Implementing a new ERP purchasing system or supply chain planning system for a wholesale distributor is expensive. While the price tags can be high, the sticker price isn’t the only cost to keep in mind, as there are additional risks involved with a new supply chain planning system that can be costly in their own right.

Third-party supply chain planning systems have two main components of cost. First, there’s an implementation cost, which typically starts at around $20,000 to $50,000 for smaller wholesalers. For larger wholesalers, though, that can be $100,000 or more.

Then there’s the monthly fee that wholesalers have to pay. These costs start at between $3,000 to $6,000 per month for smaller wholesalers and can cost larger wholesalers $20,000 to $30,000 per month.

There are low-end supply chain planning systems – Unleashed, Cin7, Valogix, Netstock, Slimstock, StockIQ, for example – that are on the low end of these cost ranges and these solutions may improve inventory for very small wholesalers with less than 5 branches.

But there are weaknesses within these solutions given the simplicity of the math they were built upon. For example, these systems use a simple rate of sales calculation instead of an actual forecast to base all of the inventory calculations on. 

Let’s break this down.

Say an item at a certain location sells three units in the last 12 months, and all three of the units sold 11 months ago to one customer. The inventory purchasing systems that use a simplistic rate of sales may calculate rate of sales at 12/365 = .0328 units per day, which may want to hold a pack there.

The problem is that you might not actually want to hold a pack of that SKU at that location given that the sales were 11 months ago to one smaller customer (not a Tier 1 client).

The cost of a third-party supply chain planning software doesn’t just impact the initial setup and monthly cost. In fact, it can have reverberations throughout your company.

Take, for instance, your IT team. A third-party supply chain planning system receives data from your ERP system daily for your item master, daily stock status, purchase orders, sales history, and more. If you are not on one of the most common ERP systems, this can take weeks – if not more – to build this interface with a heavy involvement from your IT team.

More than 60 percent of supply chain–planning IT transformations take more time or money than expected or don’t achieve anticipated business outcomes, per research done by McKinsey.

If there are upgrades with your ERP system or changes to the data settings, it can break the interface to your supply chain planning system, requiring a consistent level of troubleshooting from the aforementioned IT team.

The supply chain planning system will provide some canned reports but if your senior managers and operations team and purchasing team would like some custom reports, your supply chain planning vendor may charge you per report. Otherwise, your IT team has to build these reports.

According to Pazago, the integration cost when it comes to implementing a supply chain management software can range from $25,000-$50,000 for smaller companies and $100,000-$500,000 for larger organizations.

An underrated cost of implementing a new third-party supply chain planning system is the impact that it has on your buyers – especially when it comes to reduced productivity.

Implementing a new system causes disruption for your buyers. They are familiar with the present system that they have, and learning a new system requires training, retraining, and yes, even more training. Thrive’s experience is that wholesalers rarely get all of their buyers to use the new system. Experienced buyers often distrust the new system, instead preferring to use their own analysis and gut feel.

After the initial vendor training, who is doing this training? Your other existing buyers, of course, which takes away even more productivity from your employees. And after time, there can be attrition or just memory loss, where less and less functionality is being utilized from the large supply chain planning investment.