How Do ERP & SCM Systems Complement One Another?

Inventory is pivotal in the relationship between ERP and SCM.

Enterprise Resource Planning and Supply Chain Management are two terms often applied to job descriptions or to business applications, but do not have any definitive boundaries. ERP is the process of overseeing all the data of processes in a business, enabling the outputs from one process to become the inputs to another. The field is particularly concerned with information flow into the company accounts. CRM can be defined as the pursuit of sourcing supplies, or the flow of materials from the supplier through the organization and out to the customer. Whichever definition is chosen for these two terms, they are inextricably linked.

Inventory

One key area that impacts on both SCM and ERP is inventory. Some definitions exclude warehouse management from SCM. However, the purchase of goods is driven by stock levels within the organization. The inventory holdings in the organization directly impact on costs and cost monitoring is one of the main remits of ERP. Payments that come out of ERP systems remit to invoices received from suppliers. The supplier invoice has to be checked against the original Purchase Order that was issued by the SCM system. Goods Received Notes of the Warehouse system need to match to both the PO and the suppliers invoice. This is called “three-way matching” and is a standard feature of Accounts Department function. Three-way matching requires coordination between ERP and SCM systems.

Cost Monitoring

Cost control is a function of the Accounts Department. The Chief Financial Officer needs access to the SCM system in order to monitor costs of goods because the ERP system does not give enough detailed information in this area. Linking together the data flows of an SCM system and an ERP system gives access to unified data that can be consolidated into cost management modules of the ERP system.

Management Structure

The Accounts structure of the General Ledger function of ERP systems dictate how the organization monitors its cash flow and business practices. Purchasing may be seen as a departmental responsibility, or it may be centralized, requiring departments to send a “requisition” to the purchasing department for the supply of goods. This is an example of how a management strategy, implemented in the ERP has direct influence on the apparatus of SCM.

Demand Management

The sales figures coming out of the ERP system are of direct relevance to the SCM team. Forecasting demand is an important role of SCM because it enables purchasers to predict requirements when ordering goods with long delivery times. If delivery times and demand can be accurately monitored, stock safety levels can be reduced. This reduces inventory, which reduces costs and liabilities.

References

• Webopedia: ERP - Enterprise Resource Planning
• Tech Target: Supply Chain Management (SCM)
• CIO: ERP Definition and Solutions
• Procurement Leaders: Supply Chain Management
• Next Level Purchasing: What Is Supply Chain Management, Anyway?
• Accounting Coach: What is the Three-way Match?
• The ePM Book: Procurement, Accounting & Financial Control