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Befriending Your ERP System

Nov. 1, 2006
As businesses look to grow margins through expansion, everyone along the supply chain looks to decrease costs, increase operational efficiency and bolster

As businesses look to grow margins through expansion, everyone along the supply chain looks to decrease costs, increase operational efficiency and bolster bottom lines. In today's ever-changing market, smart companies leverage available technology to set themselves apart from the competition. Enterprise resource planning (ERP) software can assist an organization with its business-critical functions such as inventory and order management, forecasting and planning. Although these are the core functions of an ERP system, enterprise software providers also offer a host of applications designed to increase profitability, improve productivity and effectively manage the distribution channel, such as customer relationship management, business intelligence, supply chain management, logistics and warehouse management.

Whether you want to upgrade an existing ERP system or are in the market for your first ERP system, there are a number of factors to consider when selecting an ERP provider. In today's consolidating ERP market, the uninitiated can find it to be a daunting proposition.

The first step is to do your homework before making a major capital investment. The platforms for ERP software are as varied as the operating systems of computers, so it's important to identify in the early stages of your research whether a provider's software will run on your existing operating system. In addition, a provider should be able to offer a path to emerging technologies, including the flexible delivery of applications such as Web-based services. Look for a technology partner that's forward thinking, innovative and will provide a migration path for your business as it grows.

Have a good cross-section of senior management at your company help evaluate the system and determine needed resources, integration time frame, contingency plans and training requirements. Knowing where to start can be overwhelming. This is why you should always start with what you know.

What you need to know to get started. You may not know the functions and services an ERP provider can offer, but you do know your own business practices. That's just as important — maybe even more so. Every company should first evaluate its business processes to look for natural efficiencies. Don't assume an ERP system alone can make your company more profitable without first looking for existing internal efficiencies. This analysis will reveal which of your company's operating procedures your ERP provider must support. It can save you from purchasing costly modules you don't need and will never use.

Automating manual processes doesn't always lead to increased efficiency. No “out-of-the-box” ERP system will instantly automate your unique manual processes. With this in mind, it's in your best interest to select a provider that offers an ERP system with significant off-the-shelf functionality unique to your industry that will need minimal customization to meet your needs.

Questions you should ask. Although industry counterparts may have regaled you with horror stories, selecting an ERP provider can be relatively pain-free if you have done your homework and ask the right questions. Perhaps the most important question you need to ask is, “Does this provider have the functionality to meet my business needs?” An ERP system should not only address the needs you have today but also have the ability to accommodate anticipated needs in the future. Because you are selecting a provider to be your technology partner, you should feel confident the provider is growing and will be around for many years to come. Look for an ERP provider with financial stability, aggressive research and development practices and comprehensive service and support to help ensure your technology investment will be protected.

The question of cost always plays a crucial role in any capital expenditure, but savvy chief intelligence officers realize the determining factor in the price tag of any ERP system is total cost of ownership. To get an accurate perspective of the total cost of ownership, look at how the cost combination of software, implementation, services and maintenance will affect the business over the next five to 10 years.

When beginning the selection process, word of mouth plays a big part in selecting an ERP provider. Even if you or another electrical distributor is using an ERP system with great results, always do your due diligence. Ask the prospective ERP vendor to provide several additional references utilizing the software you're looking to implement. Call or visit them, and don't be afraid to inquire about implementation time, service/support after the sale and employee training services. Most importantly, the customer should be a peer company you recognize of equal size.

Electrical wholesalers face unique challenges. Electrical distributors face more rigorous industry challenges than in other channels. Most are centered around interaction with their manufacturers. Electrical manufacturers are a demanding group, especially regarding how their distributors communicate and do business with them.

They want their distributors to handle business transactions electronically with electronic data interchange (EDI). Although this may not appear to be a unique challenge, these business activities go far beyond the traditional “place the order and get the acknowledgement invoice electronically.”

In an effort to dramatically decrease costs, electrical manufacturers are also pushing their distributors to facilitate price changes and authorizations, collect data on who they're selling to, provide forecast information and vendor-managed inventory (VMI) — all through EDI. Other channels are beginning to investigate these applications, but no other channel is doing it to the extent of the electrical industry.

Electrical distributors' ERP suppliers must be able to support EDI activities. If they don't, then the distributor will have to pay extra to find stand-alone solutions that can support these activities and that can be integrated into the ERP system they purchased.

Electrical distribution differs from other industries in a number of ways, including product variety and pricing structures. Electrical suppliers' and manufacturers' catalogs contain hundreds of thousands of items, which is why inventory management and planning is critical for these distributors to remain competitive.

The days of planning an inventory efficiently using Excel or notepaper on a clipboard are gone. In today's marketplace you need an information system that facilitates inventory planning and management. Competition is too steep to give your customers any reason to go to your competitors for anything. If your business is going to survive, you need to have the right inventory, in the right place, at the right time and at the right price.

The margins of today's electrical distributors are being squeezed. Suppliers are desperately trying to reduce costs, and customers are trying to pay as little as possible. How can a distributor overcome these challenges and remain competitive?

Electrical wholesalers need an effective inventory planning and management system so they can analyze their profitability and pricing structure. An ERP system is a critical part of the pricing and inventory equation. Price volatility, whether due to cost fluctuations in raw materials, commodities or fuel, can be easily managed with an ERP system, resulting in a stronger bottom line for distributors, suppliers and customers.

Critical components for a global economy. When selecting an ERP provider, it's important that a company realize globalization is a reality. Whether you do business around the country or around the world, supply chains are growing more complex as companies outsource their production facilities, making logistics, supply-chain management and integration critical functions.

As electrical distributors strive to increase business efficiencies while reducing delivery and freight costs, they can turn to ERP providers for help. Logistics and route planning are increasingly becoming more important due to rising fuel and insurance costs. An ERP system that allows you to effectively plan a truck route to make 20 stops a day without ever having to backtrack will result in a significant decrease in transportation and overhead costs.

Additionally, supply-chain planning, supply-chain integration and demand planning are functions that distributors need to investigate as a means of distinguishing themselves from the competition. An electrical distributor can dramatically increase product movement through the supply chain by integrating information with suppliers and customers so they share forecasting and demand data.

This is essential because certain electrical components are manufactured in overseas facilities with very tight production schedules. These long lead times make it imperative that the distributor effectively communicate to the supplier to avoid having excess inventory. The more effective the distributor can be in communicating the supplier requirements based on customers' needs to the supplier, the more efficient the entire supply chain becomes.

Through careful research and planning, electrical distributors can avoid common pitfalls in the selection process. By aligning internal efficiencies with the capabilities of an ERP provider, a distributor can be well equipped to choose the best technology partner for the business.

With more than 30 years of professional experience, Peter Lotto has deep knowledge in supply-chain planning and integration, materials management, customer service and information technology. He is senior product manager for Infor Distribution Group, Atlanta. Contact the author via e-mail at [email protected].

Dos and Don'ts in the ERP-Selection Process

  • Do your homework. Analyze your business processes for natural efficiencies.
  • Don't assume an “out-of-the-box” ERP solution will automate all of your manual processes.
  • Do your due diligence. Ask for a list of peer references.
  • Don't skimp on training. Take advantage of vendor training programs.
  • Do build a realistic implementation time line. Have a contingency plan to safeguard your data.
  • Don't assume every ERP system is equal. Look for a solution designed to meet your business needs.

Top 5 Questions to Ask an ERP Vendor

  1. Will this ERP system meet my business requirements?
  2. Will the software company meet our needs in the future?
  3. What's the total cost of ownership over the next five years?
  4. Does the ERP provider have relevant customer references?
  5. What kind of technology does the software run on?

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