SCM systems vs. ERP systems

In this expert tip, learn how supply chain management systems compare with ERP.

In a previous tip, we identified supply chain management (SCM) software as a combination of warehouse management, transportation management, and the visibility, and optimization engines that address the search for the best source, delivery and inventory positions to keep the supply chain responsive and efficient. Whereas SCM systems are focused on the external movement and storage of goods, ERP systems are internally focused, with and execution modules for production, inventory, resources and financials, to name a few.

Whereas SCM systems are focused on the external movement and storage of goods, ERP systems are internally focused.

These two systems clearly have an intersection point when goods leave the plant on their way through the distribution chain and on to the customer, and perhaps when supplies, components and outsourced products leave the vendor or subcontractor on their way to the plant.

While SCM systems are unlikely to reach into the production space and attempt to control internal inventory and schedules, most ERP systems provide some level of visibility and control of warehouses and inbound and outbound goods. Entire functional areas -- customer order management, for example -- may be addressed in either or both ERP and SCM. So, where do we draw the line? And how do ERP and SCM systems interact?

A look at ERP systems

Enterprise resource has a long history of expansion with additional modules added to bring more of the company's operations and interests into the integrated application suite. Within each functional as well, expansion of capabilities and functions are a continuing theme. Even the earliest MRP II -- the previous acronym for what is now known as ERP -- systems had customer order handling capabilities, and many have grown to become full-function customer relationship management (CRM) -- the comprehensive repository for all kinds of data supporting the customer relationship.

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New applications and new functionality tend to emerge from independent "specialist" developers not associated with the known ERP suppliers. Sometime these niche applications establish a new capability that is well accepted by the market and the ERP suppliers then add similar capabilities to their product suites. Generally, however, the ERP suite capabilities are not as deep or functionally complete as the so-called "point solutions" developed and maintained by the specialist developers.

ERP developers are usually unable to keep up with the additional functions continually added by leading point solution suppliers. And this is how is has been with the SCM software applications. Focused specialists created the category and remain ahead of the ERP suite suppliers even as they have created their own SCM suites.

The need for SCM systems

Companies with existing ERP installed -- and needing the deeper functionality of SCM systems -- may find an SCM product that has built-in or available interfaces to their ERP software. That's especially true if the ERP is one of the top market players -- SAP or Oracle, for example. Alternatively, there may be implementation and support partners associated with the SCM supplier that have pre-built interfaces or experience developing the interface for past client companies. The third alternative is to develop the interface on a one-off basis using middleware tools and exploiting Web services and service-oriented architecture to get the job done.

The short answer to interfacing ERP and SCM is this: Users can choose the point of integration since the key gateway applications -- CRM, distribution inventory or warehouse management -- may be available from either the ERP supplier or the SCM supplier. The choice will depend on the company's need for the deeper functionality available from the SCM supplier, with a more complicated interface or the fully integrated functionality of the ERP system application tied to the additional SCM functionality -- warehouse management, transportation management, supply chain and management. That makes it a much less complex integration.

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