ERP vs Supply Chain Management: What's the Difference and How to Streamline Your Process (2024)

Choosing between ERP vs Supply Chain Management can be tricky for any business aiming to systemize operations and boost productivity. While ERP and SCM often seem similar, they serve distinct roles that can shape how your business runs daily. 

In somehow, these 2 definitions support each other on the journey to grow up your business. Haven't you believed this? Aberdeen Group's research once indicates that organizations utilizing ERP systems experienced a notable 22% increase in supply chain and operational efficiency.

In this blog, we'll dive deep into ERP vs Supply Chain Management, breaking down what each system offers, how they differ, and the unique ways they help businesses stay competitive. 

What is ERP?

ERP, or Enterprise Resource Planning, is an integrated software solution that streamlines and automates business processes across an organization. 

In normal words, it brings together various functions like finance, human resources, manufacturing, inventory, and sales into a single system, creating a cohesive, real-time view of core business activities. The goal of ERP is to enhance efficiency, reduce manual tasks, and provide better data insights to support decision-making and overall business agility.

From our point of view as an IT consultant, ERP is more than just software; it's a framework for transforming how businesses operate. A well-chosen ERP system creates an ecosystem that supports collaboration, quickens response times, and allows for proactive planning based on data-driven insights. The efficiency gains can be immense, but success with ERP depends on aligning the system with the company’s unique workflows and goals.

What is Supply Chain Management?

Supply Chain Management (SCM), on the other hand, refers to the process of coordinating and managing the flow of goods, information, and finances as they move from supplier to manufacturer, wholesaler, retailer, and finally to the end consumer.

SCM encompasses everything from product development and sourcing to production, logistics, and the information systems needed to coordinate these activities. 

To the common knowledge, SCM capabilities can bring the power to:

- Enable real-time collaboration with all manufacturing partners

- Forecast, plan, and monitor inventories to prevent stockouts and eliminate costly delays

- Scout and secure top suppliers to ensure quality sources that maximize value and efficiency

💡In fact, companies with mature SCM capabilities enjoy up to 2-4% higher profit margins than their competitors due to cost savings and better customer satisfaction.

Key Differences between ERP vs Supply Chain Management 

Understanding their distinct roles is essential for choosing the best system to support your business’s unique operational need. Here’s to explain how ERP vs supply chain management differ:

Scope and Focus

At their core, ERP and SCM systems are built for different purposes. ERP (Enterprise Resource Planning) serves as a centralized hub that integrates and streamlines internal processes across the organization. Think of it as the backbone of a company’s operations, handling everything from financial management and HR to sales and production planning. Its primary goal is to ensure efficiency, standardization, and consistency within the organization.

On the other hand, SCM (Supply Chain Management) is outward-facing, concentrating on the journey of goods, information, and resources from suppliers to end customers. SCM’s focus is on external relationships, like supplier management, logistics, and distribution planning, ensuring a smooth and responsive supply chain.

This difference in scope makes ERP ideal for managing internal processes, while SCM shines in optimizing the external flow of goods and information.

Functional Differences

While ERP and SCM share some overlapping functions, their strengths lie in different areas:

ERP Systems: Handle the internal machinery of an organization, including financial reporting, payroll, resource allocation, and order processing. ERP systems bring together various departments under one platform, ensuring all business operations are running in harmony.

SCM Systems: Focus on the external network, such as supplier coordination, demand forecasting, shipping logistics, and customer delivery. SCM systems are designed to improve responsiveness and efficiency in a company’s supply chain, often involving real-time data and predictive analytics.

For example, if a company struggles to predict customer demand accurately, an SCM system could use historical data and market trends to create more accurate forecasts. Meanwhile, the ERP system ensures that internal teams have the resources and tools to execute these predictions effectively.

Data Management & Integration

One of ERP’s most significant strengths is its centralized data repository, which maintains consistency and accuracy across all internal departments. With ERP, organizations avoid the chaos of siloed data and ensure seamless communication between teams. This centralized approach simplifies tasks like financial audits or inventory management, saving time and reducing errors.

SCM, however, is built to enable real-time collaboration with external stakeholders, like suppliers and logistics providers. When integrated with ERP, SCM systems can draw on the internal data for improved supply chain visibility. For instance, having access to ERP’s inventory data helps SCM systems make better decisions about procurement and distribution.

That said, integration can be challenging. Companies that opt for standalone SCM systems may face compatibility issues when integrating them with existing ERP platforms. These challenges can delay implementation and create unforeseen complications. However, the benefits of integration, such as enhanced demand forecasting and reduced lead times, often outweigh these hurdles.

If your business relies on complicated supply chains, a good Supply Chain Management (SCM) system can help. This system can work alone or with an Enterprise Resource Planning (ERP) system. Either way, it can make your business more efficient and your customers happier.

Can ERP and Supply Chain Management Work Well Together?

The answer is YES. Despite the slight differences between ERP vs supply chain management, ERP systems still play a crucial role in optimizing supply chain operations from another point of view. 

By integrating various departments and stakeholders, ERP solutions can streamline processes, reduce costs, and enhance overall efficiency.

Here are 5 significant benefits if you integrate ERP systems in supply chain management:

1. Accurate Demand Prediction

Accurate demand forecasting is essential for efficient inventory management. ERP systems analyze historical data and market trends to predict future demand, enabling businesses to optimize production schedules and avoid stock outs or overstocking.

2. Minimize Production Obstacles

ERP systems help identify and address potential bottlenecks in the production process. By providing real-time visibility into resource allocation, inventory levels, and production schedules, ERP solutions enable businesses to proactively resolve issues and maintain optimal production capacity.

3. Breaking Down Barriers

Often, different departments in a company work separately, leading to confusion, delays, and missed opportunities. ERP systems will bring everyone together on a single platform, so that teams can share information and work together to faster decision-making, fewer mistakes, and better results for the whole company.

4. 360 Supply Chain Visibility

By breaking down barriers between departments, businesses can improve their overall performance and gain a clearer view of key metrics. This enhanced visibility helps manage critical success factors like staff productivity, order fulfillment, inventory control, and future forecasting.

5. Cost and Time Efficiency

Automation powered by ERP systems frees up employees to focus on strategic tasks, saving time and reducing costs. Automation also speeds up distribution processes and ensures compliance with regulations.

However, don't forget to take notes of big ERP implementation challenges to make sure you're aware of what will happen then.

Top-class Brands’ Success Stories Across Industries 

Not differentiate ERP vs supply chain management, well-known brands in the world, like Walmart or Zara, have been adapted ERP systems in their SCM for years. Are you curious? Let’s see how these 2 brands combine and make this duo work efficiently together to solve their current situation.

Walmart

Overview

Walmart, established in 1962 by Sam Walton, has consistently pursued operational excellence to support its "Everyday Low Prices" strategy. As the company expanded, managing its vast supply chain became increasingly complex. To maintain efficiency and competitiveness, Walmart recognized the need for an integrated system that could optimize operations, improve communication, and provide real-time data across its supply chain. This realization led to the adoption of ERP systems to enhance SCM.

What did they do?

Walmart's ERP implementation focused on several key areas:

- Direct Procurement from Manufacturers: Bypassing intermediaries, Walmart procured goods directly from manufacturers, allowing for better price negotiations and cost savings.

- Cross-Docking Distribution System: Goods received at distribution centers were immediately sorted and shipped to stores without long-term storage, reducing inventory costs and improving efficiency.

- Advanced Information Systems: The integration of ERP systems facilitated real-time data sharing between stores, distribution centers, and suppliers, enabling better demand forecasting and inventory management.

- Collaborative Planning, Forecasting, and Replenishment (CPFR): Walmart collaborated with suppliers to share sales data and forecasts, improving inventory accuracy and reducing stockouts.

ZARA

Overview

Zara’s secret to success lies in its ability to rapidly translate runway trends into affordable fashion. To sustain this competitive advantage, Zara adopted an AI-powered ERP system. This strategic move has empowered the brand to optimize its supply chain, reduce lead times, and deliver fashion-forward products to customers faster than ever before.

What did they do?

Zara implemented the Odoo ERP system, leveraging its AI capabilities to enhance various aspects of their supply chain:

- Real-time Inventory Tracking: Zara's ERP system kept track of how much of each item was in every store and warehouse. This helped them quickly adjust to changes in customer demand and avoid having too much of anything.

- Smart Replenishment: Using clever AI, the system automatically figured out how much of each item they needed to order based on past sales and trends.

- Better Teamwork: The system made it easy for the design, production, and retail teams to talk to each other. This helped them make decisions faster and react more quickly to what customers wanted.

- Data-Driven Decision Making: The ERP system's analytics capabilities provided insights into sales performance, customer preferences, and operational efficiency.

Key Considerations To Choose ERP vs Supply Chain Management Solutions

Despite these benefits, Gartner reports that 55-75% of ERP projects fail or don’t fully meet their goals. Effective supply chain management is complex and requires precise data and insights to enable quick, agile decisions. So, it’s vital for your business to weigh up which is right that drives long-term growth.

The point is: How your business can select the right to process operations?

The choice really depends on the scope of your supply chain and whether your core operations revolve around distribution or manufacturing. While ERP systems often include an SCM components, specialized SCM solutions offer more detailed, end-to-end control over the supply chain.

For many small to medium-sized businesses (SMBs), the built-in SCM features within an ERP system are often sufficient to handle supply chain needs. But if you're considering a dedicated SCM solution, it's essential to think about how you’ll manage accounting, eCommerce, sales, and other vital functions. Running separate solutions for SCM and other business functions can become costly and may add complexity to your operations.

💡 Expert tips: Still not vague for your final decision? Better ask yourself clearer questions:

- Are you primarily a distributor, manufacturer, or service provider?

- What are your primary operational challenges?

- How complex is your supply chain?

- How will you manage other core business functions (accounting, HR, sales)?

- Do we have the resources for implementation and ongoing management?

Final Words

In conclusion, although there’s some differences between ERP vs supply chain management, ERP and SCM systems each offer unique strengths. From ERP's broad operational coverage to SCM's specialized focus on the supply chain. In better view, you can combine this duo to make your operation work more efficiently.

Whether you choose ERP system or SCM, Golden Owl Solutions get your back! If you’re looking for a best-fit and trusted IT software provider, contact us today for further ERP consultation! 

FAQs

1. Can ERP systems manage supply chain activities?

Yes, most ERP systems have SCM modules that handle basic supply chain functions like inventory management and order processing. However, for complex supply chains, dedicated SCM software may offer more specialized capabilities.

2. Do I need both ERP and SCM systems?

It depends on your business needs. If your supply chain is intricate and heavily reliant on real-time coordination with suppliers and logistics, an SCM solution might be beneficial. For smaller operations, an ERP with SCM capabilities might be enough.

3. Which solution is more focused on real-time inventory tracking?

SCM systems are specifically designed for real-time tracking of inventory within the supply chain. However, ERP systems with advanced SCM modules can also offer real-time inventory management across internal and external processes.

4. Can I start with an ERP and add SCM later?

Yes, many businesses start with an ERP system and add a specialized SCM solution as their supply chain grows in complexity. ERP systems are typically designed to integrate with other software, so adding an SCM solution is often feasible.