Enterprise Resource Planning (ERP) and Inventory Planning Tools are both software solutions that can assist businesses in supply chain management. However, contrary to popular belief that these tools serve the same purpose, the truth is that they are two different tools designed to tackle and serve different aspects of supply chain management.
The core intent of this blog is to create awareness on the distinct roles of both ERP systems and inventory planning tools, and how they differ in functionality. Additionally, we aim to provide valuable insights that will guide and enable readers to make well-informed decisions on how an inventory planning tool can effectively complement their inventory planning process.
| Understanding an ERP and its role in Supply Chain Management
Enterprise Resource Planning (ERP) is a business management software that integrates different functions of an organisation into one system. An ERP system manages various aspects of a business such as finance, manufacturing, procurement, human resources, and supply chain management.
In the case of supply chain management, an ERP system helps organisations enhance their supply chain visibility by recording real-time data on basic inventory parameters including inventory levels, transaction of goods, movement of goods to and from the warehouse, supplier performance, shipping status, and other exterior inventory related information.
| Understanding an Inventory Planning Tool and its role in Supply Chain Management
An Inventory Planning tool is a software application developed with a blend of advanced AI technology and extensive industry knowledge to automate demand and supply planning and streamline supply chain processes through S&OP setup. It eliminates the problem of overstocking or under-stocking, boosts serviceability and fill rates, and reduces costs. Ultimately, it enhances customer satisfaction by ensuring that products are always in stock.
The tool also utilises real-time data and integrates with an ERP to gather information on inventory levels, sales, open orders, open indents (STOs), and more. It leverages master data and business constraints such as vendor lead times, shelf life, and inventory norms to assist organisations in determining critical inventory questions: what to order, how much to stock, when to order, and where to place it.
| Factors of Differentiation
A traditional ERP system provides an overview of sales and stock levels, whereas an inventory planning tool goes beyond that by automating more detailed factors to make predictions about future demand and supply, enabling more precise stock management for ensuring higher fill rates and serviceability.
In ERP systems, stock and sales information are recorded and updated manually based on dynamic transactions. In contrast, an inventory planning tool uses sales, stock, and other data parameters to derive insights on demand trends and accurately project demand and inventory requirements, making it possible to manage inventory more effectively and avoid costly overstocking or under-stocking.
Compared to an inventory planning tool, an ERP system is known to be significantly more expensive, requiring a larger financial investment due to extensive customisation and training, as well as its wider range of features for other business operations.
Implementing an ERP system can take much longer than implementing an inventory planning tool because ERP systems are designed for transactional activities, and accommodating changes in the way business operates can be very challenging, requiring significant planning and customisation before they can be fully deployed.
In essence, the key distinction between an ERP system and an inventory planning tool lies in their level of specialisation and focus on inventory planning. While an ERP system provides a basic platform for recording and viewing surface-level data, an inventory planning tool is specifically designed to automate and provide more advanced capabilities to optimise inventory levels and improve supply chain performance at a granular level.
The main emphasis of this blog is to acknowledge that the two tools have different use cases and can be interdependent in some cases. It is important to note that the blog does not aim to establish any superiority or inferiority between the tools since they serve different purposes and cannot be directly compared.
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