ERP stands for Enterprise Resource Planning. This term refers to the efforts that are undertaken in a manufacturing setting to plan work load around the acquisition of materials and projected delivery dates to customers. The reason that this is important is because promises are made to be able to consistently deliver product on-time to end customers.

Addressing the question as to whether or not an ERP system will help reduce cost in supply chain is a complex one. Part of the answer lies in the ability to obtain data from an ERP program.

ERP Systems

The systems that make up enterprise resource planning are computer-based. The reason is that the amount of data that is required to help forecast delivery is very complex. ERP programs can be stand-alone programs or part of a complete integrated package that reaches across all of the manufacturing departments and draws information from them to help make critical management decisions.

Some smaller manufacturers might only require the use of integrated spreadsheets in order to perform resource planning. Larger corporations have a need for all-encompassing systems. These systems are often purchased from specialized ERP software companies.

Supply Chain Management Basics

Managing supply chain has as its core the ability to order and receive raw materials that are used in the manufacture of a product. A key part of this is being able to keep the flow of those materials on a consistent and regular basis to keep up with manufacturing demands. As a result of this process, costing is integrated so that a history can be viewed to be able to spot trends. Also, the ability to compare costs between vendors is valuable to the process in order to keep raw material costs low thereby increasing profits.

Cost Reduction Efforts

An ERP system will help reduce costs in supply chain, but only if the data that is being captured is analyzed and evaluated properly. In other words, it is not an automatic process. Reports that are generated will help managers to identify critical data points upon which they can make better choices.

For example, a vendor that delivers high quality raw materials consistently with a low cost will be in the best position to cement a relationship with that manufacturer. Being able to purchase a high quantity because of this relationship should help reduce the cost of the materials as well.

However, placing all supply chain business with one vendor might not be wise. Having multiple sources helps to keep the flow of raw materials uninterrupted in case one vendor experiences delivery issues. That requires the ability to balance the ordering and processing of these materials between vendors.

Using ERP Systems can help reduce supply chain costs, but only if those who are using the systems are fully trained and are able to extract information from the system that helps them reach their critical goals.