Enterprise Resource Planning (ERP) and Supply Chain Management (SCM) have been gaining popularity within organizations over the last few years, across a number of vertical industries.
An ERP system focuses on the management of business information, offering a macro view into a company by integrating disparate systems across functional groups such as procurement, finance, distribution, and inventory control. A Supply Chain Management system ties in supply chain partners who help a company find the raw materials it needs to deliver products and services to its customers. The integration of both systems usually poses some challenge to CIOs, as there is no set formula as to which system should be implemented first.
In cases where the company has already deployed an ERP system to collect information across the board, the supply chain system that follows pulls data from ERP systems; thus making the deployment process easier. In other cases, multiple offices may have stand-alone SCM systems in place that are then integrated into a ERP system. With this type of implementation, there may be the need to add in other dashboard components such as; inventory checks, financials and manufacturing.
Key Elements to Supply Chain Management
Supply Chain Management involves the design, planning, execution, control and monitoring of supply activities with the objective of creating net value to build a competitive infrastructure that leverages worldwide logistics, while synchronizing supply with demand, and measuring performance globally. A Supply Chain Management system provides real-time visibility into operations, and integrates activities through improved supply chain relationships, to achieve a sustainable competitive advantage. Below are the four key elements to Supply Chain Management.
• Supply Chain Planning: The determination of a set of policies and procedures that govern the operation of supply chain. Planning includes the determination of marketing channels, promotions, respective quantities and timing, stock and replenishment policies and production policies. Planning establishes the parameters within which the supply chain will operate.
• Supply Chain Execution: Execution-oriented software applications for effective procurement and supply of goods and services across a supply chain. It includes manufacturing warehouse and transportation execution systems, and systems providing visibility across the supply chain.
• Supply Chain Monitoring: The ability to review supply chain activities in real-time, whether to identify the current status of individual activities or review overall performance.
• Supply Chain Measurement: Measurement is comparison of the actual activity against targets. This is often used with scorecards of benchmarks so that unusual or undesirable variances can be identified and investigated.
Parameters for Successful Supply Chain Implementations
The primary goal of any supply chain is to satisfy customer needs and generate profits. Supply chain activities begin with a customer order and end when a satisfied customer has paid for the purchase (sales order fulfillment, order-to-cash, etc.) SCM, as with any other enterprise-wide software systems, can be successfully implemented when the following are in place:
• A clearly defined process-flow chart of the organization specifying key chain of commands for each functional area.
• Commitment to the project from management and end users through training.
• An understanding of expected return on investment both in the short and long term.
• Aligning all resources needed to ensure smooth deployment such as existing infrastructures etc.
Advantages of Implementing an ERP System before Supply Chain
ERP can be executed for corporate functions like human resources, finance and accounting, basic industry-specific procedures, reporting and planning. There are a number of advantages to building a Supply Chain system on top of an existing ERP platform.
• An ERP system outlines a smart process for the company to use technology to automate manual or mundane work processes therefore, making it easier to streamline supply chain management practices.
• ERP systems help to define roles and responsibilities of different users and ensure that ownership is assigned at various levels. This is critical to managing the various aspects of a supply chain management system.
• ERP implementations also help users to gain familiarity with technology systems, terms and sets expectations making transitions to supply chain management applications smoother.
Integrating Supply Chain and ERP systems
Most ERP vendors today, offer Supply Chain Management components so companies can implement both as part of the same rollout.
The integration of ERP and SCM systems is easier with the following considerations:
• Business priorities: Is it ERP first or Supply Chain? In most cases, ERP starts with financials and corporate workflow, and companies build on from here.
• Technology issues: If the ERP and SCM systems are on similar technology platforms, integration is simpler to execute, decreasing time to ROI.
• Cost of implementation: Companies must consider and evaluate the cost impact of both systems being integrated, or if the software only allows data transfer.
• Total cost of ownership: There may be cost savings and improved user experience if both systems processes are merged to reduce the points of data capture.
Benefits of Integrating ERP and Supply Chain Systems
There are many success stories and unfortunately much-hyped failures as well. However, if most projects follow some simple guidelines, companies can increase the chance of success, deliver on time, and proudly involve the relevant group of users who utilize the system to maximum gain. Some benefits to look forward to include:
• Improved efficiencies, lower costs and improve productivity
• Ability to provide better services to customers, and therefore increase customer retention
• Increased ability to manage resources through a streamlined process, and in some cases, an automated workflow
• Leveraging IT to enhance the speed of tasks and increase production
• Ability to cope with business changes in the future and to adapt to changing rules and regulations, therefore enabling the organization to compete more effectively
ERP and Supply Chain Management systems offer different benefits to an organization in terms of capabilities and functionalities. Given the intra-organizational and inter-organizational advantages offered by ERP and Supply Chain respectively, integration of both systems will provide a company with substantial leverage over competitors. However, it is pertinent that companies first identify and work on reducing and eliminating non-value added activities, processes and components in the business. It is only when they start to adopt a holistic view to efficiently address enterprise needs that they will be able to deliver their products and services with speed, ease and quality.