Benefit Realisation – The Evolution of ERP System

The origins of ERP systems can be traced back to the development of standard systems for the planning and control of manufacturing. Staying away from technological aspects of ERP evolution, the driving force behind the evolution of each stage correlate highly to the changing business climate of the time (Rondeau and Litteral, 2001). Each milestone significantly enhanced and broadened the scope of planning and controlling resources within the enterprise, and with trading partners (Blevins, 2000). 2.1 Inventory Control In 1960’s the primary competitive thrust was cost, which resulted in a product-focused manufacturing strategy based on high-volume production, cost minimization, and stable economic condition (Rondeau and Litteral, 2001). The focus of manufacturing was on inventory control. Consequently, techniques of the day focused on the most efficient way to manage large volumes of inventory. Most of the software packages (usually customised) were designed to handle inventory based on traditional inventory management concepts (Ptak, 1999; Umble et al., 2003). 2.2 MRP In the 1970s the primary competitive thrust shifted to marketing, which resulted in the adoption of target-market strategies with an emphasis on greater production integration and planning (Rondeau and Litteral, 2001). Material Requirement Planning (MRP) systems met the requirement nicely. Using master production schedule and bill of material, MRP calculates gross material requirements based on future product requirements rather than reordering based on past usage. Using accurate inventory record, the available quantity of on-hand or scheduled-to-arrive materials could then be used to determine net material requirements. This then prompted activities such as placing an order, cancelling an existing order, or modifying the timing of existing orders. The ability of the planning system to systematically and efficiently plan production priorities and schedule all parts was a tremendous step forward for productivity and quality (Umble et al., 2003). As the complexity of manufacturing operations increased, MRP continued to evolve by adding further functionalities to meet the increased requirements. The addition of shop floor control, capacity requirements planning, sales & operations planning, master production scheduling, forecasting, rough-cut capacity planning, demand management (sales planning and customer order promising) added a “closed loop” element to the planning system. When this occurred, users began to consider their systems as company-wide systems. These developments resulted in the next evolutionary stage that became known as closed-loop-MRP (Umble et al., 2003). 2.3 MRP II In the 1980s the primary competitive thrust changed to quality. Manufacturing strategy emphasised greater process control, world class manufacturing, and reduced overhead costs (Rondeau and Litteral, 2001). Manufacturing resources planning (MRP II) systems evolved to incorporate the financial accounting system and the cost management system along with the production planning and materials management systems. This allowed companies to have a more integrated business system that derived the material and capacity requirements associated with a desired operations plan, allowed input of detailed activities, translated all these to a financial statement, and suggested a course of action to address those items that were not in balance with the desired plan (Umble et al., 2003). 2.4 MES By the late 1980s the growing manufacturing instability faced by US firms could be directly linked to the changing nature of information technology and the rise of time-based competition (Rondeau and Litteral, 2001). The primary competitive advantage is the ability to create or adapt new products and services on a timely basis to meet customers’ demand. This “new reality” translated into the need for a dynamic production environment in which products and processes may change weekly and production schedules may change daily. The emergence of Manufacturing Execution Systems (MES) represents the development of a critical interface between a firm’s MRP-II system and its shop floor and device control system (Rondeau and Litteral, 2001). 2.5 ERP By the mid-1990s increasing levels of global competition combined with changing markets and technology caused many companies to rethink and reinvent their products and services, including their organisational structure and operational controls (Rondeau and Litteral, 2001). Garner Group invented the term Enterprise Resource Planning in 1990s (Mohamed, 2002). In fact, ERP systems first appeared in the late 1980s and the beginning of 1990s with the power of enterprise-wide inter-functional coordination and integration. Based on the technological foundations of MRP and MRP II, ERP systems integrate business processes including manufacturing, distribution, accounting, financial, human resource management, project management, inventory management, service and maintenance, transportation providing accessibility, visibility and consistency across the enterprise (Nah, 2002). ERP can be used not only in manufacturing companies, but in any company that wants to enhance competitiveness by most effectively using all its assets, including information and knowledge (Umble et al., 2003). 2.6 ERP II Recently, in 2000, Garner also came up with a new term for next-generation ERP systems focusing on integration, transformation, and collaboration in the business value chain: ERP II. Garner describes such a system as “a business strategy and a set of industry-domain-specific applications that build customer and shareholder value by enabling and optimizing enterprise and inter-enterprise collaborative operational and financial processes” (Garner, 2000). ERP II system is the requirement of today’s performance-driven enterprise: higher return on invested capital, lower product and overhead costs, better asset utilization, faster delivery, greater customer retention, higher perfect order rates, reduced working capital needs, faster product innovation, greater sales and marketing productivity, higher quality, and more agile and dependable infrastructure. These strategic extensions of ERP systems are aligned with today’s most important performance enhancement initiatives such as (AMR Research, 2003): • Customer Relationship Management (CRM) • Sourcing and Procurement • Supply Chain Management (SCM) • Product Lifecycle Management (PLM) • Human Capital Management (HCM) • Demand and Revenue Management • Service Lifecycle Management • Enterprise Performance Management (EPM) • Production Operations Management • Strategic Enterprise Management (SEM)

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