Key Takeaways:
– ERP has its origins as an arithmetical system called Material Requirements Planning (MRP), developed by Orlicky to increase efficiency at a tractor manufactoring company.
– The system helped the company meet and surpass market needs by improving the coordination between procurement, manufacturing and delivery.
– Over time, MRP evolved into Manufacturing Resource Planning (MRP II) as it integrated data from other departments such as accounting and human resources.
– In the 2000s, MRP II became ERP as information from additional departments such as marketing, logistics, and sales was incorporated into the system.
– With the advent of the cloud and the SaaS model, ERP became accessible to small and medium-sized businesses.
– ERP solution providers began creating specialized solutions for industry segments, with further specializations within industries.
– Despite the technological changes, the essence of ERP software remains the same – to integrate the functions of various departments to improve productivity and efficiency, reduce costs, and improve profitability.
– The evolution of ERP is expected to continue in the future, with AI integration, mobility and Internet of Things (IoT) greatly enhancing the efficiency of ERP solutions.
Evolution Of ERP: A Brief Overview
The story of the evolution of ERP is a fascinating one that begins in the world of manufacturing. In fact, the very first software that was used to help with resource planning was not even called ERP. It was called MRP (material requirements planning) and was created to solve the operational challenges faced by large manufacturing plants.
Over the years, more and more manufacturing organizations adopted MRP solutions; vendors began adding more features as technology advanced; organizations in other industries realized they could benefit from similar software; improvements in technology made the software more affordable and powerful; and ERP in operations management became more commonplace, extending to small and medium-sized organizations as well. With technological advancements came greater functionality and innovations to meet the changing market needs, resulting in ERP software as we know it today.
To learn more about the history of ERP – how it was born from an arithmetical system and how the software improved in each stage of the evolution of ERP systems – as well as how ERP is expected to evolve in the future, keep reading.
ERP in the Manufacturing Industry: A Historical Perspective
Before the 1960s, manufacturing companies had a tough time determining how much inventory they needed to keep on hand. They used systems that primarily aimed at ensuring they never ran out of inventory to produce goods and fulfill orders. Accordingly, they often hoarded lots and lots of stock, “just in case”.
Taiichi Ohno, an employee at Toyota, introduced a revolutionary method of managing inventory whereby inventory levels were kept to a minimum and ordered only as required. This system, which eventually gave rise to the “just in time” system, not only reduced costs, but also improved productivity and efficiency in the plant!
Ohno’s principles and ideas were instrumental in shaping the Toyota Production System (TPS), which gave rise to lean manufacturing and became famous the world over for its radical innovations and the dramatic improvements on the company’s profitability.
Joseph Orlicky, a researcher working for tractor manufacturer J I Case, developed an inventory management system to rival TPS, and called it Material Requirements Planning (MRP). It was an arithmetical system that helped manufacturers calculate when to purchase raw materials and when to start production based on the date of customer orders, such that raw materials would arrive just in time for the start of production and the product would be ready just in time for delivery as per the customer’s requirements.
When Orlicky moved to IBM, he helped computerize these calculations: all a manufacturer had to do was to provide information on customer orders, production time, and bill of materials, and the computer would calculate when to place purchase orders, when to start production, and when items should be shipped. This was the earliest form of ERP, and it was called MRP. MRP facilitated improved coordination between procurement, manufacturing, and delivery, allowing the company to meet and even surpass the growing market needs.
The first MRP systems were built in house by large manufacturers who had the money and space required for such computers, as the hardware needed to run the MRP software sometimes took up an entire room. However, IBM soon started producing this software to sell to manufacturing companies. Over the next few years, many variations of this software were produced by different software companies, and hundreds of firms implemented the system in their organizations.
With improvements in programming tools and databases and reduced computer costs, the software became more accessible. Software developers began integrating data from other departments as well, such as employee management and accounting.With these integrations, the software would take into consideration not only production time and parts needed, but also factor in constraints with other resources to determine the feasibility of a given production schedule. These integrated solutions were called Manufacturing Resource Planning, or MRP II.
The advent of the microcomputer (or personal computer) made the MRP II software a lot more accessible, and innovations in technology allowed for many improvements. Numerous software companies creating MRP II software sprouted up.
As computer programming language evolved and the graphical user interface of Windows took over, MRP II saw another big transformation. Software vendors began integrating more functions of manufacturing organizations such as human resources, scheduling, HR, marketing and sales. With this improved functionality, organizations from other industries began to use this software, now called ERP, to improve their efficiency and productivity.
In the 2000s, larger software vendors began acquiring best of breed solution providers to improve their product offerings. As the use of the internet became widespread, the evolution of ERP continued, and ERP software began interacting with other applications such as CRMs and Business Intelligence solutions for greater coordination and insights. Though some considered this to be ERP II, the essence of the software was the same – it integrated the functions of various departments to improve productivity and efficiency, reduce costs, and improve profitability.
ERP for Small and Medium - sized Businesses
In the 2010s came another technological revolution. With the advent of the cloud, servers could be deployed on the cloud and accessed using APIs. Software vendors began developing ERP applications for Android, iOS and browsers and delivering them over the internet using the Software as a Service (SaaS) model. Since an ERP solution no longer required expensive on-site hardware, the upfront costs of ERP implementation dropped drastically, and ERP became accessible for small and medium-sized businesses as well.
As the market grew, so did the competition. ERP solution providers started creating specialized solutions to solve specific problems within industry segments. What once began as an inventory and production management tool for manufacturing industries has now spread to other fields with specializied ERP solutions such as retail ERP, wholesale ERP, trading and distribution ERP, etc. Within an industry, there are further specializations such as restaurant ERP solutions, fashion and apparel store ERP solutions, and hypermarket ERP solutions all falling under retail ERP.
The reason for this explosion is simple. Every organization, no matter how small, can benefit from resource optimization, streamlining of operations, automation of tasks, improved coordination between departments, better data accuracy, and business reporting that can be accessed remotely with the click of a button. ERP solutions provide all of that and more, which is why more and more businesses are opting for ERP solutions.
ERP Timeline: From Beginning to Now
This timeline provides an overview of the origin of ERP and how the software evolved with each passing decade.
MRP II is extended to cover areas like human resources, accounting, marketing, logistics, and project management. The term ERP is coined, and the solution is adopted by non-manufacturing industries as well.
The development of cloud-based ERP solutions delivered using the SaaS model cut down the upfront cost of implementation and made ERP accessible to small and medium-sized businesses. Business owners loved the accessibility of the solution, and integration with AI took functionality to a whole new level.
ERP in the 21st Century: Advancements and Impact
Reading through the history of ERP, it becomes obvious that advancements in technology and ERP go hand in hand, with the former fueling the latter.
This has continued to be the case in the 21st century. In the 2010s, the advent of the cloud and SaaS models significantly impacted ERP solutions. Companies began developing ERP solutions in the SaaS model and delivering them through Android, iOS and browser-based applications. The impact of these changes was tremendous. Companies no longer had to spend hefty sums on on-site servers, so the upfront cost of an ERP implementation was significantly reduced. This made it accessible to small and medium-sized businesses as well. What’s more, the SaaS model made it possible for users to access their ERP solution from anywhere and at any time. This allowed business owners to keep an eye on business activities even when they aren’t physically present.
Another major change was the integration of ERP solutions with AI. Depending on the industry requirements and business needs, ERP solution providers began harnessing AI to perform a variety of tasks. Retail ERP solutions sometimes harness AI to provide specialized offers and suggestions for individual customers based on the customer’s purchase history. In the customer service area, AI is used to interact with customers and solve basic problems so that the employees are free to focus on more complex service requests. AI has also been used for demand forecasting in the retail and manufacturing sectors; this allows companies to optimize their stock, avoiding overstocking and understocking. Diagnostic AI tools identify problem areas and suggest steps to address the issue. In the maintenance sector, AI can be used to troubleshoot problems and suggest solutions. As AI successfully replaces humans in such tasks, companies are able to cut down on labor costs, automate simple tasks, proactively address problem areas, respond rapidly to changing market trends and make smarter decisions.
ERP's Impact on Business Management and Operations
The rise of ERP from its origin in the 1960s to its current dominance can be traced back to the role of ERP in operations management. Every aspect of managing a business and streamlining its operations can be improved by implementing an ERP solution.
The very genesis of ERP was based on the desire to implement industry best practices in an organization, and the same objective has influenced every iteration of the solution. At its core, it is a software for regulating, streamlining and integrating business functions like accounting, human resources, marketing, procurement, distribution, etc. Additionally, it helps automate tasks, improve data accuracy, eliminate manual data entry and human errors, and get real-time reports. With an ERP system, companies can better manage their resources, standardize procedures and processes across the organization, adopt industry best practices, set goals and monitor KPIs, increase transparency, reduce costs, respond quicker to changing market trends, and ultimately improve profitability.
Future of ERP: Trends and Predictions
The evolution of ERP has by no means come to an end. Rapid advancements in technology have triggered various trends in ERP systems, promising greater automation, efficiency, and excellence for organizations that adopt these futuristic offerings.
For one thing, the integration of AI is expected to only get stronger. With AI, ERP systems will be able to simplify workflows for the end user, suggesting next steps, generating emails based on triggers, or extracting information from email attachments to use where required. AI can also help analyze large amounts of data to make real-time predictions or highlight potential problems and suggest corrective actions. AI chatbots will make it easier to ask simple questions and get in-depth information extracted from the ERP system.
The Internet of Things (IoT), or the connectivity between computers and other devices, is an emerging technology that has already found its way into ERP systems. This trend is expected to grow, and the potential benefits are exciting. With a network of IoT-driven sensors and devices, ERP systems get updated with a constant stream of real-time information. This provides unprecedented visibility into the status, number and location of raw materials or inventory, and opens doors of communication between suppliers, manufacturers, retailers and customers. Information such as maintenance needs can trigger alerts, notifications and approval requests for further action.
While cloud ERP has enabled users to access their ERP solution remotely, mobility is expected to become a prominent feature of ERP in the near future. By allowing users across the hierarchy to access the solution from their mobile devices, it will become easier to ensure uninterrupted workflows and greater connectivity. Mobile access will allow for instant updates, whether a warehouse worker scans a shipment to update inventory levels or a factory worker reports a problem in the production line to avoid wasting resources or materials. Mobile ERP will connect every individual in an organization, irrespective of location or department, for smarter and more efficient workflows.
Conclusion
The evolution of ERP is remarkable, with the software growing from its earliest incarnation as an arithmetical system to what it is today, a powerful tool that integrates the functions of various departments to improve productivity and efficiency, reduce costs, and improve profitability. This evolution was and continues to be driven by technological advancements, changing market needs, and customer demand. With more and more organizations recognizing the benefits of implementing ERP software to streamline their operations and technology advancing at an unprecedented pace, the future of ERP is bright and promises many more exciting developments in the coming years.