Cloud-based ERP for Distribution Businesses: Succeeding in a Digital Economy

Feb 23, 2024

Infor | 6 min READ

The distribution industry is currently at an inflection point where evolving industry dynamics and unfavorable macroeconomic factors threaten its relevance.

Amidst disintermediation, supply chain disruptions, and long-standing operational inefficiencies, distribution businesses must start 2024 with a moment of introspection. Now is high time for distribution businesses to focus on the key obstacle that separates them from the much-needed agility for thriving in today’s reality – i.e., their legacy Enterprise Resource Planning (ERP) systems.

With the right capabilities, a purpose-built ERP system for the distribution industry can help businesses maximize their revenue potential, realize peak profitability, and achieve the most favorable supply chain outcomes.

Joher Aurangabadwala

Global Practice Director

Infor

Birlasoft

Key concerns facing distribution businesses in 2024

The distribution industry is currently caught amid external turbulence and shifting industry dynamics. This and internal challenges within distribution organizations threaten their relevance in the new digital economy. Here are the key challenges facing the distribution industry today:

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Macroeconomic factors: In 2023, supply chain disruptions were caused by geopolitical tensions that shut down long-established trade routes. Global inflationary pressures and supply chain threats caused by rising raw material costs led to a turbulent environment. These factors will continue to persist in 2024.

Shifting industry dynamics: The 2020s could be aptly named the years of the great disintermediation in the context of the distribution industry. Marketplace giants like Amazon and D2C initiatives from retailers have successfully played on the consumers’ need for impeccable customer experience and quick fulfillment, threatening the relevance of distributors in this experience-driven economy.

Operational difficulties: The distribution industry has struggled with numerous operational challenges, like insufficient collaboration with suppliers, manual rebate or promotion management, siloed supply chain data, and legacy enterprise technology tooling. These factors make it challenging to capture profits fully and degrade revenue realization opportunities.

Three tenets for building a modern distribution business

To thrive amidst the above challenges, distribution businesses need to rethink legacy ways of working with their upstream and downstream partners, transform their critical processes and workflows, and enable the organization with digital tools and insights. Because the ERP powers the most business-critical processes in the distribution organization, it holds a transformational value in the context of the above vision.

Here are the three tenets needed to realize this vision with an ERP transformation:

#1. Integrated processes

Fragmented processes are a result of legacy tooling and siloed data. Mitigating stockout situations, achieving supply resilience, or building a dynamic fulfillment engine calls for connected intelligent demand planning, supplier visibility, and visibility down to the last mile. For Original Equipment Manufacturers (OEMs), these are the attributes of a resilient operating model – but such capabilities require integrated processes where sales, demand planning, warehousing, logistics, and procurement teams work in collaboration with each other.

#2. Embedded intelligence

In an environment fraught with uncertainty and turbulence, distribution businesses must equip their teams with the most relevant insights at the point of action. The most promising areas include supplier management based on historical performance, inventory planning based on historical and future sales patterns, intelligent promotion management, and warehouse and trucking management.

#3. Agility and responsiveness

Finally, the modern distribution business must be responsive to last-minute developments in the supply chain. Ecom distributors are especially in need of agile, bi-directional supply chains that can efficiently handle return and replacement orders, or accommodate changes in customers’ delivery preferences at the last minute. This calls for an agile ERP foundation that is based on the cloud, where real-time data can be used to drive real-time collaboration.

In other words, the distribution business of the future must be powered by a cloud-based ERP that powers integrated end-to-end processes and drives intelligent decision-making with embedded AI capabilities.

Cloud ERP: Digital foundations for the distribution industry

Distribution businesses have been operating with legacy ERP systems, which have accrued complex configurations and customizations. Whether you are considering migrating your ERP to the cloud or turning to a new ERP solution that is purpose-built for the distribution industry, it is crucial to pivot your move to the above three tenets to achieve a transformational impact.

One of the key benefits of an ERP solution tailored for the distribution industry (like Infor ERP for distributors) is that it will require fewer customizations. This enables critical out-of-the-box functionalities from the get-go and incurs lesser maintenance overheads.

However, the cloud is the key source of the competitive advantage in this regard. Whereas on-prem systems force more hardware and scale constraints, cloud ERPs are performance-optimized, right-sized, and enable a host of capabilities that are otherwise difficult (or expensive by multiple factors) to achieve with on-prem ERPs.

Here are a few examples of these differentiating capabilities enabled by cloud ERPs for distribution businesses:

#1. End-to-end supply chain traceability and visibility

A well-integrated and optimally implemented cloud ERP can help you observe each order, from booking to fulfillment, across all supply chain stages. Traceability proves especially important to healthcare and pharmaceutical distributors, who require verifiable temperature control during transport to ensure the efficacy of the transported products and prevent recalls. Moreover, distribution businesses can leverage cloud ERP implementations to achieve multi-tier supplier visibility, arming them against stockout scenarios.

#2. Unified and efficient omnichannel orchestration

Cloud ERPs can integrate data from multiple sales channels to reconcile and ensure consistent customer service, inventory, and product data across channels. Customers can be delivered a consistent experience across channels like mobile, Ecom, web, and EDI-integrated marketplaces, whereas order processing and dynamic pricing strategies for each channel can be automated in the ERP. Omnichannel orchestration is a differentiating capability for last-mile logistics and fulfillment players, who serve demanding end-customers of retail and CPG partners. For such businesses, the ability to deliver a customizable last-mile experience with digital experiences is crucial to win greater market share, and serve end-customers with high expectations.

#3. Forecasting and prediction for best-case decisions

Artificial Intelligence-powered (AI) prediction has become integral to successful distribution businesses. While demand forecasting is one of the most impactful application areas, other important AI use cases also include the ability to predict supply chain disruptions and possible stockout scenarios and optimize inventory and warehousing processes.

#4. Intelligent cash flow and cost management

A cloud-based ERP can unify cash management for multiple payment processing channels and locations, including PoS machines and credit card integrations. Typically, a solution should support automated reconciliation and offer cash flow forecasts for better resource utilization. Moreover, cloud ERPs can enable intelligent cost analysis with detailed and indirect product costing and keep track of the gap between standard, forecasted, and actual costs. For industrial distributors, this can enable more consistent and reliable profit margins, especially as holding costs and trapped inventory can significantly detract the bottom line.

#5. Dynamic fulfillment for improved supply chain outcomes

Dynamic fulfillment is a core competency for distribution businesses, and cloud ERPs are essential to realize this capability. By evaluating numerous factors like shipping costs, markdowns, and the potential impact of fulfillment decisions on customer SLAs, cloud ERPs can optimize the supply network for minimal shipments. This minimizes the cost to serve and maximizes profit margins.

Ultimately, cloud ERPs enable the workforce to access critical functionalities through mobile and web apps, thus eliminating delays across all operations while improving the employee experience. They integrate seamlessly with the supply chain tooling and other enterprise technology systems, ultimately leading to a digitally connected distribution organization.

What next?

Cloud-based ERPs represent a significant opportunity while the distribution industry grapples with macroeconomic turbulence and other challenges like disintermediation. More importantly, purpose-built solutions for the distribution industry can transform the organization, as they enable differentiated capabilities without imposing maintenance overheads for custom capabilities.

As the distribution industry navigates this tipping point, now is the right time to turn the bottlenecks and weaknesses of the legacy ERP into a source of competitive advantage with cloud-based turnkey solutions. Birlasoft’s Distribution Industry Offering based on Infor ERP can help distribution businesses exploit this unrealized opportunity with repeatable success.

Start today, by getting in touch with a Birlasoft ERP expert for the distribution industry. Schedule a call now.

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