Clorox Enhances Supply Chain Operations through New ERP System

Transitioning to New Technology

Clorox is embarking on a significant upgrade of its U.S. supply chain by implementing a new ERP system set to launch in July. This change aims to ditch outdated technology that’s been in place for 25 years while optimizing productivity throughout the company.

Key Highlights:

• The company’s executives announced plans at the dbAccess Global Consumer Conference, showcasing the anticipated boost in efficiency.

• The new ERP system is designed to enhance data visibility and improve demand planning, enabling a real transformation in the operational backbone of Clorox.

• Clorox’s CEO, Linda Rendle, clarified that this project’s scope goes beyond a mere software upgrade; it encompasses the establishment of a comprehensive data infrastructure across the organization.

Understanding the Transition Process

Transitioning to a new ERP system is known to be a complicated and often risky endeavor. To alleviate potential issues during this shift in their supply chain, Clorox has prudently decided to increase inventory by 1.5 weeks at its retail locations, which typically maintain around four weeks’ supply of products.

As Luc Bellet, the company’s CFO put it, “This will really create a buffer and protect us from any out-of-stock situations.” As a result, there may be temporary fluctuations in financial performance due to the surplus inventory. Clorox anticipates overstating its organic sales by about 2% to 3% in the fiscal year 2025, followed by an equal understatement in the following year while retailers sell the acquired inventory.

Financial Considerations During the Transition

The financial impact of the inventory build-up might also introduce brief disruptions. The company is optimistic that the sales will normalize by the fiscal year 2027 as more streamlined processes settle in following the ERP transition.

In January, Clorox initiated global finance reporting and planning within the ERP system, allowing the company to focus on its operational transition due to roll out in July. This transition will commence with moving order fulfillment and management to the new system before incorporating manufacturing facilities over a six-month timeframe.

The Broader Project: A Five-Year Digital Effort

This ERP upgrade isn’t just a fleeting venture; it’s part of a comprehensive $500 million digitization project initiated in 2021. Clorox expects that fresh productivity gains within its supply chain will begin to manifest in fiscal year 2027.

It’s worth noting that ERP transitions, although potentially rewarding, can come with steep financial consequences. A case in point involved J&J Snack Foods, which incurred losses of $20 million in one quarter of 2022 due to production disruptions linked to an ERP upgrade.

Harnessing Past Experiences for Future Success

However, Clorox remains confident about its approach to this rollout for various reasons. The company conducted successful pilot programs in Canada last summer, which yielded positive outcomes without significant disruptions, allowing them to learn valuable lessons to bolster their upcoming larger-scale launch.

Clorox’s strategy reflects a thoughtful evaluation of their peers’ experiences to inform their own progress. This collaborative ethos extends to partnerships with consultants and retail partners, enhancing their focus on a smooth transition.

Comparative Industry Context

This isn’t an isolated instance in the manufacturing industry; other prominent names have also embarked on similar ERP transitions, such as Mondelēz International’s substantial $1.2 billion initiative and Lamb Weston’s north America operations shift last year. As Bellet aptly commented, “While we’re not necessarily proud to be kind of last to the game, that gives us a lot of benefits.” Clorox is leveraging these shared insights to make informed decisions and avoid potential pitfalls.

Conclusion: The Logistic Implications

In summary, Clorox is taking a significant leap forward as it swaps legacy systems for modern ERP technology. This pivotal change stands to enhance real-time data visibility and resource allocation while boosting the overall productivity of the supply chain.

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