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How Do I Link ERP and SCM?

By Peter Hann
Updated May 17, 2024
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Supply chain management (SCM) is the organization of the supply chain from initial procurement and manufacture to the final sale to a customer. Enterprise resource planning (ERP) is concerned with the integration of the resources of the enterprise to ensure that processes and organizations are linked up and communicating effectively. The combination of ERP and SCM, normally organized by specialist software, can result in gains to the enterprise through increased efficiency in procurement, inventory control and movement of materials. Another outcome of combining ERP and SCM might be greater customer satisfaction through a faster response time to orders and better customer service.

Good supply chain management is essential to ensure that the flow of goods through the system from origin to sale is efficient and streamlined. The introduction of SCM lowers costs that might otherwise arise from unnecessary transport costs, holding too much stock or losses caused by the late supply of goods, pilferage, obsolescence or faulty goods. The end result of good SCM might be increased customer satisfaction and higher sales.

The location of each function within an international organization depends on factors such as proximity to raw materials or markets, local regulatory requirements and the costs of operating within each location. The enterprise might choose to locate manufacturing activities in low-cost areas and set up distributor companies close to the final destination of the goods. The implementation of SCM might streamline the business by centralizing functions such as accounting, pensions, legal matters and human resources. Intellectual property might be held and maintained in one location to ensure that it is managed and used efficiently.

ERP enhances the flow of information throughout the organization by having a department report progress to another department and report exceptions to the management. Different departments that might be situated in different locations can work efficiently together because of the steady information flow normally controlled by sophisticated software. The efficient systems for procurement, inventory tracking and response time for customers lead to reductions in costs and greater sales. The ERP system does not allow any particular function within the enterprise to become isolated with its own objectives apart from the objectives of the enterprise. Each function is integrated with the enterprise, part of the information flow and linking seamlessly with the other functions and departments to which it must report.

The combination of ERP and SCM therefore leads to a logical and efficient supply chain supported by central activities that are fully integrated with each other and with the supply and sales functions. The result is an efficient flow of raw materials, finished goods, information and funds across the enterprise. Provided that the enterprise chooses software that is suited to its industry and size, the combination of ERP and SCM is likely to lead to greater efficiency, customer satisfaction and sales.

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