We are facing a world turned upside down for numerous reasons. With this as our operating environment, we look for the wins, the opportunities, the innovations. Let's explore new technologies that deliver the 'art of the possible' in supply chain planning. The story unfolds in three parts:
- The CPG industry is under extreme pressure
- Vendors suggesting ERP upgrades for CPG supply chain customers at this time are confronting this industry at their most challenging hour with a proposition with an unpredictable value realization time frame
- Supply chain leaders should consider fresh, agile alternatives to realize much needed financial performance improvements today.
Imagine the pressures on consumer goods supply chain leaders today:
- Running consumer supply chains today is managing uncertainty
- Leaders' singular objective is to bring products to consumers when they need it most
- Supply chains need to remain resilient to serve consumers AND the people who work to run them (planners for CPG companies are burning out)
- Their very business model is under pressure. Consumer product companies' enjoyment of loyalty through big brand advertising on prime-time network TV has fizzled in our "Netflix-You Tube" era of disaggregated media consumption. A recent McKinsey report states:
After 40 years of outperformance enabled by a widely used five-part success model, the global consumer packaged goods (CPG) industry struggled to grow over the last decade. Why? Because 12 disruptive trends have diluted the old success model for growing mass brands. Now the COVID-19 crisis is amplifying many of these trends, triggering an industry imperative to change.
This is taking place in a technology environment where potentially disruptive ERP upgrades are under consideration to prepare their IT environments for digital transformation. According to Brian Sommer's recent diginomica post:
... an ERP customer will spend a lot of time and money implementing a technically upgraded solution but the value they really need from it will be delayed until a later date. And, at this time, no one knows what it will actually cost to see that delayed value materialize. This means a customer will spend a lot of money now and an unknown amount later for an unspecified value delivery. That ambiguity would be hard to sell to most executive committees or boards of directors.
There is immense pressure to transform the consumer goods value chain. The pressure comes from all sides — from software vendors with expiring support for legacy systems, to consumer goods companies' own C-Suite mandates to undergo "digital transformation" and "build data lakes" (with unclear measures of ROI), to customers suddenly demanding Amazon Prime-like same-day deliveries. Leaders have to think beyond software to decide upon the people, process, analytics AND technology to pull this off. With all of these demands to address, supply chain leaders could use a quick win, making demonstrable strides towards transformation while embarking on a re-platforming of the ERP — or not. The opportunity costs of ERP re-platforming should be a major consideration. As Sommer put it:
The people, time and costs that are going into these low-value add efforts are diverting capital and people away from potentially higher value projects. The best businesses will focus on technologies that deliver both great value and deliver a great strategic outcome.
What's a supply chain leader to do?
Complimentary, not competing
Enter the agile new technologies that reimagine supply chains. The 2020 Gartner Hype Cycle for Supply Chain characterizes alternatives so companies can leapfrog traditional ERP software and make rapid gains in performance. Most are additive to the existing ERP infrastructure, not seeking to compete or replace.
Take the concept of a Supply Chain Control Tower, for example, which stands up data pipelines to extract data from ERP systems, apply models and algorithms to find hidden patterns in the data, and feed recommended actions BACK into existing executional workflows.
The sheer number of technologies in this hype cycle is daunting, possibly driving any right-minded CIO/CTO running back to their ERP vendor and that 'upgrade' scenario! And yes, there is an 'snake-oil problem' with technologies such as AI, leading to high cost, low impact projects with the wrong vendor.
At Noodle.ai, we believe in the ascendancy of AI and supply chain control towers, which we define this way:
Control towers are designed for enterprises facing significant demand- and supply-side volatility, impacting their ability to manage core business objectives around fill rate, inventory, and gross margin.
Why do we believe in supply chain control towers? Because we've seen them work in the field. Customers evaluating this technology should look for applications that ingest data from ERP and planning systems (eg SAP APO / IBP), and diverse internal and external signals: sales, promotions, marketing, product data-even market, weather, and social data. You'll want to be able to run AI and ML models to generate predictive signals on both the demand side and the supply side so planners can understand where risk imbalances are occurring in the network.
Writing on diginomica in Digital transformation - ERP upgrade not required, industry analyst Rebecca Wetteman argues that ERP upgrades take away from the urgency of digital projects with short-term payback. She advises "innovating around the core" via CRM, intelligence and automation, and people apps — all potent alternatives to a major ERP upgrade. We would add AI/ML-powered supply chain projects to that list. Look for projects that get you live quickly, with tools that tie into your prior ERP/SCM investments.
Managing supply chain volatility in this economy is no joke. Yesterday's rules-based systems aren't up for this job. We believe that AI inference engines are a potent option right now for supply chain leaders to look at — before they get swept up in an extended ERP upgrade cycle.