Spending on Enterprise Resource Planning (ERP) will grow substantially in the coming period. Supply chains need to understand what risks they face in the short and long term due to the impact of the corona crisis.
This is according to ABI Research. The consultancy expects global spending on ERP to rise to $14 billion (€13 billion) by 2024. This growth will be driven by companies investing in risk analysis in the coming years to be better prepared for future disasters.
Short- and long-term effects
The corona virus will impact supply chains in both the short and long term. "Initially, factories will secure their inventories while trying to understand how their suppliers are dealing with it and what problems may arise further down the supply chain," explains Michael Larner, Principal Analyst at ABI Research.
For the longer term, manufacturers will have to carry out a so-called due diligence process, or book review. This should include the activities of their suppliers (and suppliers' suppliers). This will reveal what their risk exposure is, in the event of epidemics, natural disasters or trade wars, for example. Larner: "A supply chain that wants to reduce risk should not only source from multiple suppliers, but also from different locations. The Covid-19 situation has once again painfully highlighted this."
Also read: Covid-19's first lessons for supply chains
Risk analyses
ABI Research advises manufacturers to turn to software providers with specialist modules, which offer more than inventory control and standard supply chain management. "Supply chain orchestration requires software to also offer risk analysis and simulations so that manufacturers can understand and be prepared for external events."
Looking outwards
Industry 4.0 has received a lot of attention in recent years, the consultancy continues. However, the focus has been on internal operations. "But investments in robotics or IoT sensors assume that assembly lines receive a steady stream of raw materials. Covid-19 shows that manufacturers need to be as focused on their suppliers' capabilities as on their own," Larner concludes.
Commenting on this article, Prof Jan Fransoo of Kuehne Logistics University in Hamburg questions ABI Research's conclusions, saying ERP systems as transactional systems help with operational planning, not strategic risk analysis. "The basic information required for risk analysis, such as location and financial stability of suppliers, including the second and third tier, is not present in these systems."
