While enterprise resource planning (ERP) systems are designed to manage various business processes, they may not always provide the specialised features and functionality needed for effective supplier management.
In this article, we’ll explore the pitfalls of using an ERP system for supplier management and discuss why businesses should consider specialised supplier management tools to help you unlock the full potential of your supply chain.
Why Don’t ERPs Work for Supplier Management
Here are some potential pitfalls of using an ERP system for supplier management:
Limited functionality
ERP systems are designed to manage various business processes, but they may not have the specialised features needed for effective supplier management.
When it comes to managing suppliers, businesses need specific tools and features that go beyond what an ERP system can offer. While ERP systems are designed to manage many aspects of a business, they may not have the specialised features needed for effectual supplier management.
For example, successful supplier management requires the ability to assess supplier performance, manage supplier risk, and monitor supplier compliance with various regulations and standards. This requires specific tools such as supplier scorecards, supplier risk assessments, and supplier performance analytics, which may not be available in an ERP system.
Supplier scorecards provide an objective way to evaluate supplier performance based on key performance indicators (KPIs) such as quality, delivery, cost, and innovation. These KPIs can be customised to meet the specific needs of the business and allow for a consistent way to evaluate supplier performance over time.
Supplier risk assessments allow businesses to evaluate the risk associated with working with specific suppliers. This includes assessing the financial stability of the supplier, their ability to meet delivery schedules, and their compliance with various regulations and standards.
Supplier performance analytics allow businesses to monitor supplier performance over time and identify trends or patterns that may indicate potential issues. This can help businesses proactively address any issues with a supplier before they become major problems.
Inflexibility
ERP systems can be challenging to customise, which can limit their effectiveness when it comes to supplier management. ERP systems are designed to be highly structured and standardised, which can make them rigid and inflexible. This rigidity can make it difficult to customise the system to meet the unique needs of supplier management.
In contrast, supplier management requires a level of flexibility and adaptability to be effective. Businesses need to be able to adapt their supplier management practices to meet the changing needs of their suppliers, such as changes in delivery schedules, pricing, or quality standards. They also need to be able to adapt to changes in their own business needs, such as changes in product lines or sales channels.
Customising an ERP system to meet these needs can be a complex and time-consuming process. It may require significant changes to the system’s underlying architecture or coding, which can be costly and difficult to implement. It may also require specialised skills or knowledge that are not readily available within the business.
In addition, customising an ERP system can also have unintended consequences. It may lead to unexpected errors or system failures, which can disrupt business operations and damage the company’s reputation. It may also make it difficult to upgrade or maintain the system in the future, as customisations may not be compatible with new updates or versions of the system.
Lack of collaboration support
Effective supplier management requires collaboration between various stakeholders across different departments, including procurement, quality assurance, and accounts payable. These stakeholders need to work together to ensure that suppliers are meeting the company’s requirements for quality, delivery, and cost, while also managing supplier risks and compliance.
However, ERP systems may not provide the necessary tools for effective collaboration between these stakeholders. ERP systems are often designed to manage individual business processes in isolation, which can make it difficult for stakeholders to work together in a coordinated and efficient way.
For example, an ERP system may provide a limited view of supplier information, which can make it difficult for stakeholders to access the information they need to make informed decisions. It may also lack the necessary collaboration tools, such as shared workflows or real-time communication, that allow stakeholders to work together seamlessly.
In practice, effective supplier management requires a collaborative approach that enables stakeholders to work together in real-time to address issues as they arise. This can include shared workflows that enable stakeholders to manage supplier-related tasks and activities together, as well as real-time communication tools that enable stakeholders to discuss supplier-related issues in real-time and find solutions collaboratively.
Supplier management often involves a high degree of complexity and requires a level of specialisation that may not be available within an ERP system. For example, managing supplier risk requires specialised expertise in risk management and compliance, which may not be readily available within a standard ERP system.
Data integration
ERP systems may not always integrate seamlessly with other data sources, which can lead to incomplete or inaccurate supplier data. This can have a significant impact on supplier performance and risk management, as businesses rely on accurate data to make informed decisions about their suppliers.
For example, supplier databases and third-party risk management tools often contain important information about suppliers, such as their financial stability, compliance history, or performance metrics. However, if these data sources are not integrated with the ERP system, businesses may not have access to this information, which can lead to incomplete or inaccurate supplier data.
This can make it difficult for businesses to assess supplier performance accurately, identify potential risks, or make informed decisions about which suppliers to work with. It can also lead to inefficiencies and errors in the supplier management process, as stakeholders may need to manually enter data from multiple sources into the ERP system, which can be time-consuming and prone to errors.
Incomplete or inaccurate supplier data can lead to missed opportunities for cost savings, supplier performance improvements, or risk mitigation. For example, if a business is not aware of a supplier’s poor delivery performance or financial instability, it may continue to work with that supplier, which can result in delayed shipments or even supply chain disruptions.
In contrast, effective supplier management requires a comprehensive and integrated approach that enables businesses to access and analyse supplier data from multiple sources. This requires robust integration capabilities that enable the ERP system to seamlessly connect with other data sources and enable stakeholders to access the information they need to make informed decisions about their suppliers.
While ERP systems can provide a solid foundation for managing various business processes, their limited integration capabilities can lead to incomplete or inaccurate supplier data, which can impact supplier performance and risk management. Businesses need a comprehensive and integrated approach to supplier management that enables them to access and analyse supplier data from multiple sources to make informed decisions about their suppliers.
Cost
Implementing and maintaining an ERP system can be a costly investment for businesses, and it may not always provide the best value for managing suppliers compared to other specialised tools or outsourcing options.
ERP systems can be expensive to implement, as they often require significant investments in hardware, software, and infrastructure. This can place a strain on the resources of small or medium-sized businesses and may limit their ability to invest in other areas of their operations.
ERP systems can also be expensive to maintain, as they require ongoing upgrades, updates, and support. This can be a significant ongoing cost for businesses, especially if they need to customise the system to meet their specific needs.
While ERP systems can provide a solid foundation for managing various business processes, they may not always provide the best value for supplier management compared to specialised supplier management tools or outsourcing options. Specialised tools and outsourcing options may offer more specific features and functionality for managing suppliers and may be more cost-effective in the long run.
For example, specialised supplier management tools may offer features such as supplier scorecards, supplier risk assessments, and real-time collaboration tools that are specifically designed for managing suppliers. These tools may be more effective for managing suppliers than a general ERP system, as they offer a more targeted solution for supplier management.
Similarly, outsourcing supplier management to a third-party provider may be more cost-effective than investing in an ERP system, as it can allow businesses to tap into the expertise of an external, focused and specialised software provider without incurring the costs of implementing and maintaining an ERP system.
The SourceDogg Solution
Sourcedogg is a cloud-based supplier management platform that is designed to sidestep the pitfalls of using an ERP system for supplier management. Sourcedogg provides a comprehensive and integrated solution for managing suppliers, with specialised features and functionality that are specifically designed for supplier management.
Firstly, Sourcedogg offers a range of specialised features that are designed to meet the unique needs of supplier management. This includes supplier scorecards, supplier risk assessments, and supplier performance analytics, which enable businesses to evaluate supplier performance and manage supplier risk effectively. Sourcedogg also provides real-time collaboration tools that enable stakeholders to work together seamlessly, as well as advanced data integration capabilities that enable businesses to access and analyse supplier data from multiple sources.
Sourcedogg is highly flexible and adaptable, which enables businesses to customise the system to meet their specific needs. Sourcedogg can be easily configured to match the specific workflows, processes, and terminology used by a business, which ensures that the system is aligned with the business’s unique requirements. Sourcedogg also provides a high degree of scalability, which enables businesses to expand the system as their supplier management needs grow over time.
This makes Sourcedogg a powerful and cost-effective solution for businesses that want to manage their suppliers more effectively. Don’t miss this chance to improve your supplier management practices and unlock the full potential of your supply chain. Request a demo from our team of supply chain experts today.
