Why ERP is Indispensable in Supply Chain Management

Supply Chain|Blogs
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ERP for supply chain management abstract

Enterprise resource planning (ERP) provides software tools that streamline your business and enhance everyday practices through automation that’s essential for successful operations, finances, manufacturing, reporting, and HR management, among other functions. It provides a clear snapshot of everything happening in house and in the field.

In supply chain management, ERP systems easily coordinate the many stakeholders that transform raw materials into marketable products deliver them to consumers and companies. This includes planning, procurement, production, and distribution. Let’s discuss how ERP can help you meet (and exceed) customer expectations and control costs.

ERP 101

ERPs are comprehensive software suites that businesses use to ensure company operations run smoothly, especially the supply chain. This includes measuring demand, sourcing materials, prototyping and manufacturing products, and deliveries to customers. This encompasses planning, ideation, procurement, warehouse and inventory management, and order processing.

ERP systems store all data in a central database, which allows businesses a 360-degree view of how supply chains function alongside a company’s financials. It allows more accurate sourcing and manufacturing based on demand, providing managers have the right amount of raw materials at all times. It also simplifies operations, with fewer applications needed to facilitate different parts of the supply chain, such as capacity and supplier contracts. This reduces human error and cost, and provides insights to improve efficiency.

ERP’s value to supply chains

ERP innovations provide these benefits:

  • Digital solutions: From the Internet of Things (IoT) to business intelligence to dashboards, these tools help optimize inventory management and other supply chain facets.
  • Efficiency: Warehouse automation streamlines essential supply chain functionality, which lets stakeholders make informed decisions to reduce logistics, procurement, and manufacturing costs.
  • Customer retention: ERPs allow businesses to provide more accurate delivery dates. Consistent on-time deliveries build retention and loyalty.
  • Automation: Cloud-based ERP software automates data as it moves across the company, which speeds up the supply chain and reduces manual efforts. If raw material inventory dips below a certain level, for example, the system will ping the appropriate department automatically.
  • Less overhead, lower cost: When you have a clear picture of supply and demand, it’s much easier to know inventory requirements. This saves time, money, and valuable warehouse space. It also means fewer operator errors that previously resulted in over- or under-ordering raw materials, which can trigger dangerous ripple effects across the supply chain.
  • Simpler, better IT: When your IT team no longer needs to manage complex data integration from different software products or vendors. With an ERP system, everything shares the same data in real time.
  • Flexible solutions: Flexibility is key in today’s business climate. Your company needs to identify and react quickly to abrupt changes in supplier capacity, customer demand, and shipping routes. An ERP provides predictive analytics and scenario planning capabilities that pinpoint potential risks before they become a real concern.
  • Smoother flow. Every piece of the supply chain depends on another part working properly. If poor planning causes inaccurate procurement which causes low inventory and production bottlenecks, the whole system can freeze up and delay orders. ERPs can help locate potential bottlenecks and reallocate personnel and resources accordingly.
  • Greater visibility. An ERP highlights raw materials, subassembly, and the finished product during production and transport. Surveying the whole supply chain in real time improves operational efficiency and maintains strong relationships with vendors and customers.

Opportunities to optimize with ERP

As mentioned earlier, ERP can bolster every stage of supply chain management: planning, inventory, production, and customer service. Let’s address how businesses can use it to optimize their operations:

  • Procurement: ERP systems manage the entire procurement process: finding and vetting suppliers, managing multiple bids, and tracking orders from start to finish, ensuring orders reach pre-approved suppliers while dashboards give real-time snapshots of supplier spending and output
  • Execution: ERP software provides efficient management of complicated production systems, inventory controls, and oversight of manufacturing logistics and resources, sales and fulfillment, enabling on-time order completion and delivery
  • Vendor evaluation: Finding reliable suppliers requires continuous performance assessments. ERP analytics monitor and compare metrics of vendor performance including lead times, order cost and accuracy, and on-time delivery stats
  • Inventory management: Accurate inventory data is required to keep production moving and to fill customer orders. Your ERP uses current inventory levels, seasonal sales figures, supplier lead times, and estimates of potential demand that let purchasing groups know when to reorder
  • Financial management: ERPs allow integration of financial data with supply chain operations, improving control over processes to manage capital expenditures and improve cashflow.

Knowing when it’s time to start ERP

These are clear signals your business is ready for ERP:

  • Siloed data: Data integration across systems and departments creates challenges, which may delay or derail valuable communication and create inefficiencies. ERP software can eliminate that, consolidating data in a single, centralized system. This ensures that real-time information flows freely, helping teams to make informed decisions and communicate them clearly.
  • Outdated manual processes: Although many businesses function in a fully digital world, too many still rely on paper forms, printed spreadsheets, and other manual processes that slow down operations, waste resources, and cause errors. An ERP system’s automation saves time and enables more efficient order fulfillment, customer service, and job performance.
  • Fragmented information: It’s difficult to make informed decisions with incomplete data. With multiple data sets in multiple locations, it’s common for departments to independently act on information that’s inconsistent with the rest of the company. If production doesn’t trust sales numbers, or marketing ignores finance’s guidance, trouble lies ahead. ERPs provide consistent data, so everyone sings from the same sheet music.

Challenges when setting up ERP

Choose the ERP system that matches your supply chain management needs. However, there are still potential challenges when adopting a new ERP system.

  • Integration and customization: Customization tailors the system to your business’s needs, but adds layers of complexity that could hamper efficient operations. Don’t deviate too far from the software’s core design and functionality
  • User adoption: Integrating new software system typically means day-to-day business operations change, which can be frustrate employees used to doing things a certain way. Provide adequate training to get buy-in from top leadership early and smooth the transition
  • Potential cost overruns: While ERP systems save time and money long-term, but implementation can go over budget due to investments in training and outside vendors and consultants, among other factors. Consider these expenses before setting the budget to avoid unwelcome surprises.
  • Lack of scalability: If your ERP system doesn’t scale to your corporate ambitions, your operations will be less efficient, growth will slow, and you will be less competitive in the market. Make sure ERP software has the capacity to grow with you
  • Cyber threats: Migrating data between servers or onto the cloud is a necessary for ERP software adoption, but poses certain security risks, including unsecured APIs, compliance violations, malware, and human error. Learn your cloud provider’s security protocols and learn about their system protections

A 3PL can help

You don’t have to navigate ERP integration alone. A third-party logistics (3PL) firm can provide efficient, automated solutions that ensures accurate ordering and lets vendors and customers track orders throughout the supply chain.

Here are key benefits a 3PL provides:

  • Expertise in system integration
  • The technology and knowledge to facilitate seamless data exchange
  • Integration services customized to fit your company’s specific needs
  • Real-time visibility during data synchronization
  • Adapting systems to ensure scalability and business growth
  • Potential cost savings, compared to the risks of in-house management
  • A foundation of maintenance, support, and risk management

ERP systems can transform the dynamic landscape of supply chain management. They are essential to achieve operational excellence and sustained growth, and encompass everything from procurement to manufacturing to on-time delivery. Successful supply chain firms practice strategic ERP integration, and use 3PLs to overcome implementation challenges.

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