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Enterprise Resource Planning (ERP) has advanced significantly since its inception in the 1960s. In industrial organizations, the technology was first known as Inventory Management & Control, in reference to the processes used to maintain the appropriate level of stock in a warehouse.
Today, ERP software, which serves to integrate an organization’s key business processes, has wide-reaching applications across multiple sectors. This includes automating business functions such as quoting and accounting to streamline processes, improve outcomes, and drive higher profits.
Increasingly, ERP systems are proving to be a valuable asset in supply chain management (SCM), thanks to the technology’s ability to integrate data and processes from across an organization.
The Use of ERP Systems in SCM
SCM encompasses the processes and tools adopted by manufacturers, distributors, and supply chain professionals to forecast, plan, execute, and monitor every aspect of the supply chain. Effective SCM is reflected in an organization’s ability to:
- efficiently manage the flow of goods and materials throughout their supply chain
- adjust production to respond to supply and demand
- deliver high-quality products to the right place at the right time
In recent years, supply chains have become more complex and more global. This has driven industrial businesses to integrate ERP within their SCM systems, thus enhancing existing systems with more information and actionable data.
Here are five ways ERP systems can be used to augment SCM processes.
1. Customer Service
Integrated ERP solutions have the potential to transform an organization’s ability to deliver high-quality customer service.
Overall, better SCM results in the quicker production of higher quality products. Streamlining a product’s path from supplier to buyer also helps mitigate disruption, which means orders are fulfilled on time, cementing customer loyalty and ultimately resulting in repeat orders.
By improving supply chain efficiency and accuracy, ERP technology also facilitates more flexibility and personalization during the manufacturing process. This includes the production of made-to-order and configure-to-order products.
2. Efficiency
ERP software amasses all of an organization’s data into one, centralized database, enabling informed, intelligent decision-making and highlighting areas along the supply chain that are operating inefficiently, such as warehouse space wastage or production bottlenecks. This can lead to a significant reduction in the organization’s day-to-day operational costs.
3. Risk
The demand for ERP software has been steadily rising in recent years, but the global impact of COVID-19 has further accelerated this trend. Thomasnet.com recently reported that industrial searches for ERP software have rocketed a massive 278% compared to activity in Q1 of this year.
In 2018, global ERP software was valued at $91 billion and is expected to reach $97 billion before 2023. In the face of such uncertainty and disruption caused by the coronavirus pandemic, organizations will be more eager than ever before to improve supply chain transparency and implement more effective resource planning. ERP systems can help organizations to mitigate the effects of disruptive, unanticipated events.
4. Inventory Management
Inventory management is a top concern for organizations. One wrong calculation could disrupt the entire supply chain, causing delays, unhappy customers, and production bottlenecks. On the other hand, hoarding excess inventory wastes warehouse space and racks up unnecessary costs.
ERP solutions support more precise forecasting allowing manufacturers to better manage supply and demand and optimize their inventory. For example, supply chain professionals will be made aware of exactly what resources their production line is consuming in real-time.
5. Production and Shipping Tracking
ERP systems effectively log and track every step of the production and shipping journey. Records of the machinery and labor used throughout production are maintained and updated in real-time. Shipping documents are also recorded through the ERP system, which eliminates manual errors and makes it easy for employees to track orders and deliveries. For example, once an order has been shipped the software can automatically generate and send an invoice. The software can also determine the most appropriate packaging method and specify the criteria for quality control.
Enterprise Systems vs. Tech Stacks
Organizations looking to purchase an ERP system have the option of purchasing an all-in-one software package or building a “tech stack” of separate products from different tech providers that can integrate with each other. As a general rule, large organizations tend to have company-wide ERPs that include supply-chain modules, while smaller companies lean towards the tech-stack approach.
There are significant costs associated with an ERP purchase, including subscription and implementation costs, employee training, customer support, and maintenance. ERP implementation is a lengthy process and can take anywhere from six months to two years.
Organizations looking to invest in ERP, or update an existing, outdated system must consider their long-term goals and SCM priorities.
Want to Learn More about ERP?
- ERP is being used in the automation of supply chains. Find several of its innovative applications here.
- Industrial searches for ERP software surged 278% compared to activity in Q1 of 2020. Get the inside scoop on why it’s been trending in our video.
- Do you need a new ERP system? Here are 7 indicators it’s time for an upgrade.
Image Credit: Image courtesy of Song_about_summer / Shutterstock
