ERP & Logistics: Optimizing the Supply Chain

Our ERP will tell us what material we need and when it should be on hand for use. We have an estimated lead time from our suppliers so we know when to place an order to ensure we have material at the right time. Many businesses use only those action points and are happy that the material ordered shows up on time. However, we can use ERP logistics to manage those materials better and aim for improved overall throughput.

Internally, we measure inventory turns. Why not look at how fast the external turns are moving? The better our supply chain can react, the better we are too. There are three points to consider: lead time for our supplier, his internal production time, and transit time from our supplier to our own dock, and we want to optimize all three through ERP logistics management.

Lead Time for Supplier

We could pressure our supplier to maintain large inventory buffers to better support our needs but we know someone will pay for those buffers. Do we have purchasing power that can help our supplier get those materials easier? Could our engineers work on our bill of materials at the same time as our supplier’s bill of materials to use off-the-shelf components or more-available raw materials? Linking our ERP with our supplier’s ERP will help with communications and the flow of information.

Supplier Internal Production Time

Once the supplier has their material, how quickly can they convert it to the product we ordered? We have world-class industrial engineers and optimized routings in our ERP. Can we help our supplier to improve their processes using ERP logistics? Sure we can and that will lead to helping ourselves at the same time.

Inbound Transit Time

Next, we want to optimize the flow from our supplier to us. What kind of transportation should be used? How can we minimize holds at customs points or distribution centers? Do we have concerns with perishable materials?

From an accounting perspective these materials are not ours and so are not as visible as they should be. They do not legally belong to us but we do have a contractual obligation. Try to optimize the logistics. Someday we will have molecular transport systems and the materials will show up as soon as we request them. Today, we have supply chains that are too long. The shorter we can make that chain, the more agile we are and the lower our total cost will become.