- Clorox is upgrading its nearly 20-year-old ERP system for real-time data visibility and improved demand planning, CFO Kevin Jacobsen said during the Morgan Stanley Global Consumer & Retail Conference on Dec. 2.
- The cleaning products company is pursuing cost savings and "a lot more admin productivity opportunities" by updating its production management, demand planning, inventory oversight and order fulfillment technology, he said.
- Once the upgrade is complete, Jacobsen said he expects Clorox to be able to adjust plans as needed and maximize ROI. "I expect things like trade efficiency to go up. I expect supply chain costs to go down," Jacobsen said.
The ERP upgrade is part of Clorox’s five-year, $500 million investment to "significantly increase the digital capabilities of the company," Jacobsen said.
Real-time data visualization offers companies the ability to overlay consumer insights with predictive modeling, giving them a granular understanding of data at the local customer level. It's a priority for Clorox, whose supply chain had difficulty quickly adjusting to demand volatility during the pandemic, as it pursues more DTC capabilities.
"With much greater access to data, we can do much better demand planning," Jacobsen said.
Many companies across industries are putting more emphasis on ERP and improved digitization of their supply chains to improve operations. McCormick, which doubled in size since its previous ERP upgrade, is investing as much as $350 million in its system, the company said last year. Ulta plans to spend up to $180 million on a three-year ERP update to reshape its business flows, improve processes and remove inefficiencies, the beauty retailer said last week.
Clorox is updating software as it faces commodity and logistics costs inflated at seven times their typical rates, Jacobsen said.
The company has struggled with stock-outs during the pandemic and raced to keep up with elevated demand. Prioritizing capacity, Clorox added third-party manufacturers and suppliers and stepped up production on specific lines and facilities to increase its net inventory by nearly 51% earlier this year.
While the company intends to shift more of its production away from contract suppliers as demand calms, the ERP represents a longer term investment, Jacobsen said. ROI won't be immediate: The ERP is expected to go online by 2024 or 2025.
"While it will generate very nice savings for us and enhance revenue, likely that'll be pushed out beyond our strategy period and really into 2030 and beyond," Jacobsen said.
An ERP overhaul, like any complex, multi-year project, carries risks. A Boomi survey of 1,675 tech leaders found more than half of projects to modernize legacy technology failed. Only four in 10 organizations that have completed ERP implementation managed to do it at or under budget, according to the 2021 ERP Report published by Panorama Consulting Group.
But supply chain volatility – as well as increasingly digital consumer behaviors – during the pandemic focused Clorox on the importance of investing in its digital capabilities, Jacobsen said.
"There'll be a level of increased volatility over the long term – not what we're experiencing now, but certainly more than we had before the pandemic," he said. “And as a result of that, we think this is a very good investment in the future of the company."