Businesses today need systems that work together in harmony to stay on top of their game. And two of the most important tools in that orchestra are:
ERP (enterprise resource planning) - The conductor that keeps your core operations running smoothly
SCM (supply chain management) - The maestro that makes sure your supply chain is humming along at full speed
While they serve different purposes, when combined, they form a powerful, integrated platform that supports the whole business.
If these two systems aren't working together in perfect harmony:
Data gets scattered and hard to make sense of
Processes don't talk to each other
Decisions take too long to make
Efficiency goes down the drain
Knowing how SCM and ERP fit together is mission-critical, especially when reviewing business systems or SAP strategy. The goal is to: Connect all your operations and supply chain processes; make sure data flows freely; and give you real-time visibility across the board.
ERP (Enterprise Resource Planning) is the master plan that keeps your core business running like clockwork. It includes:
Finance and accounting
Procurement
Sales and order management
Human resources
In simple terms: ERP runs the day-to-day operations of your business.
Here's how it plays out in a typical organisation:
Financial transactions get recorded
Purchase orders are issued
Sales orders get processed
Reports get generated
This makes sure: data is centralised, processes are consistent and you have control over operations.
SCM (supply chain management) is all about making sure the goods and materials keep moving. It includes:
Demand planning
Inventory management
Warehouse operations
Transportation and logistics
In simple terms: SCM makes sure goods and materials are moving through the business.
Example:
Demand is forecasted
Materials are sourced
Products get made
Goods get delivered to customers
This ensures efficient supply chains, reduced delays and improved service levels.
When you put ERP and SCM together you get a major boost in business efficiency.
ERP.
Handles financials and core processes in ERP systems
Connects operational activity with financial data
SCM.
Manages planning and logistics across the entire supply chain
Gives you real-time visibility into inventory levels and order movement
Together they make sure data flows freely across the organisation to support supply chain management; processes are aligned to strengthen supply chain performance; and decisions are based on real-time information across the supply chain.
Here's how it looks in practice:
A sales order is created in ERP, and SCM connects the dots to planning and execution
SCM checks inventory - including current warehouse stock and inventory levels that your organisation tracks through ERP
Warehouse prepares goods using inventory management capabilities that support supply chain execution
Transport is planned and executed as part of supply chain planning, and SCM feeds logistics updates into ERP for better decision-making
ERP records the financial impact as financial data flows back in, along with vendor management and other supply chain management capabilities
This gives you real-time visibility across the entire supply chain and helps improve supply chain performance.
This creates:
End-to-end visibility
Efficient operations
Better decision-making
A SCM application is supply chain management software that manages supply chain processes - from sourcing raw materials to fulfilling customer demands.
It includes broader supply chain management capabilities such as:
Demand and supply planning
Inventory management capabilities that support inventory control
Warehouse management
Transportation management that helps teams respond to market demands
In SAP environments, SCM applications include supply chain planning tools (e.g. demand forecasting); warehouse systems; supply chain execution tools; and procurement and vendor management functions. Many ERP suites also include basic SCM modules for inventory and warehouse management.
In simple terms: SCM applications manage the flow of goods across the supply chain.
A typical SCM process looks like this:
Demand management and demand forecast created as part of supply chain functions
↓
Supply plan developed
↓
Procurement of raw materials
↓
Production or preparation
↓
Warehouse storage
↓
Order fulfilment
↓
Delivery to customer
In ERP in supply chain, companies often struggle to forecast demand accurately across multiple channels, and poor historical data is the primary cause of inaccurate forecasting. SCM uses predictive analytics to respond to market demands and customer demands.
This ensures:
Alignment between demand and supply
Efficient logistics operations
Real-time tracking
It also connects supply planning with wider business functions. Optimized inventory control balances stock levels to avoid overstocking and stockouts.
There's a clear distinction between the two systems.
ERP
Focuses on internal business processes
Manages finance, orders and transactions
SCM
Focuses on the external supply chain
Manages planning and logistics across the entire supply chain
Focusing on all the bits that happen outside the business and how all the moving parts get from A to B
Keeping track of stock, getting it from one place to another, and getting it to the customer on time
The difference here is between being in charge of all the internal workings and being in charge of making sure things get moving in the right direction.
When you get integration right SCM and ERP deliver:
Visibility
Real-time view of everything that's going on from start to finish.
Efficiency
Less delays and less fiddling around, as you get systems to do all the routine stuff for you - and you get the benefit of less human error and more efficient running.
Automation of the stuff that gets done every day does help with routine tasks like processing orders and sending out invoices.
Integration also cuts waste, especially saving on holding onto loads of stock and making it easier to have better supply chain efficiency, which really saves you money
Accuracy
Making sure the figures and the data all add up in the same place
Control
Having your systems all connected up and working smoothly, that does help with streamlining tasks, automating a load of the day to day work and that does help you save money on stock by 15-25%
Scalability
It all fits together and works smoothly even when you get bigger
You get a business that's nice and connected and data driven, and you get your orders out the door a good bit quicker - that does help you make a good impression on your customers and you get them really happy.
Businesses often struggle with:
Systems that aren't connected
Not getting all the systems to talk to each other
Data that's all over the place
Not being able to rely on the accuracy of the figures
Complicated processes
The old "we just do it this way" way of thinking, where old systems and old ways of doing things can get in the way of change
Not being able to see what's going on
The inability to get a clear view of how things are working
These problems can cause:
Less efficiency
Higher costs
Unhappy customers
The price tag for an SMB ERP implementation can be anywhere from $60k to $220k.
Over time:
Systems get added to, bit by bit
Business needs change
There's more and more data to deal with
If there's no one in charge of keeping an eye on it all:
The integration starts to fall apart
Things start to get more complicated
The performance starts to suffer
These systems need to be kept in check all the time.
Application management services help with:
Keeping an eye on the system
Fixing problems
Making sure the system is running efficiently
Looking after the integration
AMS makes sure:
The system stays on track
The performance is good
SAP consultants help with:
Designing the system architecture
Aligning the supply chain with the business
Making things simpler
Improving performance
This way, SCM and ERP can really deliver.
In modern SAP landscapes:
You've got S/4HANA for ERP - it's got all the cloud benefits, so you get more flexibility and scalability.
SCM solutions like IBP, EWM and TM that have moved on from just being about getting things from A to B to incorporating AI, IoT and all sorts of other clever tech.
SAP BTP for integration.
65% of businesses were expected to be using advanced ERP by 2023, and the global ERP software market is set to get to USD 96.04 billion by 2027.
This all adds up to:
A connected digital ecosystem
Real time data
Operations that are flexible and adaptable
When it's all working smoothly:
The systems all talk to each other
The data flows smoothly
You can see demand and supply clearly
The processes are all streamlined
Decisions get made in real time
The end result is a business that is running like clockwork from start to finish.
ERP - enterprise resource planning - it's been around since the 1960s as inventory management solutions, but the term wasn't coined until 1990 when Gartner got involved.
SCM - supply chain management.
SCM application - software that helps with supply chain activities.
Integration - just getting all the systems to talk to each other in a sensible way.
Supply chain - the whole thing from supplier to customer.
AMS - ongoing support and optimisation of the system.
What is ERP? ERP systems and ERP solutions help manage core business processes, and cloud-based ERP solutions provide greater flexibility and scalability.
What is SCM? A system for managing supply chain operations.
How do SCM and ERP work together? ERP manages transactions, while SCM provides visibility and integration.
What is an SCM application? Software used to plan and manage supply chain activities.
Why is integration so important? Effective integration improves efficiency, visibility and accuracy.
SCM and ERP aren't separate systems, they're part of the same thing. Planning and execution. Operations and logistics. Data and decisions. If you can get all that right, the business just runs smoothly as one connected system, not as separate bits that are trying to keep up.