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Supply Chain Management Systems

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So Why Did ERP Systems Become Supply Chain Management Systems?

Now comes the requirement for a healthy cynicism.

ERP had been the accepted term for a while. Of course, anyone who is promoting their company's products likes to be able to tell the world about something new every now and again so in the absence of any revolutionary breakthrough another new name for the old approach was the obvious step forward.

'Supply Chain Management' as a term existed; it meant something and it was part of a vital lesson. Furthermore, it had credibility! Obviously any system used for planning and recording the activities of buying from suppliers and selling to customers could be considered as providing management of the supply chain.

So, then, what happened to change all these systems packages from ERP to Supply Chain? Quite frankly, nothing. The packages did not change one bit. Purchasing professionals managing their suppliers with their existing ERP system may have been excited when they saw that the company had bought a new 'Supply Chain' offering. They were disappointed soon afterwards when they still couldn't do anything other than record details of their 'Tier 1' suppliers and manage orders on those suppliers. They couldn't see materials in the supply chain and identify, for example, that their supplier of pressed components wasn't giving sufficient visibility of requirements to the people providing sheet steel. Even with a system purporting to address the 'chain' they were limited to managing a single link

All that had actually changed with the adoption of this new term by the software industry was the promotional literature and the overhead slides in sales presentation and product materials. Let this act as a lesson to all watchers of the software market - beware new names! It is easier to come up with a catchy new title than a revolutionary new approach. Where ERP was seen as dated and the package providers wanted something new to sell, they were faced with a choice - develop a new set of techniques and incorporate them in new systems or dress up the old tools with a new name.

Cynical? Perhaps, but a certain amount of cynicism is needed in this world.

4. What Is The Difference Between Supply Chain & ERP?

As noted earlier, when we are talking about packaged software for manufacturing businesses - there isn't one!

Supply Chain Management is fairly self-explanatory. Managing our supply chain means looking after all aspects of serving our customers. Working backwards this then encompasses:

  • the processes by which we have our goods or services delivered to the customer.
  • any manufacturing processes we may undertake in our own operation.
  • the procurement of products, components and raw materials.

Because this is a 'chain' we must consider the full length of the chain - that is, delivery to end customer all the way back to the earliest steps in raw materials being extracted from the earth. Every link in this chain can have a bearing on our success or failure and, as we all know, a chain is only as strong as its weakest link.

Sadly, but not surprisingly, there remains a mass of confusion over whether Supply Chain and ERP are the same thing. One respected journal has even included the question 'Do I need to implement ERP before I can introduce Supply Chain systems?' The answer it provides is that 'no, we can manage the supply chain without ERP' but it goes on to point out that the data we need to manage our supply chain is held within ERP. Further, it argues, although we could use our legacy systems (spreadsheets and the like) it would be simpler to have one integrated package holding all the information required.

In other words, the ERP system is the Supply Chain system. However, Supply Chain Management is most definitely not ERP. There are elements of the chain well outside the remit of SAP, Baan, Oracle Manufacturing and their competitors. 'Management' and 'Systems' are some way apart. We have business strategies which we convert into tactics, policies and processes in all areas of operation - marketing, selling, manufacturing, and so on - which then play a part in our procedures, which we execute in part with our systems. All companies do - or should do - lots of work on continuous improvement of their supply chain. This extends from sourcing and working with suppliers on their own sourcing at one end of the spectrum to deciding how we wish to get our products delivered to the end customer. Many businesses have made great strides in this area through looking at how they can set up a supply model that gives better value to the end customer and a greater return for their own shareholders.

This is the key point here. ERP systems help address that part of the Supply Chain from our direct suppliers, through our own manufacturing processes (if we do any manufacturing) and thence to our own customers. They offer nothing to improve the supply further up the chain (our customer to end customer) or further back than our own 'Tier 1' partners. Critically, there is much more to Supply Chain Management than a planning and control system. There are many aspects of Supply Chain Management which do not fall within the management information systems field and when I am asked if my colleagues and I help businesses with Supply Chain my answer is always the same - 'yes, we do assist companies in setting up and improving their supply chain. We also help with the implementation of business systems marketed under the Supply Chain banner.'

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~ Ian Henderson ~

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