The worldwide market for Distribution Enterprise Resource Planning (ERP) software is valued at $2.&B in 2016, growing to $3.4B in 2018, attaining a compound annual growth rate of 4.55% according to International Data Corporation (source).
Why do organizations need and use Distribution ERP software?
- Manage all distribution channels as a single, unified system with visibility across each distributor network
- Increase the level of inventory turns and inventory management efficiency
- Improve inventory management and costs
- Increase upsells and cross-sells by having all available products on hand through distribution
- Increase the level of compliance completed for distribution centers through automated reporting
- Increase customer satisfaction by meeting delivery dates
- Greater financial control over each distribution point or center
- More automated approaches to warehouse and distribution management
- A single system of record for all distribution activity over time
Distribution ERP Vendors
Start with your company’s goals and objectives, and take into account any future businesses your company plans on launching in the next five years when starting your search for a Distribution ERP system. It’s important to choose one that can scale with your business needs as you grow. Many companies are moving into early new businesses today and are looking for a Distribution ERP system that can keep pace and scale with their expansion goals.
Bottom line: When you are selecting a Distribution ERP provider, think of them more as a partner in building your business first and a software vendor second. Evaluating each with this mindset will lead to a good fit with your current and future needs.
Key Features Of Consider When Evaluating Distribution ERP Software Options
Distributed Order Management
Orchestrating inbound orders across all sales channels and prioritizing which production centers can fulfill each one is a must-have in any Distribution ERP system. The ability to create a unified list of orders and prioritize them for fulfillment through advanced analytics is state-of-the-art in this feature area today. For small and mid-sized companies, distribution ERP systems need to provide order level detail, order status, quote-to-cash (QTC) workflows, and analytics for tracking overall system performance. Distributed order management systems also need to have the ability to track order status and order history to make each transaction with every customer auditable over time.
Inventory Control And Management
Managing inventory levels across a warehouse or entire distribution network is an essential part of any Distribution ERP system. Inventory Control and Management modules in Distribution ERP systems at a minimum have reorder point calculations and alerts configurable based on replenishment points based on product order levels. Minimum features also include reordering points, order quantity, lead demand, stock cover and order accuracy analytics. All of these features are configurable for the specific needs of a given distribution operation. Distribution ERP vendors are investing heavily in making their user interfaces and software packages more configurable as a result of the increased complexity of the features they are offering.
Inventory And Order-Level Financial Reporting
Tracking procurement, purchasing, supplier delivery performance, customer demand and pricing strategies impact how inventory is valued over time. At a minimum, Distribution ERP systems need to support inventory and order-level financial reporting to track how these factors and more determine how much inventory is on hand at any given point in time, and how much it is worth. Inventory and order level financial reporting is often designed to be multisite in scope, capable of scaling across multiple warehouses and providing a single statement of all inventory levels and their financial value. Distribution ERP vendors are also integrating inventory and order-level financial reporting with General Ledger (GL), fixed assets, cost- and accrual accounting-based workflows, budgeting and project accounting to create a single, unified financial system for managing distribution operations.
Warehouse And Distribution Reporting & Analytics
Warehouse and distribution reporting and analytics provide insights into the velocity of the most and least popular selling items through warehouses and distribution centers, in addition to providing predictive insights into which products will most likely sell out. The latest generation of warehouse and distribution reporting & analytics apps can predict out-of-stock conditions and also track potential supplier shortfalls based on previous shipment history. Predictive analytics based on previous warehouse, distribution and supplier performance is making this an area of rapid innovation in Distribution ERP systems.
Integrated Asset Tracking Systems
At a minimum Distribution ERP systems need to support barcoding management workflows as part of their integrated asset tracking systems. Like distributed order management, this is a critically important feature in any Distribution ERP system as it provides a means to tag each inbound set into a warehouse or distribution center. Barcode readers, printers and entire distribution management workflows are supported in nearly all Distribution ERP systems. This is also an area where Distribution ERP providers are investing heavily in new product development. As a result, it’s common to see Radio Frequency Identification (RFID) and other forms of wireless tagging starting to be offered in Distribution ERP systems. In the next three to five years there will be increasing investment in NFC tags, QR codes that can identify and scan inventory items at high speeds, saving hours of manually-based scanning that happens in the majority of warehouses today.
The four key advantages of implementing a Distribution ERP system in your company are listed below.
Improved Inventory Turns
Improving the performance of every distribution center and warehouse by removing the roadblocks that get in the way of increasing inventory turns is the greatest advantage Distribution ERP systems deliver. Inventory turns are defined as the measure of how many times inventory is sold or used during a specific period. Technology companies that have short product lifecycles and fast sales cycles measure inventory turns monthly. It is common for Dell, HP and others to have 60 to 70 inventory turns year or more. The equation for inventory turns is defined as the cost of goods sold or net sales divided by the average inventory level by distribution center. Inventory turn is a critical component of a company’s overall financial health as well. If it is slow, it means sales are not moving as fast as expected, and if the figure is above industry average, the products are selling quickly. Inventory turns have a direct impact on the Return on Assets (ROA) calculations that guide company’s investment strategies. Best-in-class Distribution ERP systems integrate Inventory Turns analysis with financial reporting to provide a single, unified view of overall company financial performance.
Reduction In Administrative And Operational Costs
Running a warehouse or distribution center is very expensive, from the insurance required to protect the buildings and inventory it stores to the costs of conveyor systems, handling equipment, security systems, salaries and benefits, and utilities to keep the centers operating. These are all unique costs to distribution and warehouse locations and require an entirely different chart of accounts for tracking them. Distribution ERP systems have modules designed that have unique approaches to organizing administrative and operational costs into a framework that makes comparing them across locations and with the common financial reporting systems easier to accomplish. Due to these factors, it is essential to get a Distribution ERP system that supports Administrative and Operational Cost assignment, calculation, reporting, analysis and aggregate reporting to company financial reporting statements.
Improvement In Complete And On Time Shipments
Another one of the most valuable advantages of implementing a Distribution ERP system is the ability to track order fulfillment, inventory management and labor productivity measures. These three areas have a direct influence over how many complete and on-time shipments are completed in a given period for a warehouse and distribution center. In evaluating a Distribution ERP system make sure the order fulfillment reporting includes support for on-time shipments (% of orders shipped by requested date); order fill rate (% of order shipped complete by due date); line fill rate (% of order lines shipped completed by due date); and pick accuracy or the % of orders picked without an error. Also, tracking inventory management is also necessary for keeping orders on time The two key metrics needed in this area including Inventory Accuracy (% of items have correct balance during physical inventory with system reporting) and Space Utilization (% of space utilized in the warehouse). The third area that is essential for tracking complete and on-time shipments is labor productivity. This last metric includes receiving, put-away, replenishment, picking and shipping.
Improvement In Internal Schedule Compliance
Another benefit of adopting a Distribution ERP system is the opportunity to improve internal schedule compliance and quality levels. All Distribution ERP systems support logic to accomplish schedule compliance. The best-in-class Distribution ERP system can track schedule compliance to overall financial performance by integrating with the General Ledger (GL), Accounts Payable and Accounts Receivable parts of a financial reporting system. In evaluating ERP systems, check to make sure they support Customer Reject Rate, Warranty or Recall Costs, OSHA-reportable incidents/year and Inventory Shrinkage as a Percent of Total Inventory. These four metrics are what enable distribution and warehouse businesses to measure and improve internal schedule compliance. Many distribution and warehouse-based businesses create detailed Supplier Compliance Guides that provides their suppliers with guidance on how to excel in their roles providing materials needed. Supplier Compliance Guides are increasingly delivered online, integrated with internal dashboards for tracking overall supplier performance. Monitoring supplier compliance is an excellent way to make sure delivery dates and locations are consistently met and costs are kept as low as possible while schedules are met.
How to Evaluate Distribution ERP Systems
Selecting a Distribution ERP system for your company needs to reflect how different your production operations are from any other distribution business. Knowing which Distribution ERP providers excel in your industry will help to gain greater insight and context into who needs to be on your short list. There are over 175 Distribution ERP providers selling systems today. Fortunately, SelectHub is here to help.
What’s wrong with how you are managing distribution operations today?
- Is your company doing inventory using manual processes and workflows today?
- How is inventory control handled by your company today? Is it automated or manual?
- Does your order management system track all inbound orders or is there a separate system for each?
- What manual workarounds are you relying on today to get work done that a Distribution ERP system could automate?
- Is your existing financial reporting system integrated with inventory control to provide greater visibility into how each distribution center is performing?
- If you have a Distribution ERP solution in place, ask yourself why you are looking to make a change.
- Who uses the current Distribution ERP system?
- Which departments are everyday users, and which are only using your Distribution ERP system occasionally?
- What are your Distribution ERP system’s users trying to achieve by using the solution, and how well can they carry out their goals?
- Is the system not cost-effective for your current users? Are you paying too much in monthly or annual fees for unused features?
- Is the Distribution ERP system too difficult to use today? Is it challenging to learn?
- Was the Distribution ERP system designed when your company had a different business model than it does today?
- What’s the information and insight you need to run your business that your existing Distribution ERP system doesn’t provide today?
- Can your existing Distribution ERP system generate analytics and business intelligence (BI) dashboards and reporting?
What kind of Distribution ERP system will you need?
- What order management and inventory control and reporting workflows aren’t being addressed by your current Distribution ERP system today?
- Can your existing Distribution ERP system support quality management and compliance reporting company-wide or just in the quality department?
- How much time does your company spend cleaning up incorrectly shipped orders?
- What workflows and production processes most differentiate your company and make it unique?
- Define the five distribution processes that most need improvement in your business today
- Is inventory management and control automated or manually-based right now?
- What is the extent of your product tracking system today? Are you using bar codes or an electronic approach (RFID, NFC) to track inventory locations?
How will the Distribution ERP system perform once deployed?
- Is your company considering an on-premise or cloud-based Distribution ERP system?
- Who will be responsible for keeping the Distribution ERP system up-to-date and be its administrator?
- What devices will the Distribution ERP system need to run on throughout your company?
- Are you considering having the Distribution ERP system accessible from the warehouse floor?
- How customizable do you need the individual screens, applications, and platforms to be to support your business?
- What analytics, metrics and Key Performance Indicators (KPIs) do you need to manage your distribution operations your existing ERP system doesn’t offer?
- Will the Distribution ERP system be able to manage the wide variety of data reports needed to run your business today? How about in a year from now?
- How will the Distribution ERP system integrate with your current system, especially your financial reporting one?
- What support or training will the vendor provide during and after installation?
Every business has a unique set of needs, so the first step in a software selection project is to create a checklist of what your company needs most from a Distribution ERP system. There are hundreds of criteria to choose from, but the framework can be broken up into five main categories:
Forecasting and Demand Planning
When defining the specific requirements your company has for forecasting and demand planning, keep in mind the following features that Distribution ERP systems offer in this functional area. They include the ability to drive baseline forecasts with advanced statistical forecasting engines, forecast time-phased attach rates using the Bill of Materials (BOM) as the model, and plan promotions and their impact on inventory and warehouse operations using curve-fitting statistical models. Additional features to consider in defining your requirements including consensus forecasting or the ability to view cross-functional demand across sales, marketing, product management and senior management. Product managers are also frequent users of forecasting and demand planning applications in Distribution ERP systems, and need support for product launch workflows, pricing, promotions and rebates and models to predict how their efforts will impact inventory levels and velocity. There’s also the needs of the finance teams that need to track and report alignment between finance, accounting and operations. The best-in-class forecasting and demand planning systems have access to data in real-time and also deliver out-of-the-box reporting and analytics, in addition to supporting analytics reporting with pre-built workflows.
Electronic Data Interchange (EDI) Expertise
The foundation of many distribution-based businesses is based on queuing up a series of batch-driven transactions that are completed periodically. EDI is the most common approach to completing batch-oriented transactions between companies and is a must-have in any Distribution ERP system. By definition, EDI is the system-to-system exchange of transaction reports and documents between buyers and sellers. In the past EDI had to be enabled by service providers who specialized in these types of transactions. Within the last ten years EDI has increasingly been done directly over the Internet. EDI is a solid standard in the most time-sensitive industries including high tech manufacturing, high tech distribution, and consumer packaged goods (CPG). EDI will always be a standard in distribution businesses given its proven accuracy and reliability. It’s common knowledge in the industry that EDI can easily reduce the order-to-cash cycle time by 20% or more improving business partner relationships in the process. The same Forrester study that found the order-to-cycle time improvements also found that EDI can reduce transaction costs by 35% or more and reduces transaction errors by 40% or more.
The core features to look for in a Warehouse Management System (WMS) or module that is part of a Distribution ERP system is comprehensive support for warehouse operations including defining and managing individual stock keeping units (SKUs); automatic ID labels and technologies (bar codes, RFID, EPC codes, etc.); and inventory by location traceability. These are the baseline requirements of what’s needed in a Distribution ERP system. Advanced Distribution ERP systems also support multi-location analysis and the assignment of warehouse locations by type of asset. These advanced systems have the ability to track the type of storage used (pallet, case or container) and any storage restrictions as well. Higher-end Distribution ERP systems also have analytics and reporting that can track and analyze expected labor productivity rates by function or activity (for example shelf management and cases picked per hour). Best-in-class Distribution ERP systems also have warehouse and distribution reporting and analytics that can track inventory velocity and variety and provide predictive analytics as to how best to balance warehouse inventory mix.
Distribution Requirements Planning
Defining which products need to ship from a given warehouse in a specific quantity can make the difference between holding onto a customer or not. Distribution Requirements Planning (DRP) is the module in a Distribution ERP system that handles this logic and related coordination tasks. DRP systems can alleviate out-of-stock, sold out and allocation conditions through the use of advanced analytics and algorithms. This is a must have feature for any company whose inventory turns are over 20 per year as the DRP process is often manually handled in smaller, fast-growing companies. Doing this process manually is fraught with potential errors. Automating this process will also ensure the data is integrated into the financial reporting systems, making for a complete series of financial statements every reporting period. Advanced ERP systems that offer DRP also have a table-driven structure that includes forecast demands, current inventory levels, target safety stock, recommended replenishment quantities and replenishment lead times.
The world’s leading supply chains are highly collaborative in nature, with the Toyota Production System (TPS) being one that is often studied by industry leaders to see how they too can attain the higher levels of efficiency and performance. Collaborative supply chains are predicated on a shared knowledgebase that is partly defined in software but also in process. The Supply Chain COllabration (SCM) features in Distribution ERP systems are specifically designed to share forecasts across a base of suppliers, looking to create greater insights that are just handling one supplier relationship in isolation. Distribution ERP systems are providing supplier collaboration and scheduling that streamlines collaboration across the broad base of suppliers, contractors, subcontractors, and customers while reducing procurement, sales and inventory costs. Distribution ERP vendors who have supplier collaboration and scheduling also can increase supply chain vsibili9ty and increase the accuracy, speed and competitive strength of supply networks. By orchestrating all of these elements, supplier collaboration has the potential to reduce inventory levels and minimize the variations in supply and customer demand. Most importantly, this feature has the potential to improve the level fo shared information and communication across suppliers,= which reduce processing costs and order errors.
Please provide an overview of your inventory control system with emphasis on how I can use your advanced features to optimize inventory turns
This is a minimum requirement for any Distribution ERP system, so be sure to ask and see how well the inventory management system can handle the basic functions of tracking individual items and their relative value. A good demo will also include insights into how a given Distribution ERP system will be able to optimize inventory turns over time. Ask to see the specific results and audit trail of how the system(s) you are looking at have dropped inventory turns through the logic and algorithms in the system.
Can you provide an example of your distributed order management system works?
This is the foundation of many Distribution ERP systems and therefore should be one of the most well-defined and mature workflows shown in a demo. Ask to see how the application(s) handle multiple locations and inventory management across multiple warehouses. Also ask to see how the distributed order management system knows which manufacturing or fulfillment center to choose based on all available factors. This is an area every vendor you speak with should have a very strong app given its central role to Distribution ERP workflows.
How quickly can I onboard a new supplier and start to see their inbound delivery performance?
Best-in-class systems can onboard a new supplier in less than ten minutes with a minimum of screens to accomplish the tasks. If this takes over 30 minutes, it’s a red flag that the system has not been specifically designed with this process in mind first.
How can the sales, pricing, operations, product management and senior management teams make use of the Distribution ERP system’s reporting functions?
Ask to see the dashboard within the individual modules and across the entire Distribution ERP system from each of the departments’ perspectives listed above. Ask first to see what the sales management dashboard looks like, in addition to the pricing manager, operations, product management and senior management. Each of these dashboards should be unique to the specific information needs of each of these audiences and also provide an overview of how financial performance impacts company profitability. The demo needs also to include steps for creating and maintaining the dashboard including the definition fo new metrics and KPIs.
Will it grow with my business?
If you’re investing in a Distribution ERP solution, you don’t want it to be obsolete in a year. Plan to implement software that will last at least ten years. Your Distribution ERP system should be scalable and capable of keeping up with the core aspects of your warehouse and distribution business. Find out what the limitations are on the scale and reporting capability of your system so you can make an adequate decision about whether the software is right for you.
Leading Distribution ERP Vendors
There are over 175 Distribution ERP providers serving over a dozen sub-industries in discrete, mix-mode and process manufacturing industries. Leading vendors include the following:
Epicor ERP—Epicor ERP is designed to operate either as an on-premise or cloud-based Distribution ERP system. Epicor has grown through acquisition, and as a result the company has a wide variety of distribution-based applications with Prophet21 and Eclipse being the best-known. Epicor is also recognized as having an excellent series of vertically-based ERP systems that also include support for distribution management. Their ERP applications integrate with financial systems, inventory control and support for CRM system integration
Infor ERP for Distribution – Infor for ERP Distribution has industry-leading inventory and warehouse management systems known for the depth of their distributed order management systems and integration of warehouse management systems. Infor also had deep expertise in managing multichannel ordering and order allocation across warehouse locations.
IQMS – One of the most advanced providers of Distribution ERP systems, IQMS’ product strategy integrates Enterprise Resource Planning (ERP) And Manufacturing Execution System (MES) applications into a unified system of record that enables manufacturers to support new and emerging workflows. EnterpriseIQ is the company’s leading product and is widely used in small, medium- and enterprise-size distribution and warehouse operations.
Microsoft Dynamics NAV – Formerly Microsoft Dynamics Navision, Microsoft NAV has established itself as a leader in small and midsize distribution and warehouse management. What’s unique about the product is its ease of use and support for distributed order management systems. What’s significant about this product is the greater control it provides over supply chain planning and execution and integration of production and financial data. Microsoft Dynamics NAV is also known for its rapid deployment timeframes as well.
NetSuite Distribution Edition – Recently acquired by Oracle, NetSuite Distribution Edition is specifically designed for the small to mid-tier fast-growing distributors that need an integrated ERP, inventory, e-commerce, accounting, fulfillment, and CRM solution.
Plex Systems – The undisputed Cloud ERP leader, Plex powers modern distribution and manufacturing with the first ERP cloud built from the plant floor up. There are over 600 companies running their manufacturing operations on the Plex Manufacturing Cloud today. The Plex Manufacturing Cloud has proven its ability to automate distribution and manufacturing from the shop floor to the top floor. The Plex Manufacturing Cloud is designed to connect suppliers, optimize materials ordering and management, and integrate with accounting and business systems to deliver manufacturing intelligence across any size production operation.
SAP Business One – Designed specifically for distribution and warehouse businesses, SAP Business One excels at role-based access to critical data, applications, and analytical tools. SAP also excels at managing the complex processes of procurement, manufacturing execution, service, sales, finance, and HR. SAP is one of the most trusted and proven ERP providers worldwide.
Choosing a Distribution ERP system provider is a task that should be given serious consideration. This Distribution ERP system comparison is meant to be used as a starting point to guide IT professionals who are tasked with making this decision.