ERP and SCM: Understand the differences

What is ERP software?

ERP software is an enterprise-wide system that helps companies manage data and workflows for multiple lines of business within an organization, such as HR, finance and order management. ERP was first embraced by large companies, but organizations of all sizes now use the software.

Benefits of ERP software include the following:

• It provides a consistent look and feel for end users across the company.
• It enables companies to carry out advanced reporting and dashboards because ERP is a single database.
• It can simplify system maintenance because all the configuration is carried out in one application, and it may include fewer configuration options, making it less complex to maintain.
• It reduces the amount of vendors companies must manage.
• It gives companies more freedom because organizations can choose to implement only needed functionality and then implement additional modules in the future as business needs arise.

What is SCM software?

SCM software helps companies with processes such as demand planning, ordering, receiving, inventory management, shipping and returns. Supply chain leaders can use an SCM system to delve more deeply into the data from each stage of their company's supply chain process and potentially identify savings, bottlenecks and potential future issues. SCM is often integrated with ERP software.

Benefits of SCM software include the following:

• SCM provides more advanced functionality than ERP software, including improved reporting and dashboards.
• SCM includes features for demand planning, which can help ensure materials are available when needed.
• SCM can help companies manage the environmental and sustainability aspects of their supply chains.
• SCM includes process automation capabilities, which can reduce errors.

How do ERP and SCM differ?

The main difference between ERP and SCM software is the scope of each software's offering for SCM. While an ERP system may provide SCM functionality, it is typically smaller in scope. SCM software focuses only on the supply chain.

A small company or one that is relatively new to SCM may find its ERP software's SCM features fulfill its needs.

However, one example of a case in which companies may look beyond their ERP software for SCM is organizations that sell consumer products. They likely require an SCM system that can handle returns and stay on top of product availability, and ERP software alone is likely unable to do so to the extent required.

Companies may also decide to explore an external SCM vendor if their ERP vendor integrates a third-party SCM tool into their system. Doing so reduces the benefits of an integrated ERP system, such as a single database and consistent UX. Using the ERP vendor's SCM offers few advantages over using an SCM vendor of the company's choosing.

However, if the company selects an SCM vendor that's outside their ERP vendor's ecosystem, the SCM integration to the ERP may be more complex and present challenges that only become clear during the implementation.

In addition, companies that rely on a large selection of vendors with varying delivery capacities require a system that can integrate with each vendor's software because the company must be able to track delivery dates. The company's ERP software may not be capable of integrating with the vendors' systems.

Organizations may also benefit from a standalone SCM system if they require features that improve interoperability with their suppliers. For example, a company may decide to implement the same SCM system as its vendors so the organizations can share more data.