Enterprise Resource Planning Systems

Enterprise Resource Planning

Any medium to large organization or business that wants to be leader in its industry have superior decision support across its functions. Effective enterprise resource planning (ERP) system can ensure a competitive edge among a company’s competitor.  The purpose of ERP systems is to provide decision support for an organization/company. As an organization structure becomes complex ERP systems are essential in knowledge and decision management. Large organizations such as the Department of Defense (DoD) with very complex layers of management and multiple systems must rely on ERP to ensure vital decisions to ensure national security is intact.  In this article, ERP and its purpose will be defined. Second, a timeline and evolution of ERP systems will be provided to show how ERP systems and processes evolved within the last 50 years.

ERP Defined

 ERP is the integration of an organizations internal and external data. The purpose is to facilitate the data between the functions within or entities outside the organization. The functions within the organization are human recourses, accounting and finance, SCM, CRM, and logistics. Entities outside the organization can be suppliers or financial institutes.  ERP information is used by management, analyst or shareholders for decision support. Integrating data across the organization ERP allows the real-time control of information. 

           An ERP system in an organization is data derived from different systems or modules and stored in a repository database. Data in this database is queried and outputted to different reports and used for decision support from different functions of an organization. An example would be the accounting department conducting financial analysis on current level and value of inventory from data derived from the inventory management system and finance system. Figure one is an example of an ERP system, which displays modules of the Accounting, Inventory Management, Human Resources, and Sales and Marketing systems connected a repository database.  .

Purpose of ERP

The purpose of the ERP is for the facilitating data from different sources for the purpose of decision support. In addition to using information for decision support can also can be analyzed for process improvement. Information derived from ERP systems is essential for both decisions support and process improvement. As a decision support system, senior management can use information to expand its operations overseas, or introduce a new product line. As a process improvement system it provides management information to optimize production schedules, raises productivity, and increases customer satisfaction. Sources of information besides those illustrated in figure one can derive from Supply Chain Management (SCM) Systems, Customer Relationship Management Systems (CRM), and other ERP via the Internet.

Timeline and Evolution of ERP

ERP concept originated in the 1960s for the effectively managing and controlling inventory. Within the past 50 years this concept has evolved by integrating information from various systems across an organization to include SCM and CRM systems. Figure two illustrates the evolution of ERP dating back from the 1960s.

1960s: Inventory Control Package was used for inventory management and control for ensuring appropriate levels of inventory. Some of the activities included identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory balances, and reporting inventory status.
1970s: Inventory Control Package evolved to Material Requirement Planning (MRP). MRP was primary used for scheduling production processes. MRP generates schedules for the operations and the purchase of raw material based on the production requirements of finished goods. MRP ensured operation efficiency and manageable operations costs for production of finished goods.

1980s: During this period MRP evolved to Manufacturing Resources Planning commonly known as MRP II. MRP II went one step farther by coordinating manufacturing processes, from product planning, parts purchasing, inventory control to product distribution. MRP II modernized the manufacturing process.
1990s: With the requirement of integrating business activities across functional departments such as marketing, accounting, inventory management, and human resources ERP systems were developed. The goal of ERP system is to improve the performance of business processes and enhance decision support.

2000s: With e-commerce through the Internet ERP capabilities was extended. Extended ERP or ERP II allows leveraging the information involving those resources in the enterprise’s efforts to collaborate with other enterprises. An example of ERP II is a company’s ERP system interfacing with its supplier’s ERP system.

Conclusion

The purpose of ERP systems is to gather information across the functions of an organization or company to enhance operational efficiency, provide decision support, and improve business processes. An ERP system comprises of a repository database with data derived from various modules. These modules are accounting, inventory management system, sales and marketing, and human resources.  ERP evolved from the 1960s for inventory management and control. A requirement for gathering data across an organization’s enterprise led to the development of ERP systems. Today with the e-commerce and globalization ERP evolved to Extended ERP or ERP II.  A medium to large size company greatly benefit greatly from ERP systems, especially when combined with its SCM and CRM systems. Information derived from ERP systems provides senior management the decision support to improve its processes, introduce or discontinue a product line, take the company public, or expand its operation.