Growth and Historical Evaluation of ERP
Use of computer systems is a post second world war phenomenon. The first working computer was developed by two scientists at the University of Manchester, UK. However, commercial applications of computer commenced during the 1960s.
Pre ERP systems
In the sixties, computers were bulky, noisy and without the facility of standard operating systems. The organizations used to develop computerized systems that were stand alone; tailor made and without an integrated approach. The software development, in a sense, was a re-inventing wheel, as the basic business process is similar for all organization in the same business sector. Due to this restrictive environment, Development, maintenance, and modification cost became prohibitive. Developer ended up developing isolated and piecemeal systems, even within an organization. Thus, a payroll system, accounting system, and inventory system were developed in isolation as per specific need of business units and were incompatible with each other.
MRP-Advent of ERP
Stand alone systems, in vogue during the sixties, were incapable of processing planning requirement of an enterprise encompassing production planning, procurement, and inventory, which became an impediment to adopting Materials Requirement Planning (MRP). MRP was first adopted by IBM and J I Case (a tractor maker from the USA) during the late seventies, when integrated systems started taking shape. The basic idea of MRP was to assimilate planning and scheduling elements to the manufacturing process. The process of MRP was to plan and procure purchase requirements based on finished products, inventory on hand, allocated inventory and expected arrivals. Subsequently, it was supplemented by Capacity Requirement Planning (CRP) to create capacity plans of shop floors and sub=contractors.
There was continued development of MRP system during the 1980s. The need moves beyond shop floor, and MRP II was introduced incorporating planning element of distribution as well as forecasting requirement.
ERP was introduced in late 1980 to integrate other business functionalities not covered by MRP or MRP II. It is not confined to manufacturing only but covers all facets of organization such as:
- Human Resources
- Supply Chain
- warehouse management, and
- Project Management
ERP development from software solution provider mainly emerged as a sequel of their MRP products. Some of the early solution providers are
- SAP from Germany
- BaaN from Netherland
- JD Edwards from USA, and
- Lawson from USA
Few vendors did not follow this course. Starting point of Oracle ERP was their accounting package whereas People-soft ERP evolved from their HR suite.
During the 1990s, ERP products continued to evolve. Vendors added new functionalities, incorporated Graphic User/ Internet browser interface and brought out new versions of their products. Some solutions were found to be more suitable for a particular vertical such as discrete manufacturing, utility, process industries, public sector and retail. Several vendors brought out reference models of their product, meaning that through pre-configuring basic and common data, a particular flavor of their product will be more compatible with the business need of a particular sector/ sub-sector.
Traditionally, the biggest purchaser of an ERP solution is fortune 500 companies. But, this market has since been saturated. Vendors are now looking to increase their presence in small and medium business sector. Due to fierce competition and financial crisis, there are also some takeover and mergers across ERP solution providers during early 2000 such as Oracle taking over People Soft, Infor taking over BaaN and Microsoft taking over Axapta.
ERP solutions, which were mostly, operating as a back-end system, is now broadening its horizon. ERP vendors are extending their products to become Internet-enabled. ERP extension products (mostly as an add-on to their existing products) now provide solutions for Advanced Planning and Scheduling, Manufacturing Execution System, Advanced Business Intelligence and Dashboards, Salesforce Automation, Product Lifecycle Management and Warehouse Management. Business to Businesses and Business to Commerce functionalities, as add-on solution, is now getting seamlessly integrated with Back-end, thus making it possible to bring e-commerce under the gambit of ERP.