An ERP solution equipped with supply chain management functions gives businesses all the logistics tools they need.
Enterprise resource planning (ERP) systems were developed to run entire businesses. So it's no surprise that ERP solutions have always addressed supply chain functions. In fact, the first ERP systems, which emerged in the late 1980s, often included distribution, inventory management, and transportation modules.
For rich, robust supply chain management (SCM) functions, however, many large companies have turned to vendors that specialize in supply chain planning, execution, or both. Often, users have built interfaces to move data between these "point solutions" and the ERP packages that manage functions such as manufacturing, sales, finance, and human resources.
In their desire to serve up suites that meet more needs, ERP vendors have begun adding full SCM systems to their portfolios. They intend these solutions to provide everything a company might find in a best-of-breed SCM package.
One reason ERP vendors are expanding their product lines to include more SCM tools is that the North American ERP market has matured. "There are not many areas left for vendors to penetrate, especially in the big companies," says Eric Kimberling, president and chairman of Panorama Consulting, a Centennial, Colo., firm specializing in ERP software selection.
Many ERP vendors are looking overseas for more customers, and marketing to smaller companies at home. They're also offering their current customers new products, including more advanced supply chain packages.
Another reason ERP offerings are evolving is that many technology and finance executives prefer all-in-one systems. They don't want to deal with the integration and training issues that arise when tying best-of-breed applications—each with its own user interface—to an ERP suite.
"A lot of companies implementing ERP already have a hodgepodge of systems, and they want to consolidate," Kimberling says. "The last thing they want to hear from a software vendor is, 'We can do it if we bolt on one of these other systems.'"
One Storehouse, One Truth
A big advantage of the all-in-one approach is that it allows companies to keep important business data in a single repository. "This provides real-time visibility across the entire organization," says Mike Tatara, product marketing manager at Livermore, Calif.-based Epicor Software.
Front-office employees, for example, can get current data on inventory movement, helping them provide accurate information on product availability and customer orders.
"An all-in-one package's business intelligence offers a single version of the truth," Tatara says. "Companies don't have to compare data from disparate systems to figure out which is most correct."
If a business integrates one vendor's warehouse management system (WMS) with another solution provider's ERP system, for example, the WMS will track inventory, then periodically transmit that data to the enterprise system.
"Depending on how often the data exchange occurs, it's up to individuals to constantly make comparisons," Tatara says. If the two systems aren't in synch, a buyer or sales rep might end up making decisions based on obsolete data.
Also, when a company maintains separate ERP and SCM systems, employees who need to access both must learn to use separate user interfaces. "It increases the cost of training," Tatara says. If the ERP includes an SCM module, employees can be trained only once.
Epicor's Supply Chain Management module offers most of the same functions a user would find in a best-of-breed package, tied to the other capabilities necessary to run a business. It allows sales representatives in the field to check inventory, for example, from a smartphone or other mobile device.
In the newest version of Epicor's software, due to hit the market in May 2012, the SCM module will include some new logic for replenishment. This is designed to make the product more useful to a broader customer base.
"Historically, Epicor has relied on the kanban methodology that manufacturers use," Tatara says.
The kanban process delivers parts to a manufacturing line exactly when they're needed for production. Epicor's new product adds logic suited to distributors and their need to replenish warehouse inventory.
Understanding the Dynamics
When selecting an ERP, business size matters. Microsoft offers two tiers of ERP solutions: Dynamics GP for small and mid-sized businesses, and Dynamics AX for larger enterprises. Not only do these products allow data to flow seamlessly among their various modules, but they integrate closely with other Microsoft tools such as the Office suite and SharePoint.
Companies that use either Dynamics product may also take advantage of Microsoft's roster of independent software vendors (ISVs), which can augment the ERP with processes specific to that customer's needs, says Rakesh Kumar, global industries product director, manufacturing, at Microsoft.
For example, a company that makes perfume might find that 90 percent of its requirements for an ERP system are the same as the requirements of other process manufacturers. But 10 percent of its needs might be unique.
"ISVs can extend our solutions easily to meet their last-mile requirements," Kumar says.
Supply chain solutions within Dynamics AX extend across the spectrum from forecasting, planning, and procurement to manufacturing and distribution management, including many warehouse functions.
For transportation management, however, Microsoft recommends customers work with a third party.
Microsoft recently introduced a new version of its ERP system for large enterprises, Dynamics AX 2012. From a supply chain perspective, one key improvement in the new release involves the way companies can manage global manufacturing operations.
For example, rather than defining each manufactured item as the product of a particular plant, the new solution recognizes that a company might make the same product in multiple locations. "When demand peaks in a particular region, Dynamics AX sends product from the local plant," Kumar says. "Then it augments resources by filling the overflow demand from another plant."
Integrated and Standalone
Another player in the ERP market, New York-based Infor Global Solutions, has relied heavily on acquisitions to create its current ERP offerings, which include products whose roots go back to early ERP vendors MAPICS and Baan.
Acquisitions have also made Infor an SCM player. In 2003, ERP vendor SSA Global Systems purchased EXE Technologies, a leading vendor of software for warehouse management and other supply chain functions. Infor then bought SSA in 2006.
Infor started to focus on SCM because, in today's complex environment, companies need more than traditional ERP suite functions, says Alejandro Nieto, Infor's global director of industry and product marketing for supply chain. An old-school ERP system might, for example, have provided basic inventory management functions, but it couldn't help manage value-added activities such as packaging or kitting.
Since it took over the EXE solutions, Infor has continued to develop its SCM product line to improve functionality and ease of use. And Infor has taken a different approach than many of its competitors in the ERP marketplace: it offers its SCM solutions both as fully integrated modules within a larger ERP suite and as standalone, best-of-breed software packages.
"Many of our customers use other vendors' ERP solutions," Nieto says.
But customers that use Infor's ERP and SCM products together gain particular benefits, he notes. "The overall solution's total cost of ownership is lower than using another provider's SCM or ERP solution, because integrating the systems could add issues and costs."
Infor's SCM solutions include separate sets for sales and operations planning, supply chain planning, supply chain execution, and third-party logistics providers.
The Infor10 ERP solution pulls together data from those and other applications, and presents it in ways that provide value to individual users.
"That means having different types of alerts, event management, dashboards, and key performance indicators (KPIs) connected with the variables the solution is controlling," Nieto says.
Head-to-Head with Niche Vendors
Long-time ERP provider SAP's SCM offerings have evolved a good deal since the vendor's early days. "Years ago, SAP featured basic SCM functionality," says Andres Botero, senior director, solutions marketing for supply chain execution at SAP America in Newtown Square, Pa. When a customer needed complex SCM functionality, SAP turned to a third-party vendor to provide it.
"That is no longer the case," Botero says. "Now we offer solutions that match the niche vendors' functionality and compete head-to-head with them."
SAP has introduced several new products in the SCM arena in recent years. One is a transportation management system, released in 2011. "It can manage domestic and international scenarios," Botero says. "And it comes integrated with other areas of SAP—for example, environmental, health, and safety processes for handling hazardous goods."
Although SAP introduced the product in 2005, its newest WMS, Extended Warehouse Management (EWM), has grown considerably in the past few years.
Another recent addition is a solution that helps companies collaborate with vendors, customers, and, most recently, contract manufacturers. "Businesses need visibility into their outsourced manufacturers as if they were an extension of their organization," says Richard Howells, head of solutions marketing for supply chain management applications at SAP.
Because metrics are so crucial to an operation's success, over the past two years SAP has also added a solution that provides KPIs for supply chain operations. The tools are based on the Supply Chain Council's Supply Chain Operations Reference model.
Another recent innovation is a series of Rapid Deployment solutions. These versions of SAP solutions are pre-configured to meet most users' needs, making deployment less complex and therefore faster. For example, SAP can deploy EWM in about 11 weeks for many customers. The provider offers Rapid Deployment for many of its solutions, including about 10 SCM packages.
Whichever ERP vendor a large company chooses to provide its SCM solution, its leaders must keep in mind that the all-in-one approach offers possible drawbacks as well as advantages.
"One potential downside is that while ERP tries to be everything to everyone within an organization, a best-of-breed solution that focuses on one area, such as supply chain, will typically perform those functions better than all-in-one software packages," Kimberling says. Tension between the advantages of the ERP approach and the best-of-breed approach are only natural. "No matter what a company does, there are tradeoffs," he adds.
Briggs and Stratton: No Interface, No Delay
Milwaukee-based manufacturer Briggs and Stratton has been an SAP shop since 1998, using the provider's WMS as well as its ERP suite. Its Menomonee Falls, Wis., distribution center receives, stores, and ships service parts for Briggs and Stratton's outdoor power products such as lawn mowers, snow blowers, and power washers. As the WMS receives sales orders, it assigns each one to an employee in the DC. A handheld radio frequency terminal directs the worker to the bin where each item in the order is stored.
"The worker scans the bin and part, then picks and packs it," says William Harlow, plant manager at the Menomonee Falls DC. Harlow played a key role in the SAP implementation there, and helped get the software running at Briggs and Stratton facilities in Europe and Australia.
If the order is due to become part of a truckload or less-than-truckload shipment, the WMS directs the picked product to an automated sortation system, which routes it to the correct loading dock. If the order will become a parcel shipment to a Briggs and Stratton dealer or a consumer, the system directs it to a station where it is prepared for UPS pickup.
Because SAP provides both the ERP and WMS software, Briggs and Stratton never has to worry about interfaces between those solutions. Information flows easily to where it's needed.
"There's no delay when we report costs or inventory," Harlow says. "All the data is tied into one system."
And because Briggs and Stratton uses one instance of SAP for its worldwide operations, managers can easily track activity in other plants. "We can view different types of sales orders, then compare how products are being sold in other parts of the world with how they're being sold here," Harlow says.
The suite that Briggs and Stratton bought from SAP includes other supply chain modules, such as transportation and yard management systems. So far, though, the company hasn't used them.
Nor has it upgraded from its existing WMS to SAP's newer EWM system—although company officials would like to. "There is potential for us to install it in the future," Harlow says.
Recently, Briggs and Stratton worked with SAP to convert its DCs from traditional cycle counting to a dynamic process that counts at the bin level rather than the part level.
In early 2012, the company also completed a project to remove the middleware that connected the company's SAP solution with UPS's ConnectShip parcel shipping software. Direct integration has eliminated problems that occasionally used to shut down the shipping operation. "SAP and ConnectShip would be working, but we would have issues with the interface software," Harlow recalls.
Also early in 2012, Briggs and Stratton's IT team was working to reconfigure its SAP WMS to accommodate a strategy called "pick and path." The goal is to improve a process that used to force employees picking product for the same customer from different zones to pack those parts in separate boxes.
"In the future, we'll be able to leave in-progress cartons open," Harlow says. "The person in the next work zone will complete the pick, and pack it out."
Patagonia: Uniting the Channels
Outdoor recreation clothing and gear provider Patagonia began rolling out an ERP system in 2009. Replacing an assortment of legacy systems that dated back as far as 30 years, the new integrated suite gives Patagonia a better view of customer demand.
It also provides greater flexibility to assign inventory to different sales channels. Those improvements and others have helped Patagonia increase its inventory turns and fill rates.
Founded in 1972, Ventura, Calif.-based Patagonia started as both a wholesaler and a mail-order business. Today, its channels include wholesalers, international distributors, Patagonia retail stores, a mail-order catalog, and an e-commerce site.
Patagonia's old software posed one problem: it managed inventory separately for each channel, says Mary Looby, manager of technical innovation at Patagonia. If demand surged in one channel, the system couldn't automatically locate extra inventory elsewhere and move it to fill the need. Once planners agreed to reallocate the merchandise, someone had to re-key the relevant data to accomplish the move.
Forecasting demand in advance of the spring or fall selling season also posed a challenge. Based on spreadsheets, the process took six weeks to complete, so planners could run only three forecasts before a season started. Once the season started, planners lacked the tools to continue updating forecasts based on actual sales.
In 2009, Patagonia started to implement the Microsoft Dynamics AX ERP suite. The company worked with Sunrise Technologies, a Microsoft implementation partner based in Winston-Salem, N.C., that provided add-on solutions with special features designed for the apparel industry.
Patagonia rolled out the new software in phases, starting in August 2009 with Microsoft's Consumer Demand Planning forecasting tool. It then implemented two components of the Dynamics AX finance module. The rest of the ERP went live at Patagonia in May 2010.
While making the switch to the new technology, Patagonia did retain some legacy software. One key solution it decided to keep was its Manhattan Associates WMS. This software has served Patagonia's needs well for many years, and it integrates with some sophisticated materials handling systems in the company's warehouse.
Synching Around the Clock
Numerous interfaces keep Dynamics AX and the WMS in synch around the clock. The ERP sends purchase order data to the WMS once a night. In return, the WMS makes a batch data transfer to Dynamics AX, providing information about inventory shipped and received throughout the day. During a work shift, Dynamics AX sends fulfillment orders—also known as pick tickets—to the WMS every five minutes. One category of data moves between the two systems on demand, however. "Users can view fulfillment orders in Dynamics AX for real-time status updates from WMS data," Looby notes.
Since Patagonia implemented Dynamics AX, planners have been running pre-season forecasts monthly. The system allows them to do it weekly, but demand doesn't change fast enough to justify that. For the current season, however, planners adjust forecasts as often as sales warrant.
Also, planners can see demand across all sales channels and make adjustments whenever they need to. "We don't segregate the inventory now," Looby says. "We soft-allocate it nightly, using priority and timing rules to reshuffle the inventory."
Patagonia hasn't calculated the metrics for the current fiscal year, but in late 2010, it had improved inventory turns by up to 30 percent and fill rates by 10 percent thanks to the new ERP. The company is now looking ahead to expanding its use of Dynamics AX to its operations outside the United States. "We'll probably implement Japan next," Looby says.
For companies such as Patagonia, and Briggs and Stratton, an ERP solution with integrated SCM functions can be an all-in-one tool for improving supply chain operations.