How ERP and supply chain platforms protect profits
Working capital, forecast accuracy and supplier exposure are governed as much by ERP and supply chain design as finance policy, making supply chain platforms key to margin control.
ERP and supply chain platforms are traditionally used to help control cyclical volatility. That is too limited a view to identify other cost pressures that are now rising because today "volatility is structural, not cyclical," said Kevin Golden, CPA and partner at James Moore & Co., an accounting and tax consultancy. Legacy and cobbled-together systems, in particular, fall short of even noting -- let alone managing -- risk spread at scale.
Cost pressures are still showing up in payroll lines and discretionary spend, of course, but they are also resurfacing across the structural systems that govern how enterprises buy, hold, move and account for value.
In short, "complexity has outpaced legacy infrastructure," said John Burns, senior director of Financial Systems & Controls at Summit Behavioral Healthcare. "Managing modern margin pressures with fragmented systems is unsustainable."
These platforms are generally considered operational infrastructure. In other words, they are viewed as tools for logistics, procurement, production planning and order management. But such an approach is no longer useful. Modern ERP and supply chain systems function as structural financial control systems. For example, they can shape working capital behavior, determine forecasting accuracy and define how supplier risk is priced into the enterprise. Some of these systems, but not all, use AI to speed up response times.
But fancy new tech or added features alone do not satisfy the search for more financial risk controls. Nor do elaborate demos of new systems necessarily impress those focused on acquiring a technologically based iron grip on risks. "Savvy leaders are becoming more skeptical of hockey stick value projections after multiple waves of ERP technologies that failed to deliver," said Joe Sagrilla, CEO and principal consultant at Horizon Business Consulting.
Today, business leaders are coming to terms with a new reality: ERP is not where cost is reported; it is where cost is engineered.
Where cost drift accumulates
Cost drift rarely arrives as a single, notable disturbance in the financials. Rather, it comes in small wafts of seemingly innocuous variations that accumulate over time. It creeps in through a thousand small process leaks.
"Excess inventory from forecasting error ties up working capital, procurement leakage introduces uncontrolled price variance, and manual finance processes delay corrective action," said Golden.
These steadily compounding problems can be caught and managed early if the tools are properly attuned to detect their presence.
"The real issue isn't visibility, it's latency. By the time leaders see the problem in traditional reporting, the financial damage has already occurred," Golden added.
Today, business leaders are coming to terms with a new reality: ERP is not where cost is reported; it is where cost is engineered.
Latency in any process -- even those tasked with helping reveal the issues -- creates enough drag to cause cost drift. For example, according to Burns, drift accumulates "in the gaps among systems, spreadsheets, manual reports and disconnected data warehouses." To get a handle on these situations, teams that have no unified data blueprint create their own offline versions, causing compliance gaps and governance failures," he added.
"Labor hours go to reconciliation, not analysis. Inefficiency thrives where integration fails. Too often, analysts spend 80-90% of their time gathering data, leaving little time for true analysis," said Burns.
Cost drift accumulates in nooks and crannies within the organization, which can be easily overlooked.
Sagrilla suggests looking for major cost drift in the following areas where it commonly accumulates:
ERP customizations. Oversized technical teams are often required to maintain ERP customizations, especially when the platform cannot support key business processes out of the box.
Extended ERP. Ongoing integration costs arise when organizations connect ERP systems with point solutions added to fill functional or analytics gaps.
Manual workarounds. Less visible operational drag arises from harder-to-measure technical debt stemming from manual workarounds and lost confidence in ERP data.
Intercompany accounting. This is one of the largest sources of cost drift, risk and poor visibility. Many organizations lack ERP configurations that handle intercompany transactions cleanly, forcing finance teams to manually match transactions, reconcile balances and resolve inconsistencies. The result is recurring balance discrepancies, ongoing remediation and extended close cycles -- all of which weaken financial control, extend reporting cycles and increase the cost of finance operations.
"Further, bad processes and data can cause issues with inventory valuation, P&L [profit and loss] reporting and product profitability analytics," warned Sagrilla.
What's changed?
ERP and supply chain platforms have been around for quite some time, which explains the proliferation of poorly performing legacy systems.
Sagrilla said problems were pushed repeatedly down the road in efforts he dubbed the "silver bullet syndrome." The hard work of standardizing processes, harmonizing data models and enforcing data governance was kicked down the road "in hopes that the ERP implementation would be a silver bullet that fixed everything," he said.
"When the dust settles, the new system has many of the same limitations as the old one. Costly workarounds and bolt-on systems eventually emerge and grow over time," Sagrilla said.
However, both ERP and supply chain platforms are entering a new maturity phase to keep pace with the evolving challenges that modern enterprises face. The shift centers on structural integration. In essence, that means the convergence of finance, operations and AI-driven planning into a shared control environment.
"Modern ERP and supply chain platforms now operate on unified data models, which allows financial signals to move across planning, procurement, production and accounting in near real time," said Golden.
"AI-assisted forecasting adds value, but only because the underlying data architecture is finally strong enough to support it. Without that foundation, advanced analytics simply automate bad assumptions faster," Golden added.
This evolution in platforms adds yet another advantage: speed over lag. AI and data modernization have shifted the baseline, said Burns.
"We've moved from static reports to data fabrics that instantly link volume, revenue and staffing. Technology embeds governance into the workflow. By implementing AI, we automate controls, not just inputs. Governance, often overlooked, is critical," Burns explained.
What leaders should watch
Many of the problems stemming from continuing to work with legacy systems are well known, but other issues lurk in the background. A first vital step is to discover exactly what your company's situation is, which requires "a comprehensive assessment of processes, data and the system landscape," according to Sagrilla.
"From there, develop a blueprint for the target system landscape which incorporates the new ERP. Even if achieving the full blueprint is a long-term goal, having a true north to help prioritize design decisions pays off in spades," he said.
However, there are specific areas that require attention even before the new blueprint is completed.
"Leaders should focus less on feature depth and more on control integrity. Governance gaps, integration debt and poor signal quality all lead to one outcome: delayed or misinformed financial decisions," said Golden.
The key point to remember is that ERP and supply chain platforms are increasingly where financial discipline is either enforced or quietly eroded.
"The most dangerous risk is decision latency, which is when the system technically has the data, but the organization can't act on it quickly or confidently enough to protect margin," said Golden.
Pam Baker is a freelance journalist and the author of books including ChatGPT for Dummies and Generative AI for Dummies. Baker is also an instructor on AI topics for LinkedIn Learning and a member of the National Press Club, the Society of Professional Journalists and the Internet Press Guild.
