Are You Considering Distribution Software?

Distribution organizations play a key role between the manufacturers and retailers. Being the middle organization between a manufacturer and a retailer, a distribution center (DC) needs to have a robust operation and accurate information for delivering products and services to its customers.In the past, DCs focused primarily on selecting a strategic location in order to be as close to suppliers and retailers as possible. But even if a distributor selected a strategic locality, it may not fully benefit the distribution location unless the distributor is able to synchronize procurement functions, logistics, and planning.

As manufacturers have extended their supply chain network, they forced distributors to adapt to the trend of globalization. This change in business philosophy has increased the importance of the timely communication of data, its integrity, security, and sharing among trading partners (i.e., manufacturers, suppliers, distributors, and retailers). It is crucial to have accurate upstream and downstream communication among the distribution center partners to fulfill orders and shipments.

There are many types of distribution software based on industry, vertical market segments, and specific to regulations and compliance. The main problem DCs are facing is finding software which can meet their unique requirements and one that can communicate between trading partners without creating gaps.

Every year, Technology Evaluation Centers (TEC) helps end users compare and select enterprise resource planning (ERP) distribution software. To understand the a DC's business needs, I ran a few statistics on TEC’s ERP Distribution Evaluation Center. One question in the online questionnaire specifically asks the users about an organization’s functional requirements. This question gives users the option to choose multiple selections from a list of 30 options.

Based on this list of options, the table below shows the top 10 functional requirements selected in 2010 and its ranking in the previous two years.

Functionality 2008 % 2008 Rank 2009 % 2009 Rank 2010 % 2010 Rank
Financials and Accounting 81% 1 78% 1 71% 1
Inventory Management 74% 2 73% 2 70% 2
Sales Order Management 55% 7 59% 4 62% 3
Purchasing Management 63% 3 58% 5 54% 4
Warehousing, Logistics, and Distribution 58% 6 52% 7 54% 5
Customer Service and Support 61% 4 59% 3 53% 6
Enterprise Performance Management (EPM) 60% 5 56% 6 53% 7
Business Intelligence (BI)/Analytics 50% 8 44% 8 48% 8
Transportation/Freight Management 45% 14 36% 16 47% 9
Human Resources (HR) 47% 12 41% 11 45% 10

Top 10 functional requirements for ERP distribution

Most of the functional requirements are steady in this list. We can see from the above ranking that Financials and Inventory Management are the top two modules being considered each year. In order for a DC to be successful, it’s important to have accurate inventory information tied together with the financial module. Inventory accuracy is one of the measurements used within a DC to determine the overall performance based on customer order fill rate and operations cost. Ever since the Sarbanes-Oxley (SOX) regulation came into effect in 2002 , the distributors need to have a close tie between financial and the inventory information for reporting and auditing. Inventory has to be tied closely with other modules like Sales Order Management, Purchasing Management, and Customer Service Management as well.

Modules like Sales Order Management, Purchasing Management, Warehousing Management, Customer Service Management, Business Intelligence, and Enterprise Performance Management have been ranked differently but stayed within the top 10 listing. All these modules are tied closely together for a DC’s operations. Within a DC, each module feeds information back and forth to make decisions and deliver product and services to its customers. These modules are tied with inventory and financials as DCs need to communicate upstream and downstream in real-time internally and externally (i.e., suppliers and customer both need to be aware of what’s happening within the DC).

Rankings for modules like transportation and human resources are higher in 2010 than previous years, which is an interesting trend. In my opinion, these trends will continue, as the transportation functionality has advanced to levels where a distributor is able to procure, plan, execute, and pay for transportation cost in real-time. This helps the distributor get the entire view of the supply chain from the transportation stand point by knowing how to make a schedule that works with both suppliers and customers to maximize product transportation.

The human resources module has moved up in the rankings. It is important for a DC to have the appropriate resources (human and equipment) aligned with its strategic, tactical, and operational objectives. As the workforce is aware of the business objectives, the operations can be performed in a cost effective manner where labor management and equipment management is tied together. In previous years, DCs concentrated on having the most efficient equipment but there has been a shift and DCs have realized that in order to have more efficient operations human capital plays a key role (i.e., having the appropriate certified and skilled professionals to handle the assets and understand the overall objectives of the DC.)

Below is a short list of some noticeable ranking changes outside of the top 10 functional requirements mentioned above:

Functionality 2008 % 2008 Rank 2009 % 2009 Rank 2010 % 2010 Rank
Advanced Planning and Scheduling (APS) 49% 9 41% 9 38% 14
Product and Price Configurator 48% 10 41% 10 32% 17

Advance Planning and Scheduling (APS) and Product and Price Configurator modules did not make the top 10 list of functionality this year. I see two reasons for this:

  • Only DCs specializing in light manufacturing or kitting processes require APS and Q2O modules.

  • If DCs have light manufacturing or kitting processes, they would like a best-of-breed APS or Q2O system that will better address their specific needs compared to ERP distribution software.

In my opinion, the market for APS and Q20 has matured since last year. There are software vendors in the market who previously concentrated in a specialized vertical market, now these vendors have made the application more generic to other industries requiring APS and Q2O functionalities. As well, these applications can easily integrate with other modules like WMS, TMS, and MRPs to have communications back and front without any delays.

In a future blog post, I will take a closer look at each functional area in order to understand why distributors require these top 10 modules. I will also explore the requirements needed within each module and why they are important from the DC’s operational view. As well, I will try to understand the functionality trend being explored within each module.
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