Today's Enterprise Resource Planning (ERP) systems can do a whole lot more for organizations than they could 20 or 30 years ago. ERP itself was a term first used in 1990 and evolved from software solutions used by manufacturers to track inventory and production processes.
Over the next decade, as companies planned for Y2K upgrades and looked for ways to integrate the upcoming Euro into their current systems, software developers made many improvements, including connecting ERP to the web. By the year 2000, a vastly improved ERP II had been born.
Before 2000, ERP systems were installed in-house on a server and were limited to that server's computer network. ERP II is web-enabled so, regardless of where the software is installed, the system can access and share data outside of its own network.
Enterprise Resource Planning has roots going back to the 1970s with the advent of Material Requirement Planning (MRP) systems used in mainframe computers. MRP was designed to track the components needed during manufacturing and to notify managers when new components needed to be ordered so there wouldn't be a stop in production. MRP eventually evolved into MRP II, which could track production schedules and employee payroll and could tie into the company's accounting systems.
As companies saw the benefits of MRP being expanded, software developers began to add additional modules to the software for managing other business information systems, which resulted in the birth of ERP. MRP II systems, meanwhile, have continued to be improved, but are used primarily by manufacturers, while ERP can be used by just about every business sector.
The term ERP was coined in 1990 by Gartner. ERP systems could map many different types of business processes to ensure all types of resources could be properly managed. ERP systems could typically be used in:
- materials management (procurement, storage, scheduling)
- production planning and control
- accounting and finance
- sales and marketing
- document management
- data management
Early ERP systems were limited to a single network within an organization. Imagine how limited you would be if you had to do your own work today without internet access. Before the year 2000, with the imminent introduction of the Euro and the need to upgrade systems for Y2K, ERP innovation went into overdrive. In the year 2000, when Gartner coined the new term ERP II, these systems could now be connected to the internet so they could gather information from other sources and share their own data, analysis and reports as needed with other organizations. This has unlocked countless new opportunities for businesses, primarily in three areas as ERP II can be used to:
- plan and analyze operations between different organizations.
- exchange data with partners along the supply chain.
- share inventory and shipping data from along the supply chain with clients.
ERP II systems can use a variety of applications, but they usually include supply chain management (SCM) software, customer relationship management (CRM) software and e-commerce software.
Companies that offer ERP, like Oracle and SAP software, don't necessarily use the term ERP II. In 2019, cloud ERP is a more common term. Cloud-based ERP systems allow companies of any size to use ERP systems without the need to store the software on their own servers. For a monthly subscription, small businesses can use ERP to manage their information on servers hosted by the software company. Large companies with their own servers can use cloud-based ERP that coordinates with systems they already use, in a server-cloud hybrid situation.
Regardless of whether or not an ERP system is installed in-house or is in the cloud, companies can expect a variety of benefits from using ERP today.
Integrating finances: Different company departments use the same system, so expenses from these departments, as well as sales and other revenue, are tracked in real-time, without the need to reconcile numbers.
Integrating orders: When orders come in, the information is available to all departments, including production, warehousing, accounting and distribution. Orders can be tracked from the moment they're received until the shipment arrives at the client's door.
Analyzing customer data: Customer relationship management (CRM) software in an ERP system can log all interactions with customers. Combined with data about orders, deliveries, returns and service tickets, each customer can be served according to their needs.
Standardized manufacturing: Large manufacturers with different business units can use ERP to standardize and automate processes, even when each unit uses different methods and different computer systems. This increases productivity, saves time and cuts down on labor costs.
Standardized procurement: ERP systems not only track purchases and incoming materials, but they can also be used to rank the cost and efficiency of using different vendors. Companies with multiple business units can combine their data to take advantage of volume discounts.
Standardized HR: Using self-service portals, ERP systems allow each employee to manage their personal information, including expenses, vacation requests, training and schedule changes. With data on each employee, like their certifications, degrees and work experience, the right person for a new project can be identified immediately.
Facilitating government reports: ERP software can help a company file the appropriate paperwork with different government bodies for all of their departments.
Suppose you want to buy a few books from a local bookseller that has two stores in your city. So you walk into the closest bookstore on Sunday afternoon and ask about three titles. Within a few moments, the clerk tells you:
- Book A: You can drive across the city and get it now from their second bookstore, or come back Monday after lunch and pick it up here.
- Book B: She can order it for you and you can pick it up Thursday afternoon. If you're in a rush, you can pay for it now and pick it up Wednesday.
- Book C: She can order it for you and you can pick it up the following Thursday.
- For all three titles, you can pay for them now and have them shipped to your door.
For this quick service, there would be three different systems working behind the scenes:
Book A: The bookstore tracks the inventory for both stores and shares them between locations. They can simply send the book to the second store for you Monday morning.
Book B: The book distributor shares its inventory with the bookseller. The system confirms the title is in stock and it can be ordered immediately. Because the bookseller has other titles on order already, the book can be packed Monday and shipped out on Tuesday morning with their weekly order, resulting in no shipping cost to the bookseller. If you're in a rush, it can be shipped separately Monday, arriving a day earlier, with a shipping charge to the bookseller.
Book C: The distributor doesn't have this title in stock, but it has access to the publisher's inventory, which confirms that the publisher has six copies in the warehouse. This information is, in turn, shared with the bookseller. The system calculates it will take four days to get the title to the distributor and can be shipped with the bookstore's regular order the following week.