chain through predictive planning and procure to pay processes. Businesses are also able to align their inventory planning and locations to actual customer needs, Julie explained. Up-to-date IT infrastructure can also help ensure shorter lead times. The inventory management function, which allows companies to track materials through the procurement and/or production process, supports companies in ordering and understanding how long it takes suppliers to process requests. This means they are more likely to improve the efficiency of lead times. Furthermore, the supplier performance function of ERP can be displayed through graphical dashboard reporting, providing key performance indicators around the high performers who have demonstrated lower lead times or those who are a non-performers. Consequently, wholesale distributors are better able to plan their purchases. There are other more obvious customer-facing benefits to ERP too. Aberdeen Group found that with new solutions, 30 per cent of businesses are able to have users access ERP from mobile devices, compared to just 18 per cent on old systems 5. 47 per cent can integrate analytics and intelligence into ERP, while 35 per cent integrate ecommerce into IT applications and order management. 5 http://v1.aberdeen.com/launch/report/perspective/8801-ai-enterpriseresource-planning.asp?lan=us 13
vi. Ensuring compliance 97 per cent of best in class companies are more likely to have real time visibility from quote to cash. Aberdeen group Compliance is a major challenge for businesses in the current regulatory environment. Growth makes this burden larger for wholesale distributors, especially when organisational structures span borders and different jurisdictions. Pressure is mounting to ensure business operations are traceable and visible, to ensure firms are following the letter of the law when it comes to quality and trade. Indeed, best in class companies are 97 per cent more likely to have real time visibility from quote to cash, according to Aberdeen Group 6. The Federation of Wholesale Distributors has recently introduced a new code of conduct to give assurance to customers and supplier partners that member companies are following these high standards in the fields of tax, environment, health, employee safety, product safety and competition law 7. When it comes to specific legislation, among the greatest compliance challenges facing the industry at the moment is the European Article Number and the Serial Shipping Container Code standards. Each requires implementation of new recording and verification processes to ensure complete traceability. Businesses are also being urged to lower their carbon footprints. The Waste Electrical and Electronic Equipment (WEEE) Directive for electronics manufacturers, which governs how they manage and pay for electronics waste recycling, is currently affecting many distributors. Businesses need to adhere to the compliance requirements, Julie said. ERP can help the process by providing the flexibility of reporting on non-financial information, which is useful when reporting for compliance. 6 http://v1.aberdeen.com/launch/report/sector_insights/8632-si-wholesaledistribution-logistics.asp?lan=us 7 http://www.fwd.co.uk/fwd-resource-file.asp?id=124 14
vii. Moving into the future with ERP Pressure to grow can be overwhelming for businesses but with the UK poised for expansion, wholesale distributors need to align their companies with the ambitions of the wider economy. This undoubtedly becomes harder when using a system that no longer supports modern business processes or the scale-up of a company. To succeed, organisations need a solution that can grow with them and act as the glue that holds together the ever-expanding business structure. The right ERP system can take on this role, helping companies get done what needs to be done, while reaching out to customers and ensuring collaboration and visibility across departments. With this level of insight, it becomes easier for executives to move their entire operation towards key goals, rather than being faced with several disparate entities in friction with one another. Despite negative press reports about ERP rollout, best practices have shown that when done right, the implementation of new IT infrastructure is the lynchpin of growth. Indeed, Aberdeen Group 8 observed that among those companies operating on new systems, 52 per cent have improved inventory turns and 22 per cent have improved the cycle time of key business processes. ERP does your plate spinning for you, Julie concluded. It provides all parts of the business the tools needed to spin those plates - whilst also providing the key decision makers with the tools they need to take a real time aggregated snapshot of the whole business. With precious time saved waiting for information and having key performance indicators readily available, a decision maker has the resource to create informed strategies to drive the business forward. 8 http://v1.aberdeen.com/launch/report/perspective/8801-ai-enterpriseresource-planning.asp?lan=us 15
Sage ERP X 3: How technology can help Industry Solution Sage ERP X3 for Distribution Industry Industries Retail Wholesale Transport & Logistics Business Processes Supply chain planning Procurement Order management Supply chain execution Business Challenges Match demand and level of stock Improve operating margins Improve Customer service Visibility andinteroperability facilities About CPiO Based in the West Midlands, CPiO is a privately owned company that provides integrated business solutions covering all aspects of the enterprise - such as finance, manufacturing, distribution, CRM, business intelligence and ecommerce. Founded in 1990, CPiO has over 24 years experience working in ERP and CRM. A Sage Strategic Partner, CPiO is one of the top resellers of Sage s Mid Range software in the UK. Solutions include Sage ERP X3,Sage 200 and Sage CRM. CPiO has strategic alliances with many third party providers including Sage, Microsoft, Oracle and IBM enabling it to deliver total business solutions to its customers. Sage ERP X3 Sage is a leading supplier of business management software and services to more than 6 million customers worldwide. From small start-ups to medium sized companies, we focus on giving our customers the freedom, confidence and control they need to achieve their business ambitions.. Sage ERP X3 is Sage Group s global ERP solution for medium sized companies and subsidiaries of large groups with international demands. For over 10 years Sage ERP X3 has been a proven and comprehensive ERP solution addressing mid-market companies specific requirements and challenges in industries from manufacturing and services, to distribution and many more. 16