Comparing an ERP Extension to a Digital Supply Chain Platform
Between ERP systems and digital platforms, supply chain leaders have to make informed decisions, on which technology to use to manage the supply chain in a more efficient, agile, and resilient way. However, companies struggle to decide which approach to adopt. Both, ERP systems and digital supply chain platforms can be leveraged to streamline supply chain networks, but there are a few important factors to consider when making this decision. Let’s take a look at the key features of both technologies to see when and why a digital supply chain platform might be the better solution for you, so you can be confident you’re making the right decision.
23% of the supply chain leaders expect to have a digital ecosystem by 2025, up from 1% today.
Gartner’s Future of Supply Chain Survey
What is an ERP (Enterprise Resource Planning) system?
An ERP system is a business management software designed to record and manage all enterprise data. The software integrates all the organization's activities, such as inventory management, order placement, financial reports, and more for better day-to-day resource planning and execution. An ERP system provides a wide range of benefits such as visibility, analytics, and effective control across all departments within an organization.
What is a digital supply chain platform?
A digital supply chain platform is a unique technology created to manage and visualize your end-to-end supply chain activities within a single source of truth, from purchasing materials, to their processing into finished goods, and distribution to your customers. A digital supply chain platform coordinates all aspects of the supply chain such as integration, operations, purchasing, and distribution, to streamline activities and improve customer experience.
Limitations of an ERP system in managing a supply chain
The shortfall of most ERP systems is that they are rigid by design. ERP systems are designed to support core business functions, not external ones such as inbound and outbound logistics, warehouses operated by external partners or the management of your hundreds of suppliers. Here are some of the limitations that are typically encountered when using an ERP system.
External data is usually not available
One of the significant drawbacks of ERP systems is that they usually only contain internal data records. External data like the status of purchase orders and shipments from material suppliers, contract manufacturers, and forwarders are not available with standard ERP configurations. To overcome this limitation many ERP installations are customized which implicates additional costs and work when changing to a new release.
ERP modules are often disconnected
Most ERP systems do not contain a holistic supply chain view off the shelf. They are designed to focus on the internal aspects of the business and are not specialized to deal with end-to-end supply chain activities. ERP modules such as demand planning, order, or inventory management are separated unless the merging of these data elements is configured.
By design, ERP modules are static
ERP systems are typically operating with fixed lead times. This ultimately leads to incorrect data, as supply chains are complex and dynamic in nature. For example, inventory in transit is not visible or is not considered when assessing positions, and real-time tracking of shipments is unavailable.
Disadvantages of using an ERP system when managing a global supply chain:
- Lack of visibility due to poor integration of modules across supply chain activities
- Static modules lead to outdated and thus inaccurate supply chain data, resulting in poor planning and risk management
- No centralized source of updated supply chain data
- No real-time and dynamic inventory tracking
Extending the ERP system to improve your supply chain management
An extension of the ERP system in the form of add-on modules is necessary in most cases to achieve end-to-end supply chain visibility and cost and performance control. There are many internal modules and add-ons available for better supply chain management. In addition, companies can integrate modern technologies like IoT, AI, machine learning, and more into the system.
However, enhancing an ERP system for better supply chain management can be expensive and time-consuming. The system must first be configured and then continuously updated with additional functionalities to keep pace with changes in global supply chains that are essential for proper supply chain management.
Some of the difficulties in enhancing ERP systems are:
- ERP requires complex integrations to achieve a holistic supply chain view
- Complex interfaces and data feed to factories, vendors, and transportation providers must be established
- Engaged 3rd party consultants usually without deep operational logistics and supply chain experiences
- Substantial capital costs, long deployment periods, and significant customer efforts required
Benefits of choosing a digital supply chain platform
It’s an efficient solution for managing a company's supply chain dynamically and with ease. Digital supply chain platforms are developed with the dynamic nature of the supply chain in mind. Since these platforms are built for supply chain management, one doesn't have to worry about add-ons and compatibility. These modern platforms are built feature rich and come with standard functionalities to provide companies with a single source of truth to control and manage their supply chain efficiently and effectively. The complex collection and integration of data from various 3rd parties like carriers, forwarders, vendors, and 3PLs into the ERP system are not required. Most digital supply chain platforms have a built-in feature that collects and analyses data from many sources within a supply chain to provide very accurate insights for better decision-making. It serves as a helpful centralized hub with reliable supply chain data and provides a holistic view of the entire supply chain.
Benefits of using a digital supply chain platform to manage a global supply chain:
- Full purchase order and shipment visibility in near real-time
- Leveraging additional data sources like satellites, AIS and container terminals complementing data from forwarders and carriers to have the most accurate and complete shipment visibility for extracting more insights and dynamic forecasting
- Prediction of shipments ETAs for better customer service
- Effective inventory management resulting in better operation at a minimal cost Real-time alerts of potential issues and automated exception management based on multiple factors like vessel tracking, container events, port risks for improved resiliency and agility
Choose your supply chain digitization path wisely
Either way, to do justice to the increasingly complex and global world with events disrupting global supply chains, companies today can no longer avoid investing in the digitization of their supply chain. Whether companies decide to upgrade their ERP system or deploy a digital supply chain platform, the goal remains to streamline the supply chain and make it as efficient, resilient, and agile as possible.
In the end, it is about your respective business model, the degree of digitization, and the specific requirements of your company. Enhancing your ERP system may sound great for many companies as it can manage both internal activities and the supply chain, but it comes with a corresponding price and time investment. If you are looking for a cost-efficient, neutral, and scalable solution, a digital supply chain platform might be an excellent solution for you.