What are ERP systems and how do they benefit the supply chain?

Darren Travers, senior account manager at AEB International, discusses the right strategy for businesses looking for IT support in international logistics.

Enterprise Resource Planning (ERP) systems have successfully established themselves in areas such as finance, accounting, corporate governance, and human resources. Over the years, their scope has expanded beyond the realm of business administration to also include, e.g., supply chain management (SCM) functionality.

International logistics processes, however, are both complex and highly individualised, and ERP systems with more sophisticated logistics features tend to become technically more challenging to work with.

Despite – or because – of ERP systems’ ever-expanding functionality and their aim to deliver it all, their usability and efficiency may be unsuitable for companies looking to meet complex demands in specialised areas like international supply chain management execution and control.

ERP systems trying to keep up with specialised logistics solutions struggle with mobility and integration demands. In today’s world, mobile devices are practically indispensable, particularly in logistics, be it for picking, shipping, or goods receipts. ERP systems with logistics functionality generally do well in, e.g., warehouse management, but they may not be able to offer sufficient support and functional depth any longer once the focus shifts from standard operations to more demanding processes.

These can include 3rd or 4th party involvement across various sites and systems, increased complexity of material handlings systems, integrated facility workflows including vendor management inventory (VMI), internal and external transparency and alerts on capacity and performance levels on all warehouse management mobile devices. 

Cross-enterprise collaboration with partners and integrating systems to exchange data throughout the supply chain has become essential in global supply chain management. But most ERP systems simply don’t contain all the data that would need to be consolidated to deliver this, and some providers now offer additional modules to try and bridge this crucial gap. In many companies, however, the ERP system forms the core of the IT infrastructure and as such also holds data that isn’t meant to be shared, so businesses often recoil from giving “outsiders” access to it.

Global trade processes reflect another weakness of ERP systems with international logistics functionality. Take customs processes, which are heavily influenced by external factors such as regularly changing declaration requirements and export control laws. ERP systems are not generally designed to accommodate daily – or even transactional – updates as required for global trade compliance.

Systems from ”best-of-breed” providers on the other hand offer a less broad approach and focus on serving specialised fields in logistics, such as supply chain collaboration, transport management, or customs clearance. Their solutions may provide an alternative to modelling logistics processes in ERP systems, but at the same time it is important to offer an end-to-end supply chain platform, not just standalone software solutions.

When isolated, such solutions are at risk of turning into silos for the respective areas (e.g. procurement, warehousing, shipping, customs, etc.) without delivering the overall integration the business requires for efficient and transport supply chain management.

So what is the right strategy for businesses that are looking for IT support in international logistics – deploying best-of-breed solutions or working with extended functionality of existing ERP systems? It clearly depends on the individual company’s processes: Generally, the more complex a company’s logistics requirements are, the more carefully it needs to consider its options and prioritise functional flexibility and integration capabilities accordingly.

The ultimate answer to the question “best-of-breed or ERP?” depends on the role that logistics and supply chain management play within a company. If they represent a critical, competitive, or differentiating factor, then it’s important to have powerful and specialised IT support in this area.

According to a survey carried out by market research firm Gartner in 2013, companies that consider themselves leaders in the area of supply chain management have turned to specialised software – i.e. best-of-breed solutions.

With technology becoming increasingly important and integral in all areas of our digitised business world, companies wishing to improve their IT landscape to optimise logistics processes and supply chain performance should carefully scrutinise the requirements of all involved business units.

Any decision and any new solution should support all areas of global supply chain management efficiently, and importantly also cater for future change and growth in today’s dynamic markets.