Your ERP System Isn’t the Best Tool for Supply Chain Management—Here’s Why

Ultimately, the choice comes down to optimizing your workflow management as you digitize your business. A “one-size-fits-all” tool isn’t ideally suited to managing both internal, transactional data (like an ERP) and external, collaborative relationships (like SCM).

“Potential problems occur when one type of software attempts to fulfill every business need. Yes, many software suites feature modular components that allow the system to be configured with different functionality based on the needs of the user. However, particularly in areas such as supply chain management, there can be a great deal of complexity. That in turn can lead to a system that is complex to the point of no longer being intuitive and user friendly, decreasing user adoption and leading to workarounds and using less-than-efficient systems.”—Technology Evaluation Center, ERP vs. SCM – Which Software Is Best for Your Business?   

We’ll explore:

• Enterprise Resource Planning systems and what they do well.
• Supply chain management systems and the processes they specialize in.
• Differences between ERP and SCM.
• Whether an ERP or an SCM system is best suited to specific processes and tasks in your business.
• How ERP and SCM can work together and to your advantage.
• How to choose the right tool for the right job.

A specialist SCM tool will help you maximize transparency and product quality, reduce operational costs, eliminate delays, and build trusted relationships with your suppliers. 

Enterprise Resource Planning Systems and What They Do Well

For medium and large businesses, ERP software provides a transactional, data-driven foundation to understand what’s happening across the organization.

“As the name suggests, ERP’s primary goal is to manage the various resources within the company to make sure they are being utilized in a cost-effective way. It is also designed to make sure that all resources are being used efficiently.”—Corporate Finance Institute, What is Enterprise Resource Planning (ERP)?

Depending on the platform’s capabilities, ERP systems and their integrated applications help businesses to:

• Gather together and centralize information from across the enterprise for one view of the truth.
• Store, manage, interpret, and report on data to allow business stakeholders to take action.
• Automate routine tasks and administration to reduce overheads.
• Understand and simplify business processes to remove unnecessary waste and inefficiencies.

ERP systems provide this functionality across multiple business areas. Outside of supply chain management, this may include:

• Accounting
• Customer Relationship Management (CRM)
• Human Resources
• Analytics and Reporting

Supply chain management areas supported by an ERP might include:

• Order Management
• Procurement
• Manufacturing
• Inventory management
• Distribution

So, if an ERP provides supply chain management capabilities, why would you need a separate supply chain platform? We’re glad you asked.

The Strengths of Supply Chain Management Platforms

SCM platforms are collaborative, relationship-based software that helps businesses to track, manage, and optimize the flow of products as they pass through the global supply chain. 

“Supply chain management (SCM) software is designed to help companies meet customer demand in the most efficient, cost-effective manner possible by tracking the strategic movement of products and materials from their original source to the factory, warehouse, store, customer, and through return or disposal.”—TechnologyAdvice, What is supply chain management?

Depending on the platform’s capabilities, SCM systems help businesses to:

• Support initial product discovery and research, including understanding the procurement and supply chain.
• Balance supply and demand management including the forecasting of future requirements.
• Manage pre-production activities like product development, function and feature specifications, collaboration with suppliers, sample evaluation, and testing.
• Monitor and track the end-to-end production, transportation, storage, and distribution of products, from ordering through to delivery to the customer.
• Audit and monitor supply chain performance for speed, accuracy, quality, and cost.
• Maintain and refine order and inventory levels based on supply, capacity, and demand planning, and warehouse storage management. 
• Optimize logistics operations including distribution and delivery to the end customer.
• Evaluate and manage suppliers including supplier data, service level agreements, certificates, audits, and self-assessments.

SCM systems deeply integrate throughout the supply chain to gather data, support supply chain stakeholders, and provide additional capabilities to all parties:

• Suppliers and manufacturers can use SCM software to understand upcoming requirements and orders, optimize their workflow and product manufacturing, and meet their contractual targets.
• Supply chain partners can collaborate over an SCM platform to keep others updated, ensure secure and robust handoffs, and track goods.
• SCM optimization specialists can use data to maximize quality, reduce and eliminate delays, and understand and reduce fixed and operational costs.
• Logistics providers can manage the receipt, storage, and onward transportation of products in an efficient way. 

The Main Differences Between Enterprise Resource Planning and Supply Chain Management Software

You need the right tool for the right purpose. ERP and SCM platforms have different design philosophies and ways of working:

• ERP platforms tend to be transactional, focus on making internal business data usable, and providing information to support in-house business processes and decisions.
• SCM platforms tend to be collaborative, focus on integrating with external data, and managing relationships and workflow across multiple organizations.

Let’s break this down a little more.

Transactional vs. Collaborative Framework

• ERPs are great at recording a company’s daily transactions and making that information accessible.
• SCMs excel at collaborative workflows, and building networks of interconnected stakeholders.

Internal vs. External Data Collection

• ERPs are well-suited at recording, processing, and reporting on well-understood, internal business information.
• SCMs integrate with data from multiple external partners and rationalize it for management across the end-to-end supply chain.

Process vs. Relationship Management

• ERPs are great at simplifying, automating, and managing in-house business processes.
• SCMs are built around stakeholder relationship management, for end-to-end visibility and optimization.

Of course, this doesn’t mean that ERP systems cannot gather external data, or that SCM systems can’t be used for transaction analysis—-it’s mainly about identifying where the strengths of each platform lie. In an increasingly competitive marketplace with a strong focus on digitization, businesses increasingly need specialized tools that can adapt to unique circumstances.

Ultimately, ERP platforms tend to be built around older ways of thinking—what’s easy to measure and improve in very specific, predefined ways. Next-generation SCM platforms are designed to be flexible and adapt to the continuous changes inherent in global supply and demand.

Using the Right Tool for the Right Job

Now that we’ve explored some of the key strengths and differences between ERP and SCM, it’s helpful to explore key business functions. There are overlaps between the functions of the two types of systems, but each definitely has strengths in specific areas.. Here’s how each of these tools will help you integrate and optimize supply chain management.

• Financial tracking, accounting, and budget planning: ERP for big-picture, overall reporting and financial strategy, SCM for tracking operational costs.
• Demand planning and forecasting: SCM for understanding supply and demand management, ERP for integrating demand costs into cash flow and budgets.
• Managing workflows: ERP for workflows self-contained in your business, SCM for workflows that rely on close networking between external partners. 
• Collaborating and communicating with partners: SCM for aligning with and optimizing data, communications, and work across your end-to-end network, ERP for invoicing and making payments with partners.
• Decision-making: ERP for financial decisions, SCM for strategic supply chain decisions including specific business intelligence to maximize procurement, sourcing, quality, compliance, efficiency, and speed.
• Continual improvement: SCM for identifying, tracking, and managing supply chain improvement initiatives, ERP for funding projects, and programs to enhance the supply chain.

Ultimately, an ERP is a great choice for easily understood, predefined, data-driven business processes like accounting and reporting. An SCM, on the other hand, gives you powerful options for daily collaboration, communication with supply chain partners, tracking and meeting milestones, and doing complicated, detailed supply chain work.

The great thing is, you can have both. Modern SCM platforms integrate flawlessly with ERP systems to provide major benefits whatever type of data, process, network, or other supply chain aspect that you’re dealing with.

Final Thoughts on Supply Chain Management and Enterprise Resource Planning

Still not convinced? Here are some thoughts when it comes to deciding on the best tools:

SCM platforms like Topo aren’t just for operational supply chain management—they can also help you discover new products, drive sustainability, plan contingencies, and lead a continual optimization program.

• Digital product ideation and sourcing means you can source products digitally with detailed product images and video, removing the need to travel to showrooms or trade shows.
• Quality management and auditing are vital functions for meeting customer and compliance needs—they’re a feature of SCM platforms like Topo but are not well supported by ERP.
• Modern SCM platforms often have capabilities like regulations, compliance, and sustainability monitoring out-of-the-box, and don’t require further advanced configuration. Traditional SCM and ERP platforms often do not have this capability.  
• Customizing an ERP to improve SCM can be very expensive and require significant overhead from your internal teams and the vendor. A low-code SCM platform like Topo allows you to make those changes yourself, significantly reducing your development costs.

If you want optimal results, you need optimal tools. If you have a complicated supply chain, an SCM tool is going to give you much more of a competitive advantage than an ERP.

Topo is a powerful network that connects all stakeholders of your supply chain. We cover the entire journey of your products, from sourcing, product development, ordering, production to quality, chemical, and sustainability management. Our supply chain platform digitally transforms your business— regardless of your industry. Topo allows you to collaborate remotely, automate processes and analyze data within your supply chain in real-time to increase transparency and productivity while decreasing operational cost.

Topo is a whole new breed of software tackling problems that existing ERP, PLM, or Supply Chain Management systems simply cannot solve. Our integrated Low-Code App Builder allows you to build fully customized interfaces, automated workflows, and dashboards for your current and future use cases.