When it comes time to choose or update pieces of a functional enterprise software architecture, procurement people and others responsible for evaluating this technology may be confused about what they specifically need.
One such question is on supply chain management software tools versus enterprise resource planning or ERP software products. What is the difference between supply chain management and ERP?
External Versus Internal
One of the most basic ways to describe the difference between SCM and ERP is that while supply chain management software handles data on incoming raw materials from outside vendors or suppliers, ERP software is much more focused on internal work processes.
Enterprise research planning is often described as ‘business process management software’ that handles various administrative aspects of business, for instance, by tying front office and back office operations together, or by assisting with product planning and the actual physical production of items that the company will sell to clients.
On the other hand, although SCM may “touch” internal inventory of other in-house processes, much of it is outward-focused, as described, for example, in this set of webinars from NC State University on “supplier collaboration” and other aspects of SCM products.
So on a simple level, the focus of supply chain management is largely external, in the dealings that the business has with third parties, while the focus of ERP tools is mainly aimed in-house.
Relationship-Based Versus Task-Based
Another difference in focus between supply chain management software and ERP tools regards the nature of the transactions and processes that are handled by each type of application.
Supply chain management tools look at shipping materials, but they also involve evaluating key relationships with third party companies that help a production company to source its supplies and inventory.
For example, supply chain management may largely consist of tools for evaluating costs, support and other aspects of a business partnership. While it does often manage concrete tasks like shipping and transportation, it also usually has a component that is centered toward whether individual supply relationships makes sense, and when they should be continued or pursued.
On the other hand, ERP, which arises from an earlier set of ideas called ‘manufacturing resource planning’ or MRP II, are often fairly centrally focused on a set of tasks. Despite the evolution of ERP suites into multi-function paradigms including customer relationship management tools (which are relationship-based), there’s still a major core part of ERP systems that will always be about managing core processes in procedural ways.
Comprehensive Versus Detailed and Specialized
There’s another big difference between the software that companies use for supply chain management, and the software that they use for overall enterprise resource planning.
In one sense, enterprise resource planning has come a catch-all for a number of key aspects of business automation and software assistance. For instance, ERP provider Netsuite describes some of the central functionality of ERP as “a shared database that supports multiple functions used by different business units.” ERP is also often associated with the creation of a central database to handle all of that business intelligence that flows through the company’s IT architecture in the form of big data sets. So in a lot of cases, companies start adding functionality to an ERP system, and running more of their operations under that umbrella.
By contrast, supply-chain management is a detailed and specialized type of software. It focuses particularly on those operations and partnerships that revolve around getting the raw materials into the company’s inventory (while it may or may not handle the details of that inventory management itself). It’s important to note that many ERP solutions don’t have that level of detail that the SCM software provides.
Interfacing Supply Chain Management and ERP Software Products
To solve this problem, many companies will integrate a specific supply chain management tool into a greater ERP suite. This can involve fairly substantial changes or alterations to the software environment, so that data can be ported easily from one piece of the architecture to another. This article from Manufacturing Business Technology discusses how integration may necessitate a customized interface, or additional add-on modules, and how legacy systems may present obstacles to this type of coordination.
In the end, companies will have to make specific decisions about which SCM and ERP tools to use. They might elect to tie a big-name ERP system from a maker like SAP or Oracle to a stand-alone SCM tool that integrates well – or they may try to find something that is already unified, where integration is minimal. Companies can use comparison engines to make apples-to-apples comparisons between sets of SCM and ERP tools, to figure out what is right for an individual business.