Enterprise Resource Planning (ERP) continues to push further into Supply Chain Management (SCM)

As a rapidly-growing branch of computer science, artificial intelligence (AI) is getting a lot of attention right now. By creating “intelligent agents” that can learn, reason and act anonymously, AI is being applied successfully in a wide range of settings. For example, it’s helping doctors diagnose diseases, allowing companies to provide 24/7 customer support and giving manufacturers a new quality control tool.

Artificial intelligence is also helping enterprise resource planning (ERP) providers carve out a bigger footprint in the supply chain software space. Using AI and machine learning, the latter of which helps software more accurately predict outcomes (and without being “told” to do so), ERP can analyze larger volumes of data, improve decision-making and personalize the user experience.

On the very near horizon is generative AI, which is expected to ramp things up even further for ERPs that are increasingly making their way into the supply chain software space. According to McKinsey, “generative AI” describes algorithms (e.g., ChatGPT) that are used to create new content, including audio, code, images, text, simulations and videos. Specific to software development, generative AI can be used to analyze large volumes of user feedback, customer reviews and other sources of data to identify patterns in user needs and preferences.

Both individually and collectively, these three advanced technologies are making a splash in the supply chain and logistics space. This, in turn, is impacting how software vendors develop their solutions and expand the capabilities of those applications. “AI has been emerging in a big way over the last two to three years, but it’s really taken off during the last three months or so,” says Siddharth Ram, VP of Capgemini’s consumer products, retail and services business unit.

And while AI is literally “evolving by the week,” according to Ram, interest in generative AI on the part of supply chain and logistics managers is also increasing. “There’s a lot of discussion around generative AI and the role that it can play in supply chain management,” he adds. “Nearly every week there are new products being introduced or new use cases are emerging in the generative AI space.”

Well aware of these trends, ERP vendors are grabbing the bull by the horns, so to speak, and folding more generative AI and related technologies into their solutions. And while many of those efforts involve proof-of-concept and prototype options right now, Ram says that it probably won’t be long before those tested products become available to the broader market.

“A lot of companies want to experiment with generative AI in the supply chain field, but there’s still no clarity as to how exactly the generative AI will solve their supply chain problems—or where exactly it can be applied,” says Ram. “However, there’s still a huge appetite for companies like ours to prove the technology’s worth and value.”

A shifting center of gravity

Often thought of as “back office” systems that help shippers manage core processes like accounting, human resources, finance and sales, ERPs have been spreading their wings over the last 10 years or so. By combining their own innovation with that of acquired companies—many of which brought their own intellectual protocol to the table—ERPs are adapting and evolving right along with the companies that use them.

Logistics and supply chain are of particular interest to ERP vendors. This isn’t a new trend, but it’s one that’s been stepped-up as a result of the global pandemic and all of the supply chain misery that it inflicted on organizations and their customers. “The center of gravity of ERP systems is shifting from finance and accounting more toward supply chain management,” says Eric Kimberling, CEO and founder at Third Stage Consulting Group.

The impetus behind the shift is pretty straightforward: organizations across most industry sectors are focused on supply chain, so their core business systems have to keep in lock step and align well with that focus. “Just as a general undercurrent, the focus and the research and development going into supply chain management capabilities with the ERP vendors is greater than it’s been in the past,” says Kimberling.

Like Ram, Kimberling is also seeing AI and machine learning playing an increasingly important role in ERP and supply chain management. For example, he says software vendors are working to determine how AI can enable better supply chain planning and provide better outputs from transaction-based data. “ERP has traditionally been transactional, but now AI is allowing ERP vendors to go deeper into supply chain management and provide more capabilities than they have in the past,” says Kimberling.

ERP or best-of-breed?

As more organizations focus on supply chain management and less on deploying technology across their entire enterprise, at least one age-old question hasn’t gone away: Should you use the supply chain capabilities that your ERP provider offers or buy individual applications from best-of-breed developers?

A third option also exists as a hybrid between the two: acquire a supply chain software suite from a vendor that’s packaged up transportation management systems (TMS), warehouse management systems (WMS) and other related applications.

“You still have those companies saying, ‘We’re just going to do an enterprise-wide ERP that includes SCM,’” Kimberling explains. “However, we’ve recently seen more companies peeling off SCM as a higher priority and doing those [implementations] sooner. Then, the other traditional ERP capabilities may fall behind that.” This prioritization of SCM is yet another reason why the ERP vendors themselves are diving deeper into the supply chain software pool.

In most cases, deciding between an ERP’s supply chain software suite and best-of-breed options comes down to the priority of the individual organization. If the company is primarily focused on improving its supply chain, for example, then the related software often becomes the leading priority for that transformation. Other decision drivers include whether the company is in immediate need of a robust, full-featured TMS or WMS, or if an ERP-
provided application will suffice.

In terms of innovation, Ram says best-of-breed software providers may be able to act faster as innovations like AI, generative AI and machine learning become more ubiquitous in the supply chain software space. “I think we’re going to see the integration of generative AI solutions into both ERP and SCM, but the ERPs may be less equipped to support the integration of AI solutions into their software as compared to best-of-breed companies,” Ram says. “Best-of-breed providers are often smaller and more agile when it comes to change.”

Best-of-breed supply chain software makers also know their own applications inside and out, where an ERP may have acquired the assets of other companies along the way as they built out their portfolios. Then, those acquired assets became part of the larger, enterprise-wide application. “It’s slightly easier for AI to be built into the SCM side of the house compared to building it into an ERP,” says Ram.

Striking the right balance

In assessing the progress that ERP vendors have made in the supply chain management space in recent years, Dwight Klappich, research VP at Gartner, Inc., says that in most cases their applications are “good enough” for a high percentage of the marketplace. The less complex, sophisticated logistics and supply chain environments are especially well matched for the SCM applications that an ERP can provide.

In some cases, the lines between enterprise software vendors and best-of-breeds have become completely blurred. “Oracle is the best-of-breed [ERP] in transportation and pretty close to being best-of-breed in warehousing,” says Klappich. “Microsoft hasn’t done much in the transportation space, but SAP has done quite a bit in both planning and transportation. And, Infor is good in warehousing. For many shippers, these ERP vendors are good enough to be shortlisted right out of the box.”

Along with embedding more AI and generative AI into their solutions, ERP providers are also putting a bigger emphasis on the end user experience. Credit the pressing labor shortage with driving innovation in this area.

“The current [logistics] workforce is the iPhone generation, so if your user interface looks like it’s 30 years old, you’re going to be at a disadvantage,” says Klappich, who points to Manhattan, Infor and Oracle, whose Redwood next-generation user experience (UX) is designed for easy usage and customizability, as three examples of software vendors that have put a larger emphasis on the user experience.

To companies that are investing in new ERP or supply chain software this year, Klappich says the key is to strike the right balance between over-buying and under-buying. Then, do your homework to find the right match. “ERP vendors won’t ever—nor do they ever have to be—completely best-of-breed,” he says. “If you’re committed to an ERP system and your supply chain management requirements are ‘middle of the road,’ the best move is to shortlist your ERP vendor while also evaluating other options.