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Uh-huh. You heard me correctly.<\/p>\nSCP solutions can handle all the intricacies that affect inventory management — materials planning, acquisition and overhead costs, safety stock, etc. in a way that ERP\/WMS never will.<\/p>\n
The Over-Simplification Trap<\/h3>\n
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We like to call it the ‘over-simplification trap’ and it usually happens like this\u2026<\/p>\n
There\u2019s a mandate from upper management that says, \u201cUmm, Yeah… I’m gonna need you to just go ahead and look for an ERP system. Oh, and if you could just use it for supply chain planning too, that would be GREEAAATTT.”<\/em><\/p>\n Uh, ok.<\/p>\n The company installs the system without properly vetting the solution to find out its true supply chain planning capabilities and limitations. Things don\u2019t always translate well in these big systems, so the demand planners fall into a trap \u2013 a very expensive system that does not actually fit their business.<\/p>\n ERP systems over-simplify supply chain planning. Their basic function is to roll up forecasts from a lower echelon and use that as the signal up to the supplier. Kind of like this: \u201cIf you sell 5, then order 5.\u201d Well, guess what? That doesn\u2019t work if the item comes in a box of 12!<\/p>\n Also, it doesn\u2019t tell you to order other complementary items to scale economic buying power. What you sold has almost nothing to do with what you\u2019re gonna order from your supplier.<\/p>\n The ERP\/WMS just does what it does best; big Financial and Manufacturing Planning Modules. It way over-simplifies what you do. You might as well take your red stapler and move to the basement.<\/p>\n The earlier you install SCP, the better position you\u2019ll be in to unravel demand volatility. The massive complexities which retailers and distributors are facing mean it\u2019s time to act on SCP right now.<\/p>\n An ERP system at its core cannot handle the complexities of today\u2019s demand planning teams, so there\u2019s no point in waiting. Companies that think otherwise will end up with high safety stock in order to get to the customer experience they need.<\/p>\n When executives do punt on SCP, it\u2019s usually because they want to install the latest<\/em> ERP. What they\u2019re really doing is investing in the easiest<\/em>. Sometimes it\u2019s a situation where demand planning is forced into a cobbled-together system that’s a leftover resulting from a merger or acquisition.<\/p>\n In any case, we usually find that in the long run, these companies are no better off than they were before. That magical pie in the sky rarely actually happens because the system never really fit with supply chain planning processes to begin with.<\/p>\n Supply Chain Now<\/em> was joking in a recent podcast<\/a> with Mike Mills about his perspective on this:<\/p>\n The big problem here is that ERP systems are a mile wide and an inch deep. These systems are great for Finance and Manufacturing Planning, but ERP\/WMS tools have no concept of basics like supplier constraints, building orders to fill a truck, order cycle optimization, joined ordering, etc. You\u2019re basically buying to meet a manufacturer requirement, not actual demand sensing<\/em> to meet your strategic goals.<\/p>\n On the flip-side, functional SCP solutions miles deep and an inch wide. They are purpose-built and highly focused on delivering results directly attached to your team’s goals. The two approaches have very different processes and problems. Hence, they require very different technologies to solve them.<\/p>\n Going deep allows you to segment real demand<\/em> from the stochastic (or random) forecast \u2013 what\u2019s real, what\u2019s not? You can analyze each customer transaction down to not only how much <\/em>to buy, but why, when, how… analyzing items that are bought with other items, and the various influences on purchases, such as price\/willingness to pay, etc.<\/p>\n Most importantly, getting SCP in place early will help you easily understand \u2018What would you have sold if you\u2019d had the product in stock?\u2019<\/strong> This level of knowledge allows you to drive savings in all areas of the business which, in a lot of cases, can be used to fund the very upgrade projects that originally distracted you from the real, immediate value!<\/p>\n In addition to economically optimizing things, implementing SCP right now is low-hanging fruit for achieving your customer experience (CX) goals.<\/p>\n SCP tools have the ability to weigh the inventory management strategy against desired goals for CX \u2013 what is it gonna cost you? And if you have the inventory available to meet those service goals, what additional sales will it bring your business (and is it worth it)?<\/p>\n Different companies will get different results from their SCP implementation. It really depends on your financial goals and what you want to get out of it.<\/p>\n For some of our customers, the goal is a Reduction in Force (RIF) \u2013 something that\u2019s perched high on the priority list for companies desperately seeking pandemic survival tactics. For other customers, it\u2019s a desire to scale their current team, free up cash for new acquisitions, or any combination of these.<\/p>\n How much is possible?<\/p>\nThe Earlier, the Better<\/h3>\n
The Latest, or the Easiest?<\/h3>\n
\u201cWhy would you want to move the wrong amount<\/em> of inventory around more efficiently? Almost always, you have the wrong inventory levels; then you physically engineer additional warehouse space based on the presumptions of that inventory. You go right-size the warehouse space, but service levels are still in the tank, and you don\u2019t know why.\u201d<\/h4>\n
It\u2019s All About Depth<\/h3>\n
\u201cIt\u2019s a great feeling to be able to walk into your CFO\u2019s office with a hard-and-fast figure of cash savings from SCP.\u201d<\/h4>\n
Eye on CX<\/h3>\n
What to Do With All that Cash?<\/h3>\n
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