ERP

MODULE 1

Enterprise Resource Planning: Evolution of ERP- MRP and MRP II; Need for system integration; Early
ERP packages; ERP products and markets.

Enterprise Resource Planning: Evolution of ERP- MRP and MRP II

What is ERP

ERP is the acronym of Enterprise Resource Planning. ERP utilizes ERP software applications to
improve the performance of organizations' resource planning, management control and
operational control. ERP software is multi-module application software that integrates activities
across functional departments, from product planning, parts purchasing, inventory control,
product distribution, to order tracking. ERP software may include application modules for the
finance, accounting and human resources aspects of a business.

ERP Definition - A Systems Perspective

ERP, often like other IT and business concepts, are defined in many different ways. A sound
definition should several purposes:

1. It answers the question of "what is ... ?".

2. It provides a base for defining more detailed concepts in the field - ERP software, ERP
systems, ERP implementation etc.
3. It provides a common ground for comparison with related concepts - CRM, SCM etc.
4. It helps answer the basic questions in the field - benefits of ERP, the causes of ERP
failure etc.

A definition of ERP based on Systems Theory can server those purposes.

ERP is a system which has its goal, components, and boundary.

The Goal of an ERP System - The goal of ERP is to improve and streamline internal business
processes, which typically requires reengineering of current business processes.

In the 1960’s inventory control assumed prime importance and most of the software at that time
were designed to help in inventory management. Typically, these were handled by tools called
BOM processors (Bill of materials). The focus shifted in the 1970’s to Material Requirement
planning (MRP) as the complexity of manufacturing operations increased. The tools to support
these continued to evolve by adding further functionalities to meet the increased requirements.
Then in the 1980's the concept of Manufacturing Resources planning (MRP-II), which was
nothing but extension of MRP to shop floor and Distribution management activities, grew in
importance.
 However, in the early 1990’s, increased complexity of businesses and the need to integrate all
the functions within an enterprise to sustain in the dynamic environment lead to development of
ERP (Enterprise Resource planning) tool. ERP was extension of MRP II to cover the range of
activities within any enterprise. (Figure 1) Additionally it addressed technology aspects like
client/server-distributed architecture, RDBMS, object oriented programming.

Figure 2: Evolution of ERP  

Source: ERP: Tools, techniques and applications for integrating the supply chain, Carol A. Ptak
and Eli Schragenheim, The St. Lucie Press/APICS series on resource management, 2000,
pp106

 Ptak and Schragenheim, represented this growth of enterprise management systems with
additional functionalities in the form of growth rings (See figure 2). They point out that these
rings, each of which represent a single enterprise are presently being interlinked through supply
chain management (See figure 3) thereby representing a new stage in evolution of ERP.
According to them, “supply chain management is when individuals work collaboratively to focus
on end consumer and provide benefit to all the links.”
 

Figure 2: Evolution of ERP  

ERP (Enterprise Resource Planning) is the evolution of Manufacturing Requirements Planning

(MRP) II. From business perspective, ERP has expanded from coordination of manufacturing
processes to the integration of enterprise-wide backend processes. From technological aspect,
ERP has evolved from legacy implementation to more flexible tiered client-server architecture.

The following table summarizes the evolution of ERP from 1960s to 1990s.

Timeline System Description

1960s Inventory Inventory Management and control is the combination of

Management & information technology and business processes of maintaining
Control the appropriate level of stock in a warehouse. The activities of
inventory management include identifying inventory requirements,
setting targets, providing replenishment techniques and options,
monitoring item usages, reconciling the inventory balances, and
reporting inventory status.

1970s Material Materials Requirement Planning (MRP) utilizes software

Requirement applications for scheduling production processes. MRP generates
Planning (MRP) schedules for the operations and raw material purchases based
on the production requirements of finished goods, the structure of
the production system, the current inventories levels and the lot
sizing procedure for each operation.

1980s Manufacturing Manufacturing Requirements Planning or MRP utilizes software

Requirements applications for coordinating manufacturing processes, from
Planning (MRP II) product planning, parts purchasing, inventory control to product
distribution.

1990s Enterprise Resource Enterprise Resource Planning or ERP uses multi-module

Planning (ERP) application software for improving the performance of the internal
business processes. ERP systems often integrates business
activities across functional departments, from product planning,
parts purchasing, inventory control, product distribution,
fulfillment, to order tracking. ERP software systems may include
application modules for supporting marketing, finance, accounting
 and human resources

Need for system integration