What is the Difference Between Enterprise Resource Planning and Supply Chain Management?

Difference Between ERP and SCM

Business process automation is an effective way to improve efficiency as part of a digital transformation.

Implementing software solutions such as supply chain management (SCM) and enterprise resource planning (ERP) software eases the transformation process.

These tools have become synonymous with business success, with the global ERP market expected to reach $50 billion by 2025.

Before you implement either of these software solutions, being able to differentiate between them is crucial. In this article, we will examine the advantages and disadvantages of each.

To understand the difference between SCM and ERP software, it’s important to differentiate between the two and their functions.

  • ERP software is a fully integrated business management solution. It includes modules for accounting, inventory management, production planning, customer sales orders, and more.
  • An SCM system focuses on supply chain processes. These processes include ordering raw materials, goods receipt, and quality inspection, through the manufacturing process, to shipping products to customers.

One significant difference between the two is that ERP covers nearly all functional areas of business management. SCM is more specialized, dealing only with supply chain planning and execution.

The types of transactions managed are another significant difference between ERP and supply chain management. SCM deals more with relationships, whereas ERP transactions are more task-based.

Additionally, there is some overlap between ERP and SCM solutions, with many features and functions available in both. For instance, you will sometimes find an SCM module in ERP software.

 


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Advantages and Disadvantages of ERP Solutions

The advantages and disadvantages of ERP software can be summarized as follows:

Advantages:

  • Seamless integration across modules such as accounting, material management and warehouse management
  • Modular design that enables you to implement only the functionalities that you need
  • The centralized data store enables real-time visibility and reporting
  • Single source of truth, which eliminates conflicts and discrepancies among different enterprise systems
  • Reduced operational costs by having a single system to deploy and administer
  • Flexibility and adaptability to scale as your business grows and evolves
  • Higher customer satisfaction thanks to greater efficiency and accuracy in order taking and fulfillment

Disadvantages:

  • Higher startup costs if customizations for unique business processes are needed
  • Extensive configurations required to align with business processes
  • Complex software that requires specialized technical expertise to administer

Advantages and Disadvantages of SCM Software

SCM software has several advantages and disadvantages worth noting.

Advantages:

  • Optimized system design for efficient supplier relationship management
  • Cost savings through close monitoring and tight operation of procurement processes
  • Improved communications overall vendor and customer touchpoints

Disadvantages:

  • Potential “data silo” Unless the software integrates with other business management systems, integration could be a complex and expensive project
  • The limited scope of functionality covers only one business process

 


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SCM vs. ERP at a Glance

Here is a handy summary of the differences between SCM and ERP systems:

SCM ERP
Scope Narrow (one business process) Broad (multiple business processes)
Complexity Lower Higher
Focus External relationships Internal processes and tasks

Cost Analysis

It is often difficult to present a comparison of costs between ERP and SCM software. Several variables must be considered, including:

  • Software provider
  • Implementation partner
  • Licensing model
  • Startup costs
  • Ongoing maintenance
  • Administration
  • Training
  • Hardware integration
  • Integration with other systems
  • Periodic updates and security patches
  • Deployment model (on-premise vs. cloud)
  • Configuration and customization
  • The total cost of ownership

A careful analysis of costs and benefits should be a central part of your due diligence when planning system implementation.

Make the Right Choice for Your Business

Most businesses only have the resources for one major IT project at a time. If it comes down to a choice between an ERP vs. SCM software, which one should you choose?

Unless your business has serious supply chain issues that are a top priority, it may be better to implement an ERP solution instead. The main reason is that most ERP solutions include supply chain management features.

If your company has a highly complex supply chain situation that demands the specialized functionality that SCM software provides, an ERP’s supply chain features should be adequate for your needs.

What’s more, an ERP system has the advantage of complete integration into a single system and database. This design provides a solitary source of truth for every module of the system.  It’s harder to realize this advantage if you manage your supply chain with a separate system.

Finally, an ERP system can cover as many or as few business processes as you want. Further expansion to include additional modules can happen later, if necessary. This flexibility can be an advantage for companies with limited resources.

Your Full-Service ERP Partner

Corning Data has extensive experience with ERP implementations. We are the longest-serving Oracle JD Edwards partner and a longtime channel partner for IFS, two of the most highly regarded ERP systems on the market.

Contact us today to learn how we can optimize your operations with a robust ERP solution.

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