Enterprise resource planning (ERP) systems are playing a greater role in supply chain operations as systems become more sophisticated and easier to integrate with other software. However, users are still looking for performance improvements in key areas such as integration, standards and specialised supply chain tasks.

ERP systems were developed in the 1980s from material requirements planning (MRP) programs designed to co-ordinate the inventories, schedules and materials needed in manufacturing. It was not long before the code developed for factories was extended to the whole enterprise. Applications for ERP systems now cover most corporate activities.

Suppliers such as the German company SAP were among the first to apply the software to improving supply chain efficiency. Initially, users gained time savings and tighter control over inventories, then major ERP vendors added additional applications such as demand planning, and product life cycle management.

With a central database, an ERP system offers the prospect of consistent data throughout an organisation and enables companies to develop processes that run across departments. "With globalisation we have gone beyond basic ERP," says Thomas List, director SCM applications for EMEA Oracle. "Now agility and the ability to make changes is a more important feature."

The systems have had an immense impact on large businesses by making it possible to reduce a hotch potch of separate systems for each business activity and replacing them with end-to-end software. When a delivery arrives at a loading bay an ERP system automatically generates journal entries and vouchers for other parts of the company, bringing corporate processes together and eliminating silos of information.

Downside

The downside is that although ERP systems are good at working with modules from the same supplier, they are not so hot at swapping information with other ERP systems or best-of-breed applications. Until recently it has not been in the best interests of software companies to agree the kind of standards that might open up ERP systems.

Many companies that invest in large enterprise ERP systems find that they need to integrate additional functionality from specialist software providers to be able to maximise efficiency. In the area of logistics, there are many areas that require deep domain expertise such as customs, compliance and freight forwarding.

"In our experience many large enterprise ERP systems lack the depth of functionality to manage niche but critical supply chain activities," says Rob Smith, vice president of marketing, Europe, at Kewill. Smith argues that it is important to work with vendors that not only have the domain experience but can provide tight integration without the need for time-consuming and costly reworking.

The need to integrate ERP systems and add additional functionality has spawned a large service industry.