Business leaders need to interact with key team members, including suppliers and partners, to turn raw materials and resources into finished goods. How does ERP fit into the picture – or in other words – what is ERP in supply chain management? Well, an ERP solution helps make supply chain management as seamless as possible, providing real-time updates that enable quick business decisions.
No Toilet Paper? Supply Chain to the Rescue!
As COVID-19 spreads globally, everyone is suddenly being exposed to story after story focusing on supply chains. Right off the bat, let’s get an official definition of “supply chain.” Supply chain is a system of organizations, people, activities, information and resources involved in moving a product or service from supplier to customer.
How does that Charmin get to the store shelves? Supply chain activities involve the transformation of natural resources, raw materials and components into a finished product that is delivered to the end customer.
In the context of toilet paper, this means:
- Sourcing your core ingredients (from the forests)
- Transporting those ingredients to a manufacturing/transformation facility
- Packaging the final product
- Warehousing (storing) the finished goods
- Delivering finished goods – either to a retailer (or direct to consumer)
Once at Target or Costco:
- Unloading the truck
- Opening shipping containers
- Merchandising the shelf (if the shipment isn’t already raided by frantic shoppers)
Now that we’ve talked about supply chains, let’s discuss ERP. Enterprise resource planning (ERP) solutions have allowed companies deep visibility into their entire supply chain ecosystem. Read on to learn more about the role of ERP in supply chain management.
What is ERP in Supply Chain Management?
As a strategy, supply chain management (SCM) simply means having a plan in place to monitor and update supply chain activities in real-time. It means actively managing the various activities that take place in a product’s lifecycle to maximize customer value and achieve a competitive advantage.
The 2020 ERP Report
This report summarizes our independent research into organizations' selection and implementation decisions and their project results.
As manufacturing and distribution operations become more widespread and global, companies are facing new challenges as they seek to communicate with both internal and external stakeholders. As a result, they require real-time data on every part of their supply chain, from anywhere, at any time.
This means a simple supply chain management strategy is no longer as effective as it was before. Years ago, SCM software was enough to plan, track and manage the movement of goods into and out of an organization.
But what happens when the product lifecycle is more complex, dispersed and complicated than ever before?
Now, business leaders require a more intricate look at every component of their supply chain to reduce inefficiencies, increase speed and keep up with customer demand. This means integrating ERP software with their SCM systems and supplementing the latter with ERP business intelligence on their company’s finances, sales and processes.
The result? Their supply chain management efforts are enhanced and better informed with a broader view of company operations. Every step of their supply chain is orchestrated and connected, from procurement to product delivery.
With the right ERP solution, executives can avoid supply chain disruption by keeping a constant eye on the paths their products take as they travel from the supplier to the store.
The Role of ERP in Supply Chain Management
Next, let’s take a look at some of the roles that ERP software can play across your SCM workflow. Understanding these features is critical to selecting a system that delivers the functionality you require.
1. Demand and Planning
Investing in an ERP solution designed for supply chain management can help companies ensure a constant balance between supply and demand. As soon as an order is received, the system will automatically create a demand, helping balance product levels to ensure inventory never dips too low.
At the same time, users can also leverage ERP software to create more effective job scheduling, assigning key tasks to the team members responsible for completing them. This way, supervisors can achieve real-time updates on where their resources are at any given time. With this data in hand, they can plan more accurate delivery dates.
By taking a deeper look into their inventory and raw material levels, decisionmakers can enact more efficient production policies, ensuring they’re consistent with demand. They can also precisely time replenishment efforts and keep overall inventory levels lean.
2. Procurement of Goods and Services
With an ERP solution designed for SCM, companies can manage their procurement and supply efforts with a few clicks, ensuring that goods, services and other essential resources are moving at an adequate pace across the supply chain. This includes visibility at touchpoints such as . . .
- Product manufacturing
- Warehouse operations
- Transportation logistics
- Execution processes
Before SCM-ERP integration, myriad tasks along the chain were relegated to manual efforts. Previously, communicating with vendors and suppliers could take days. Now, executives can hop online and chat with these collaborators in an instant, quickening their workflow and avoiding obstacles that threaten to usurp their efforts.
The best part? All these communications can be stored, organized and accessed at a later date. Not only can this help resolve disputes and clear up any confusion between stakeholders, but the data can also be used for forecasting and performance analysis efforts.
3. Production and Shipping
Effective production hinges on understanding the exact material and labor efforts required to create each component. Until this data is accurate, production managers are hard-pressed to know exactly which resources to assign to the task.
To this end, ERP software helps provide a crystal-clear look at the requirements that go into each production piece. Basically, users can create a thorough bill of materials (BOM) for each item. Then, when production gets underway, most systems will automatically record the usage of material and labor resources in real time. This way, there’s no second-guessing if you have enough resources supplied to each effort.
Then, when it’s time to ship, all shipping documents and details are recorded and submitted directly within the ERP system. This eliminates the possibility of manual errors while providing supply chain stakeholders instant updates on where the goods are, where they’ve been, and where they’re heading.
Along the way, if there are any work orders or job tasks that require modification, a feature-rich ERP system will record and facilitate all the changes. This way, even last-minute alterations don’t throw the entire supply chain off track, and production processes can still be completed on time.
While these tools help regulate scheduling efforts and enhance team coordination, the real benefits are extended to the customers. When production and shipping efforts are aligned and orchestrated, products are shipped on time and delivered on the correct date.
4. Product Shipment
The second a product is shipped, it’s time to send an invoice to your customer. Yet, how can you manage that process effectively if you don’t know where each item is in the shipment timeline?
The answer is customizing your ERP software to serve as a central repository for all of your customer shipment and item delivery details. This gives you the managerial oversight to ensure every item is delivered on time.
Essentially, the software can automatically generate an invoice as soon as the shipment is initiated. Most platforms will even let you designate certain packaging methods to be used with different item types, as well as perform quality checks on both internal and external packages.
Benefits of Integrating ERP and SCM
With a robust SCM solution already in place, why should you invest in an ERP system to integrate into it? Put simply, doing so allows you streamlined simplicity.
When you can automate your entire supply chain, you drive down overhead and operational expenses. You also meet customer demand and facilitate clear communication between suppliers and partners. Let’s review a few of the other ERP business benefits you can expect to reap when you make this integration.
1. Fewer Production Bottlenecks
Your internal processes might be robust, but how do they interface and operate with your external suppliers? When there is a disconnect between these two systems, it can lead to costly and time-consuming bottlenecks that ultimately slow down production and frustrate end-users.
However, an ERP system gets everyone on the same page, enabling various stakeholders to communicate on one, comprehensive platform. If there’s an issue at any point, you know about it as soon as it happens, so you’re able to make spur-of-the-moment decisions to drive production forward.
2. More Accurate Demand Forecasting
Accurate demand forecasting is essential to keeping inventory levels where they should be.
This helps ensure your business is always prepared to meet customer expectations. With ERP, you can access historical sales data and current requirements to anticipate future needs. When you have access to this knowledge, you can keep your inventory lean and avoid material waste.
3. Cross-Departmental Visibility
Your C-suite isn’t the only business entity that will require visibility into your supply chain operations.
An ERP system allows authorized users across your company to access the same information when they need it. This means that team members from project managers to customer service specialists are always equipped with the answers they need.
What SCM ERP Options are Available?
Now that you know why it’s beneficial to integrate your SCM and ERP efforts, you’re probably wondering what kind of solution you should implement? In general, you’ll have two options:
- Fully integrated ERP solution with built-in SCM functionality
- Third-party SCM application that can integrate with ERP
If you choose an SCM application, you’ll likely be responsible for integrating it into your existing solution. When you go this route, you’ll need the expertise of an ERP consultant to help you determine if and how the two systems work together.
For many companies, it’s ideal to invest in a fully integrated ERP solution that’s designed to work as a single unit, from the very beginning. This is a less cumbersome and clunky setup and can help business leaders achieve the streamlined functionality they seek.
On their own, SCM systems have many strengths. Yet, the reality is that today’s global economy mandates a more comprehensive, hands-on approach to the product lifecycle. This is why an ERP solution with SCM functionality is the key to standing out among competitors and simplifying an otherwise complicated process.
Optimize Your Processes First
Before you select a solution, it’s smart to first invest in business process reengineering so you can optimize your existing supply chain processes. From inventory control and order fulfillment to demand planning and customer service, identify the areas where you’re lacking and take steps to improve them. Then, when you’re ready to evaluate ERP vendors, you’ll know what your ERP requirements are.
Want more in-depth advice on how to evaluate SCM functionality? We’ve got you covered when it comes to ERP selection. Request a free consultation today!