ERP and SCM

Fadhili Kiyao
School of Management Studies
CUSAT, Kochi - 22
E-mail:[email protected]

Abstract: Supply Chain Management and Enterprise Resource

Planning Systems are two of the most popular components of enterprise
solutions for today. SCM ensures that upstream and downstream
members of the chain are able to deliver according to the standards
required in order to deliver a product or service that satisfies the
customers needs. ERP systems on the other hand ensure that
operations and transactions of a business are integrated into a
centralized repository to facilitate in information sharing and decision
making within the organization. Most ERP vendor solutions of today like
SAP and Oracle are providing SCM as an extension module to the ERP
core. These added functionalities allow organizations to collaborate and
interact with other supply chain members. In addition, technologies like
middleware and frameworks like Service-Oriented Architecture are
rapidly gaining mainstream adoption according to recent technological
trends. Thus, the vision of having enterprises with a pool of integrated
enterprise solutions consisting of ERP, SCM, BI, DSS, CRM, etc. is now
feasible and highly possible.
Key words: ERP: Enterprise Resource Planning, SCM: Supply Chain
Management, E-SCM: Electronic Supply Chain Management, CRM:
Customer

Relationship

Management,

SOA:

Service

Oriented

Architecture, ICT: Information and Communication Technologies.

1.0 SUPPLY CHAIN MANAGEMENT AND E-SCM

Supply Chain Management (SCM) is the systematic, strategic coordination of the

traditional business functions and the tactics across these business functions within a
particular company and across businesses within the supply chain, for the purposes of
improving the long-term performance of the individual companies and the supply chain as
a whole" [1]. SCM is meant to make the overall processes more clear and unified. Thus
the flow of management and co-coordinating decisions and inventory are faster and more
efficient coming from the top of the chain all the way down. SCM uses integrated business
processes in order to simplify daily operations in real time.
E-Supply Chain Management (E-SCM) uses the advances of technology made available
through the advancement of the internet to further simplify SCM by utilizing it to simplify
the flow of information to different members of the supply chain, thus, further making SCM
more efficient and much easier. Through this, a supply chain can share crucial information
in real-time. The use of the internet in information sharing will better reflect decisions from
all spheres of the business in and out as it also facilitates information sharing and
collaboration [2]. The primary effect of E-SCM to organizations is that the internal value
chain is improved as well because of information sharing and collaboration. Functional and
business units are able to improve customer relationship management and customer
service management as a result.
Supply chain business process integration involves collaborative work between buyers
and suppliers, joint product development, common systems and shared information [3].
Operating an integrated supply chain requires a continuous information flow [4]. SCM and
E-SCM are crucial features for a successful ERP since the flow and information sharing is
important for the business to function. SCM requires the management of materials and
information flow in the whole chain, from suppliers through to customers. It has been
argued that if business success is to be achieved, optimization of business processes
across the value-added chain must be accompanied by modern processing technology for
optimization of enterprise-wide information management.

2.0 BENEFITS OF SCM AND E-SCM

There are many benefits to SCM and E-SCM such as the flow of information in real-time in
every aspect of the business. Supply chain systems configure value for those that
organize the networks. Value is the additional revenue over and above the costs of
building the network. Co-creating value and sharing the benefits appropriately to
encourage effective participation is a key challenge for any supply system. Tony Hines
defines value as follows: Ultimately it is the customer who pays the price for service
delivered that confirms value and not the producer who simply adds cost until that point
[5]. Hence, SCM and E-SCM adds value to the business by enabling the business to save
money through lower costs at various stages of the supply chain. Like for instance, SCM
would effectively enable accuracy in the inventory of items which in turn improves resource
utilization. Also another benefit would be time effectiveness, since there would be real-time
information accessible which would help in making decisions more accurate and
appropriate in response to timely issues [6]. Additionally, E-SCM improves in-company
cooperation and collaboration since everyone would be on the same page, which leads to
improved value chain management that would help in sales and customer relations since
everyone works towards achieving the same goals to satisfy each customer. There are
also human resource management benefits with E-SCM. With centralized information
within the company, it would be easier to track employees hours worked and compliance
to company standards. E-SCM ensures that everything is transparent to everyone in the
company; therefore, improving the companys working standards.

2.1 E - SCM as a source in creating competitive advantage

In the new economy, having an effective supply chain management represents a vital
element in creating a competitive advantage, as it directly influences coming forward to the
changes in the demand effectively and efficiently. For many companies it has become
evident that the integration enabled by the internet has enhanced the advantages of
supply chain management by enabling information visibility and sharing in real time as well
as great possibility for improving the cooperation among the partners involved in the
supply chain as a significant competitive differentiator. In these regards bringing the
technology to the supply chain and having an e-SCM does not by itself guarantee a
competitive advantage, however it is a vital element and a basic component for driving the
organization towards this direction and with the right strategy it is step closer to a
sustainable competitive advantage [7].
2.2 More Benefits

Speed and the ability to communicate electronic channels decreases

costs of communication, carrying inventory and providing customer service

Collaboration minimizes the bullwhip effect which is the distortion of

demand forecasts along a supply chain as a result of inaccuracies or
inadequacies of information on hand

Ability to build long-term relationships along the supply chain organizations increase the availability of information with each other,
enabling them to align their strategies and goals, making supply chains
committed to the end consumer; it also moves to stabilize processes, since
organizations can focus on their core competencies, while outsourcing their
remaining needs to trusted and reliable partners

Improved customer relationships - eliminates stock outs and encourages

customer driven demand as well as efficiency in tracking of deliveries

Decreased costs through the sharing of information in the supply chain, a

pull-based demand inventory system is created leading to lower warehouse
and facility costs and more reliable operations [8].

3.0 ENTERPRISE RESOURCE PLANNING

Enterprise Resource Planning (ERP) systems are changing the ways many businesses
and governmental organizations carry out their business processes by providing a means
of connecting all the various departments together thus resulting in more accurate
information for the company. ERP systems provide an organization with a single platform
system responsible for the coordination and integration of key-business processes. ERP
systems ensure the smooth flow of information within various levels of the organization
thus leading to more focused and precise decisions for the company [9].
Before the ERP systems implementation, organizations had several different information
systems in place supporting various activities like Finance, HR, Logistics, Supply Chain,
etc. without the integration of activities individually. These systems existed separately and
did not support interconnectivity. With the implementation of ERP systems, all these
systems mentioned above along with various other systems become integrated and it
creates a backbone for the organization by providing a means of connecting all the
different departments through a single system that is efficient enough to integrate all the
relevant information together and is able to present meaningful on-time data and results
for the business.

ERP systems not only integrate the various individual systems within an organization but
also provide an integrated system capable of supporting various web services, integrated
supply chain, e-commerce and mobile support etc. According to a research conducted by
Meta Group, as much as 70% of the US federal, local and state government agencies
have implemented ERP solutions based on the same reasons as businesses; i.e., to
integrate the organization-wide information and lead to more useful decisions. Many ERP
vendors see this as an opportunity, as in the coming future, other countries too would be
following the same path as the US model by installing various ERP to replace their
traditional legacy systems throughout the local and federal departments in order to
increase efficiency and productivity.
ERP systems are not just limited to large firms but also are very useful for the small
organizations. According to the data provided by SAP (the largest vendor of ERP systems
worldwide), the company generated 90% of their revenues from large multinational
organizations but in late 90's & early 2000, 50% of their revenues came from smaller and
mid-size companies [10].

4.0 IMPACT OF ERP SYSTEMS

4.1 Impact on Competition Behavior
The ERP systems these days differentiate many organizations from each other due to the
competitive advantage gained through the successful implementation of ERP systems.
Organizations can now look at their competitor companies and try to learn from their
implementations and come up with a better ERP solution for themselves. This makes them
not only competitive in the market but also innovative at the same. These firms are able to
secure a much better position in the market compared to the reference group based on the
experience gained from other companies and design solutions that result in producing
more efficiently at a lower cost.
4.2 Impact on Business Partner Requirements
During the implementation of ERP systems organizations need to stay ahead. They need
to focus on the smooth organization-wide implementation and be ready to face the
challenges as every firm is resistant to change. At this point, an organization must become
quick in collecting, analyzing, disseminating information as its going through a change
process and there can be a certain situation inside the firm that a business partner may
need to adhere to the change process or quit as there is no turning back and conflicts can
arise that can create a problem for the whole company.
4.3 Impact on the Nature of Consulting Firms
ERP systems have enabled many firms to increase their efficiency by integrating the
processes and sharing information at all functional levels within the organization ultimately
leading to more useful information for the decision makers. Most multinational firms these
days have either implemented the ERP systems or are in the process of implementing it
because they have realized that in order to stay competitive or survive in the market they
have to implement such a system. ERP systems have replaced various existing legacy
systems such as the ones for Finance, HR, Logistics, Supply Chain, etc. by a single
system capable of running all the functions of the different systems more efficiently at less
cost and thus changing the way organizations used to deal with processes as the
information from top to bottom is shared through a single system also capable of
performing various web services at the same time.
4.4 Impact on Nature of Information Systems Function
ERP systems are outsourced from different vendors who are also responsible for the
maintenance and update activities thus, skipping the part of designing & developing as the
organization can rely on various ERP vendors that already have a suitable ERP system in

place that just needs modification in order to meet the company requirement and move on
with the implementation stage. The firms nowadays, don't need to hire system analysts
and programmers as the whole system is outsourced from ERP vendors and these
systems can be run by almost all employees with some training thats all, while previously
the such employees needed to be hired that were specialists in system design etc. Now
the companies can focus on its core processes instead of getting too much involved in
developing systems that meet their requirements as it puts together a list of its
requirements to the ERP vendors and it is up to them to design & develop such systems.
4.4 Impact on the Nature of Jobs in all Functions
ERP implementation can create and at the same time remove the jobs within in a company
as it integrates all the relevant information and changes the way of doing things thu,s
eliminating certain HR involved processes as they are automated within the system. At the
same time ERP systems, can also create a certain position within a company that is
unique in terms of its nature as the company can redefine its goals through an ERP
implementation by offering something more to its customers thus involving more HR at the
same time.

5.0 SUPPLY CHAIN IN ERP SYSTEMS

A successful organization must be able to manage the integration of its business,
technologies, processes, departments and people within the enterprise itself and across
extended enterprises. The integration inside any business organization includes not only
integrating ERP systems with legacy systems to ensure an effective and efficient
communications between these systems, but also include the integration of ERP systems
with SCM systems and linking it with CRM systems to encourage the cooperation and
collaboration across the entire value chain [11]. Due to the rapid evolution in information
and communication technologies (ICT), the traditional supply chain management
processes have been enhanced to be integrated with different business processes for the
purpose of increase the overall value of the chain, reduce cost, improve production
process and compete with different business environments.
5.1 ERP vs. SCM
ERP effectively integrates all the information which is required for the business to operate
including finance, accounting, production, human resources, quality management, sales
and marketing. We can see that ERP is an integrated information system which integrates
the internal working process of the organization, standardize the internal procedures for
data processing and combines all the operations data which are generated by multiple
departments or functions [12]. On the other hand, Supply Chain Management (SCM) is the
management of upstream and downstream to increase the value of the chain. It looks at
the business as a chain of well integrated and connected entities which will add more
value, reduce inventory, reduce lead time and reduce cost. The following table illustrates
comparison between ERP and SCM which will help to understand how to build relationship
and integrate these two systems [13].

Objective

SCM
Integrating and optimizing
internal business processes
of a single organization as

ERP
Integrating and optimizing
internal business processes
within the boundary of a

Focus

Goal

Function

Customer Relationships

SCM
well as the interaction of the
organization
with
its
business partners across
the entire supply chain
Optimizing information flow,

ERP
single organization

physical

flow,

and

physical

and cash flow over the

flow

within

entire supply chain

Constraint-based

organization
Non-constraint-based

tools

providing reasonable and

providing

plans

feasible

without the consideration of

distribution

business

plans

distribution
a

single

business

based on the availability of

the

the required key resources

Manufacturing

resources
Manufacturing

management,

inventory

management,

management,

logistics

availability

of

key

financial

management, and human

management, and supply-

resource management

chain planning
Involvement of

external

Reacting

parties

process

demand, but there is no

in

improvement,
customers
Scope

tool

Optimizing information flow

anticipating
need

and

to

involvement
parties

customer
of

in

external
process

demand
Coordinating and integrating

improvement.
Coordination and integrating

all

all activities within a single

inter-organizational

activities

organization

Table 1: SCM vs ERP (Source [1])

Traditional supply chain management systems are designed to take data from organization
legacy systems and then data will go under certain processes to be evaluated to make
different decisions and forecasting customer demand. At that time, SCM systems were
standalone software provided by limited number of vendors. Since different companies
started using ERP systems, SCM system started directly relying on ERP and CRM to get
the information about customers and the focal company. SCM system needs the
information in CRM systems to make decision about customers demands and future
forecasting. Furthermore, an SCM system needs to be connected with all the departments
and units in the company by relying on ERP systems to do this function [14].
5.2 Integration Methods
The integration of SCM and ERP combines business processes with state of the art
technology solutions to increase the communication and cooperation between the

organization different departments and functions. Since both ERP and SCM rely on similar
frameworks (e.g. intranet, extranet and EDI), it is said that ERP is the backbone of SCM
[13]. For this reasons, most ERP vendors such as SAP, Oracle, PeopleSoft and i2 have
enhanced their ERP systems to be integrated with different SCM systems and also by
adding SCM capabilities (modules) to increase efficiency, productivity and value to the end
customer [13]. The following figure illustrates a general framework of how ERP, SCM, BI
and CRM can be integrated to increase the communication and cooperation between
suppliers, partners and customers.

Figure 1: ERP, SCM, BI & CRM Integration

The increasing demands of using SCM systems within the ERP systems forces top ERP
vendors to realize the need to integrate their ERP systems with an SCM solution or to
create their own version or module of SCM. For the process of integrating ERP systems
with SCM systems, vendors follow three different methods of integrations which are [13]:
The notion of conformity which emphasizes on the idea that all supply chain
members use the same system. This method is impractical in large scale supply
chain and some issues of security and trust may appear.

Developing a middleware between applications which could be very expensive

and require more time and effort, but it is very practical. In this method,
programmers and developers are asked to link different systems together to
ensure an efficient and effective communication and transmission of data.

SIS which is specialized integration software programmed to integrate SCM

software with ERP systems.
At the beginning, the worlds top ERP vendors such as SAP, Oracle, i2 and PeopleSoft
focused their intentions and efforts to find solutions so their ERP systems can be
integrated with other SCM software. For example, an application link enabler (ALEmiddleware) used in order for I2 Rhythm Supply chain suite to communicate with SAP R/3
ERP suite [13]. Later, the rapid development and growth in SCM systems and the high
demand of linking and integrating it with ERP systems have awaken ERP vendors to add
more sophisticated SCM capabilities to their ERP packages. Some of the leading ERP
vendors such as SAP or Oracle had partnerships with the SCM vendors for the purpose of

adding SCM capabilities to their systems. Thus, the leading ERP vendor SAP added SCM
module to its systems and name it as SAPSCM as a part of SAP Business suite.
Following SAPs example, Oracle also added SCM modular to its ERP system and named
it as Oracle Supply Chain Management as a part of Oracles E-Business Suite. Other ERP
vendors are doing the same by adding SCM modules to their system or by providing easy
and efficient tools to integrate their systems with SCM systems from different vendors.
5.2 Some Examples of ERP SCM
i. SAPSCM (SAP Business Suite)
SAP Supply Chain Management is a part of overall SAP Business Suite which was
developed to help organizations to perform its essential business process in more efficient
and reliable ways supporting integrating with SAP and non-SAP software. The SAP
Business Suite contains different systems which are well integrated with each other and
can be used with different software vendors [15]. The business suite as illustrated in
Figure 2 includes: SAP Enterprise Resource Planning (ERP), SAP Customer Relationship
Management (CRM), SAP Supplier Relationship Management (SRM), SAP Supply Chain
Management (SCM) and SAP Product Lifecycle Management (PLM).

Figure 2: SAP Business Suite (source: (SAP Website, 2016))

SAP SCM provides different solutions which enable business to carry out supply chain
planning and generating high efficiency business processes with different partners and
suppliers. It enables business to respond to demand using a supply network where
distribution, transportation and logistics are well integrated into real-time planning
processes. The following figure illustrates the solution map for SAP SCM which includes
the general features and more detail services which the system can provide. This can
include:

Order Fulfillment

Procurement

Transportation

Warehousing

Manufacturing
ii.

Oracle Supply Chain Management (Oracle E-Business Suite)

Oracle Supply Chain Management module is part of Oracle E-Business Suite which
include different kind of modules to support organizations in streamline their business
processes and connecting them with different supplier, distributors, partners and
customers. Following the same idea of SAP Business Suite, Oracle E-business Suite is
one of the comprehensive suites that integrated global business applications in order to
provide the most complete, integrated business intelligence portfolio, the most adaptable
global business platform and the most customer focused application strategy. Oracle Ebusiness suite includes Customer Relationship Management (CRM), Financial
Management, Human Resources Management, Supply Chain Management (SCM),
Advanced Procurement, Customer Service Management, Project Portfolio Management,
Value Chain Planning and Value Chain Execution (logistics). As a part of suite, Oracle
Supply Chain Management (SCM) is a comprehensive suite of applications with open and
flexible architectures [16]. It can be integrated with Oracle or Non-Oracle software which
allows businesses to transform their operations across the demand and supply in order to
deliver operational and innovation excellence. The following figure illustrates the
architecture of Oracle Supply Chain Management:

Figure 2: Oracle SCM (Source [16])

6.0 CONCLUSION
Enterprise Resource Planning (ERP) Systems as defined by the Aberdeen Group is a
system with an integrated suite of modules that make up the operational and transactional
system of record upon which a business is based upon. The main goal in the move from
traditional management information systems to ERP solutions is to achieve a level of
integration in the enterprise system where redundancies are eliminated, data is shared
across different modules of the system, integrity of information is improved and
aggregation of data across the enterprise is possible to come up with comprehensive
reports needed by management for better decision making strategies. Supply Chain
Management (SCM) is a total systems approach to managing the entire flow of
information, materials, and services from raw-material suppliers through factories and
warehouses to the end customer [17].

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