When you think about your supply chain, what do you imagine? Are you thinking about procurement and manufacturing, or do you imagine warehousing and logistics? Are you thinking about how ERP can support your supply chain management strategy?

More likely than not, you’re thinking about all of these and how they can support your production plan. Why? Because the supply chain is full of a lot of moving partsall of which might impact one another simultaneously. Understanding your supply chain is hard enough, but understanding how it impacts your manufacturing organization is even harder.

Luckily, there’s a tool for that: Enterprise Resource Planning (ERP) Software. Here, we’ll guide you through the role of ERP in supply chain management, including what it does, why you need it, and how to choose the best solution for your enterprise.

 

Supply Chain Management: The Importance of Strategy

Before you can understand the role of ERP platforms in supporting supply chains, first you need to wrap your mind around the function of supply chain management (SCM).

Supply chain management refers to the process of mapping all of your current and future suppliers of goods and services, their individual capabilities and capacities, as well as managing all of your transactions over the course of your business relationship. In simpler terms, SCM is a process of planning how you will supply components and materials across the entire flow of goods or services in order to fulfill your demand commitments.

5 key steps of the supply chain process

  1. Planning: Determining the quantity of materials, products, and resources required, including labor
  2. Sourcing: Identifying the necessary suppliers, sub-contract manufacturers, and distributors you’ll need to confidently meet your demand goals
  3. Production: Managing the capacity you have across production lines and who you can outsource/sub-contract to for specialty functions or overflow
  4. Delivery: Maintaining relationships with shipping carriers for predictable delivery to meet promised dates
  5. Finances: Managing the credit limits negotiated with each of the nodes in the supply chain and keeping payments up-to-date to avoid credit freezes

Managing all of these factors at once can be difficult and time-consuming without SCM capabilities in your ERP software. SCM in ERP gives you the critical visibility necessary to ensure your supply chain can support your production capacity while managing supplier risks.

Because the supply chain is outside of your control and sensitive to global, economic, and political disruption, it is imperative that you maintain visibility to monitor your suppliers on a continual basis. For this reason, companies large and small need a hands-on approach to SCM. That means keeping your suppliers in sync with your customer demand to reduce friction, increase operational efficiency, and create a well-oiled and productive supply chain.

 

Challenges of the Modern Supply Chain

The reality is that your business is intimately tied to the state of the global supply chain. 

From seaport congestion to extreme weather events like Hurricane Ida, businesses of all sizes are being rocked by one supply chain disruption after another. The consequences of these disruptions have cost businesses in lost time that has resulted in delays and lost customers. Efforts to react to these disruptions such as seeking alternative sources have driven up the prices of everything fueling inflation woes.

For example, take the case of the Suez Canal. When a massive cargo ship became stuck inside the canal in 2021, it turned global trade activity on its head. Not only did it halt the supply route for weeks, it forced countless companies to replan their production schedules and scramble to meet demand. By the end of its six days blocking the Suez Canal, the vessel cost the global economy $54 billion of lost trade – that’s $400 million every hour, according to estimates by Lloyd’s List and shared by Forbes.

And that’s just one incident: Throw in a global pandemic that immediately brought some industries to a halt while doubling demand for others and it’s no wonder the world is experiencing the bullwhip effect. But while it is unknown when supply chains will get back on their feet, businesses will continue to face a wide range of challenges in order to stay solvent:

  • Controlling transportation costs: With oil prices fluctuating, distributors are racking their brains to achieve a cost-efficient fulfillment process—while paying through the nose until they do.
  • Demand management: E-commerce sales grew 14.2% in 2021, according to the U.S. Census Bureau, signaling that demand pressures will continue to rise throughout the supply chain.
  • Inventory management: To ensure inventory levels are kept at a sustainable rate, businesses are transitioning to “just in case” strategies, buying up whatever they can find and storing it wherever they can.
  • Lack of visibility: Without sufficient supply chain visibility, companies are unable to predictably deliver operational efficiency. The result is an inability to confidently promise delivery dates to fulfill customer demand.

Any way you look at it, effective supply chain management comes down to making informed decisions with the best information you have and navigating those unforeseen circumstances in the most efficient way possible. That visibility only comes when you connect your SCM within your cloud ERP.

 

Managing the Supply Chain with ERP

How do SCM and ERP work together, you may ask? 

SCM is a broad practice and focuses on controlling the movement of goods around the world. ERP is the practice of managing the movement of goods around your business. Because a manufacturer relies on incoming materials from the supply chain, their ERP must be connected to their SCM to maintain visibility of those goods from initial order to receipt and on through production and ultimate delivery of finished goods. Once those finished goods leave the shipping dock, SCM picks right back up to manage the movement of those goods via planes, trains, or trucks until the customer signals that they have received and accepted them. 

Most manufacturing ERP solutions manage a full gamut of critical business processes, including managing demand, planning production, calculating material requirements and ordering them, managing production, and ultimately shipping finished goods to the customer. Parallel to these operational activities, ERP manages the cash flow associated with paying suppliers and invoicing customers. Here’s how it works:

When a manufacturer receives demand signalsfor example, an order or a low stock notificationplanners begin demand planning and development of production schedules. With the use of a material requirements planning (MRP) engine, you can calculate how many of each item you’ll need and by when in order to meet planned demand. The ERP system issues purchase orders to all the suppliers already vetted for each material, and tracks the shipped materials until they are received. In the case that an order is delayed, the ERP sends alerts so that planners can reschedule production.

Although an ERP is first and foremost a comprehensive control system, the connections and visibility across all processes provide valuable insights into your supply chain. By enabling data sharing between departments and across the enterprise, ERP bridges the gap between the supply chain and the business. They must be connected, and most modern ERP systems include robust supply chain capabilities.

 

Benefits of ERP in Supply Chain Management

Altogether, connecting your ERP solution with your SCM software can yield significant advantages:

  • Supply chain visibility: ERP solutions that deploy a common data model benefit the business with advanced analytics shared throughout the supply chain. With these insights into your supply chain, you can identify inefficiencies and make adjustments as needed.
  • Optimized inventory: Inventory management systems help you maintain sufficient inventory levels to avoid disruptive stockouts during peak demand, while reducing the uncertainty that can lead to expensive excess inventory.
  • Oversight over vendor performance: The vendors you employ can make or break your business. SCM solutions help you make more informed decisions about suppliers and ensure they are performing as expected.
  • Data-driven decision making: ERPs allow you to leverage data and glean actionable insights throughout your business. By collecting and analyzing data and generating real-time reports, you can make critical decisions with the assurance that business intelligence is on your side.
  • Supply chain resilience: With greater supply chain visibility with SCM, the control provided by ERP gives you more options to respond to supply chain disruptions versus always being reactionary.

How to Identify the Right ERP Solution for Your Supply Chain

Even more important than adopting an ERP solution is identifying the best one for your business. No two are alikethat’s why you need to take a few key factors into account.

Here’s what you need to consider when deciding on an ERP solution:

  • Ease of use: ERPs serve your entire manufacturing business including synchronizing your supply chain with your business. The right ERP includes easy to use functions for each of the various users from shipping & receiving to production and accounting.
  • Cost: Traditional hosted ERP systems were expensive to buy and maintain and often did not deliver on their promise of a return on investment (ROI). Subscription-based, cloud ERP solutions include all operating costs such as upgrades and storage providing you more predictable expenditures and a faster time to value.
  • Ease of integration: Many SCM solutions can be integrated with your ERP but manual, bespoke integrations can be expensive and cumbersome to maintain. Unified SCM and ERP solutions on a common platform share the same data model and therefore work together natively.
  • Common data model: ERPs and SCMs that share a common data model operate from a single source of truth ensuring data accuracy. Deploying a cohesive data model from the start will save your team substantial productivity hours that are often lost connecting information and data points.
  • Cloud ERP: Cloud-based solutions connect every node in your supply chain with all of your manufacturing business processes and data available at any time, from anywhere in the world, and from any connected device. This gives you optimal visibility so you can provide immediate support and control where it’s needed most.

Bottom line: You need an ERP solution that connects directly to your SCM system to elevate your business for operational excellence. Rootstock’s cloud-based ERP solution is natively built on the Salesforce Platform for an infinitely scalable, single source of truth that delivers a seamless user experience across SCM, ERP, and beyond.

Request a demo of our cloud ERP today to learn more about what Rootstock can do for you and your business.