The Role of ERP in Supply Chain Management

Last Updated: October 20th, 2023
Researched and Written by: Lexi Wood

The global supply chain is moving faster than ever before. In order to keep up with growing real-time demands, more and more businesses are adopting enterprise resource planning software. Learn about the role ERP plays in supply chain management and how it benefits businesses.

What is Supply Chain Management

To understand how ERP improves SCM, you first need to understand what SCM is:

Supply chain management refers to the processes manufacturers, logistics providers, distributors, suppliers, and retailers use to manage the flow of goods and services between locations as efficiently and as cost-effectively as possible. It starts with the acquisition of raw materials and continues through to the finished product being delivered to a customer.

A comprehensive supply chain management strategy makes it possible to plan, control, and execute all these processes.

What is ERP Software in Supply Chain Management

An ERP is a suite of business applications designed for streamlining and automating operations ranging from basic accounting to advanced forecasting. When used in supply chain management, ERP enables organizations to make informed decisions about product lifecycle management by coordinating raw materials, purchase orders, vendors, warehouse management, and distribution all in one shared database.

What are Supply Chain Management Applications in an ERP System

ERP software has specific supply chain management modules which address these critical components:

  • Procurement and sourcing: Real-time data sharing ensures accurate visibility into supplier performance, lead times, and pricing, facilitating informed decisions and reducing procurement costs.
  • Inventory management: Improves inventory turnover, reduces carrying costs, and better aligns stock with customer demand.
  • Production scheduling: Minimizes production delays, enhances resource utilization, and improves on-time delivery.
  • Distribution logistics: Real-time tracking of inventory levels and order statuses ensures accurate order picking and packing.
  • Demand forecasting: Improves demand fulfillment, reduces stockouts, and efficient resource allocation.

Outside of these specific benefits, an ERP provides high-level visibility into business processes. The ability to see different data in real-time from one centralized source makes it easier for top decision-makers to generate accurate forecasts for the supply chain.

One top trend is the switch to cloud-based ERP to maintain real-time updates on the supply chain around the globe. By moving all data to the cloud, employees around the world gain visibility into every step of production. No more waiting for business hours in international time zones to see whether or not a delivery is on time.

Another growing ERP trend is the adoption of artificial intelligence (AI) and the Internet of Things (IoT) to provide advanced quality control in supply chain operations. First, IoT sensors can monitor the quality and condition of goods throughout the supply chain, ensuring that products meet predetermined quality standards. Then, AI algorithms can analyze data to identify patterns in potential quality issues, enabling proactive measures.

The synergy between cloud-based systems and evolving real-time technology in ERP leads to a smarter, more adaptable, and efficient supply chain that can adapt to dynamic market conditions.

Best Practices for Implementing ERP into SCM System

While some small businesses can get away with just supply chain management software, most medium and enterprise-level corporations need both SCM and ERP to keep up with the increasing demands of real-time supply chain operations. If you’re ready to add an ERP to your supply chain management processes, you must determine the following:

First, consider if you need an ERP with a SCM module or if you’re better off with two separate SCM and ERP software products. The latter is useful for businesses which already have a legacy solution in place. While most SCM solutions are designed with ERP software integrations in mind, it can be a time-consuming, resource-intensive process. It’s crucial to evaluate both the supply chain management features your organization requires and the scope of the desired ERP integration.

Next, make sure to pick the right software for your industry needs. For instance, there are manufacturing resource planning (MRP) solutions which act as an ERP but provide additional functionality necessary for meeting manufacturing standards. There are also ERP solutions specifically for distribution.

Finally, you should consider support options, as a local software developer might not be able to offer live support for your international offices. With logistics requiring more real-time response than ever, it’s vital you can get support anytime, anywhere, if an issue arises with your ERP.

Need help getting started? Software Connect software advisors can match you with top ERP and supply chain management software.

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