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Erp vs scm


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Erp vs scm

  1. 1. ERP vs. SCM What’s the difference? This report will first explain the basic functionality of an ERP (EnterpriseResource Planning) system, using SAP R/3 as an example. Then it will contrast SAPwith SCM (Supply Chain Management) software such as I2 and Manugistics. Finally,integration between the two types of systems will be examined, as well as futureprospects for ERP and SCM vendors. The most distinguishing characteristic of ERP systems is theircomprehensiveness. R/3 broadly covers Sales and Distribution, Business Planning,Production Planning, Shop Floor Control, and Logistics. On the surface, this would seemto cover anything that SCM claims to provide. However, “the devil is in the details”.Therefore, it helps to review the relevant functions of R/3 in detail, to be able to contrastto SCM software later. First, Sales and Distribution covers order entry and deliveryscheduling. This module also naturally checks on product availability to ensure timelydelivery, and checks the customer’s credit line. Business Planning consists of demandforecasting, planning of product production and capacity, and the detailed routinginformation that describes where (in which work cells) and in what sequence the productis actually made. The capacity and production planning gets very complex, and simulation tools areprovided as part of R/3 that can help managers to decide how to overcome shortages inmaterials, labor, or time. Once the Master Production Schedule is complete, that data isfed into the MRP (Materials Requirements Planning) module. The MRP has three
  2. 2. principle pieces of output: An exception report, an MRP list, and order proposals. Theexception report brings to attention situations that need attention, such as late delivery ofmaterials, and rescheduling proposals. The MRP list shows the details of shipments andreceipts for each product and component. Order proposals are used to order materials andissue production orders. This naturally leads to Shop Floor Control. The planned orders from the MRP areconverted to production orders. This leads to production scheduling, dispatching, and jobcosting. Finally, the Logistics system takes care of the rest, assuring timely delivery tothe customer. Logistics in this case consists of inventory and warehouse management,and delivery. The purchasing function is also usually grouped under logistics. Theoverall process summary looks like:1) Sales & Forecasting Data2) Production & Capacity Planning3) Production Execution4) Logistics This functionality is representative of all the major ERP vendors, including SAP,Oracle, Baan, and PeopleSoft. However, it also seems to be very close in functionality toSCM products such as those from I2 and Manugistics. So what’s the difference? The Manugistics web site ( has the followingdescription of supply chain management: “Effective supply chain management enablesyou to make informed decisions along the entire supply chain, from acquiring rawmaterials to manufacturing products to distributing finished goods to the consumer.”
  3. 3. This sounds a lot like what R/3 does also. R/3 has detailed functionality to order neededmaterials, schedule and track the manufacture of products, and to schedule and trackdistribution. So really, what’s the difference? The description of I2’s Rhythm productline (found at is slightly different: “RHYTHM’s Supply ChainPlanner provides advanced planning capabilities to leading companies in many industries.RHYTHM plans and optimizes the supply chain as a continuous and seamless activitythat integrates all planning functions across the supply chain. RHYTHM goes beyondtraditional planning solutions like MRP (Manufacturing Resource Planning) and DRP(Distribution Resource Planning) by simultaneously considering demand, capacity andmaterial constraints.” This provides a better idea of the chief differences between ERPand SCM systems. According to a July 1997 study by Gartner Group, “Through 1999, enterpriseswith multi-echelon distribution networks that have aggregation, disaggregation, balancingor echelon-skipping requirements within the distribution network will need to augmenttheir existing ERP applications with advanced SCP functionality or risk incurringdistributions costs that are at least 10 percent higher due to expediting, low order fill ratesand inventory imbalances.” The study goes on to say that this is caused by the staticsourcing tables used in ERP systems. While ERP systems provide a great deal ofplanning capabilities, the various material, capacity, and demand constraints are allconsidered separately, in relative isolation of each other. The more leading edge SCMproducts are able to consider all the relevant constraints simultaneously, and to performreal-time simulations of adjustments in the constraints. ERP systems have a harder timeadding this more dynamic functionality because they are chiefly concerned with
  4. 4. transaction processing, and also have many more jobs to do than just SCM. Gettinganswers from an overloaded ERP systems may take hours, whereas getting them from aseparate SCM system may take minutes or seconds. The leading SCM products generally have many other enhancements as comparedto the ERP packages. Many employ visible maps of the entire supply chain, showingwhere problems are. Here is a description of Manugistics version: “Navigating your waythrough mountains of supply chain information is made easier with Supply ChainNavigators state-of-the-art graphical user interface. This intuitive GUI gives youcomplete visibility into the inner-workings of the supply chain - through demand, supply,manufacturing scheduling, and transportation - all at your fingertips.” Just recently, SAPhas added similar functionality. But that functionality is actually an SAP version of theSCM product made by I2, which SAP is selling as a separate module. This is a relativelysimplistic explanation of the key differences between the ERP vendors’ SCM modulesand the leading SCM-only products, but it hits the main points. Now, since these products have many naturally overlapping features, how is datakept consistent between them? I2 uses SAP’s ALE (Application Link Enabling) toexchange data between R/3 and Rhythm (I2’s SCM product suite). Oracle and the otherERP vendors also have APIs that I2 and other vendors can use common denominatormiddleware to interface to. However, this means that each vendor has to change theirmiddleware interface software quite often, which is often a trial and error process, doesn’tusually perform well, and often turns into a nightmare (see A newer, and possibly better solution to thisproblem is SIS (Specialized Integration Software). This is software that is designed
  5. 5. specifically to allow ERP and other systems to share processes and data. This removesthe chore of developing an interface to every other vendors software. The major companyin this area is CrossWorlds Software Inc., although more are appearing. This software,which runs on Windows NT, claims to work by simply pointing and clicking on a sendingapplication (such as SAP) and a receiving application (such as Manugistics) and thenselecting the processes to link together. No programming required. Sounds almost toogood to be true, but it certainly should make things easier for implementers. One other key development that should be noted is the rapid convergence that ishappening between ERP and SCM software. The ERP vendors have awaken, and arerushing to add more sophisticated SCM functionality to their ERP products. And theSCM vendors are also expanding their functionality, further encroaching on the areainhabited by the ERP vendors. Although it seems that all the leading SCM vendors arepartnered with the all the leading ERP vendors, this is only a temporary relationship ifSAP, Oracle, etc. have their way. Following SAP’s example, Oracle also recently addeda SCM module, and Baan and PeopleSoft both have recently acquired smaller SCMvendors to integrate into future releases of their ERP products. As the ERP vendors moveheavily into the mid-size market with their new supply-chain bolstered products, theyshould push a lot of the smaller SCM and ERP vendors out of business. With theindustry shakeout, implementations should become somewhat simpler and thus shorterand less expensive, since there will be less products to integrate, and more experiencedimplementers in job market. However, luckily for the consulting firms installing much ofthis software, that day is probably still a long way off…