Fickle consumer spending in today’s unpredictable economy is forcing retailers and their suppliers into a game of inventory blackjack. And as accurate forecasting becomes more difficult to achieve, the burden falls to operations to become ever more flexible.
Many companies look to enterprise resource planning (ERP) systems to manage complex yet disparate business processes, in hopes of gaining the operational visibility that’s so critical for distribution flexibility. But some processes are just too difficult for an ERP system to manage, and companies often end up wasting valuable resources bringing ERP implementations to completion.
Before investing in an ERP suite to manage shipping, logistics and warehousing operations, you should consider whether these functions might be better suited for outsourcing.
ERP shortcomings
The complexity of bringing products from the warehouse to the shelves is increasing, especially as retailers look to tighten the timeline between delivery and sale, reducing the costs of carrying inventory as much as possible. In the past few years, the headlines and financial filings have been littered with evidence of just how challenging this can be.
For example, retailers who carried a certain appliance maker’s products felt the pain when the manufacturer experienced shipping delays due in large part to its ERP system’s inability to process, track, and invoice less-than-truckload deliveries.
And another retailer’s bankruptcy filing named its enterprise supply chain platform vendor as a major contributor to the company’s financial woe. Later lawsuits identified the system’s logistics and warehousing component as falling well short of expectations – and promises.
While the somewhat unconventional shipping and warehousing methodologies required for today’s demand-driven retail supply chains can work in a more manual system, quite often these approaches don’t meet the discipline required when using an ERP system.
Still, the concept of using an ERP system to manage business processes can certainly be appealing. After all, the promise of total data integration to achieve global visibility into all operations is the holy grail of IT and executive management.
The very nature of these systems requires a rigidity and standardization that is counter to the realities in which today’s distribution networks operate however. Many are discovering that supply chain flexibility can be constrained by the implementation of a mainstream ERP warehouse management or transportation management system.
To avoid the time, resource and capital investments required to deploy these noncore ERP software modules, some retailers and their suppliers are respectively outsourcing warehouse, distribution and transportation functions. By turning to third-party logistics providers (3PLs), companies on both sides of the retail supply chain benefit from best-in-class capabilities that fully integrate with core ERP systems at a fraction of the investment.
When evaluating the possibility of outsourcing supply chain functions in lieu of a complex ERP implementation, you need to consider these questions:
–What are your core competencies?
–How complex are your warehousing and distribution needs?
–How will your business change or evolve in the next 6-12 months?
You should first consider whether activities such as transportation and warehouse management are, or should be, a core competency of your business. If not, they might be candidates for outsourcing.
You should also consider logistical and business needs as you evaluate potential partners. If you have high transaction volumes, complex cartonization and complex load configuration due to variant box sizes and weights, demonstrated ability to scale is critical.
If you’re expecting organic expansion and or growth through acquisition, you’ll also require high levels of flexibility to manage changes and advanced information systems to track seamlessly with ERP systems.
Of course, there’s nothing that says you can’t have an ERP system in place AND use a 3PL – in fact, this can give you a distinct advantage. By outsourcing those functions that are too complex for the ERP system to handle, you can gain the flexibility you need, while still having the ability to integrate critical data into the ERP system. If you’re willing to make the investment, you can have the best of both worlds.
Hernan Vera is group director of marketing supply chain solutions at transportation, logistics and supply chain management solutions provider Ryder.