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Enterprise Applications--The Genesis and Future, Revisited Part Two: 1990s--Enterprise Resource Planning

Written By: Predrag Jakovljevic
Published On: April 1 2004

Enterprise Applications—The Genesis and Future, Revisited
Part Two: 1990s—Enterprise Resource Planning

P.J. Jakovljevic - April 1, 2004

1990s—Enterprise Resource Planning

Integrated enterprise resource planning (ERP) software solutions became synonymous with competitive advantage, particularly throughout the 1990's. The idea behind ERP systems was to replace "islands of information" with a single, packaged software solution that integrates all traditional enterprise management functions like financials; accounting; payroll; human resource (HR) management; and manufacturing and distribution, and thereby ensure enterprise-wide transaction system coherency. Knowing the history and evolution of ERP within the broader enterprise applications concept is essential to understanding its current use and its future developments. The following is the genesis of enterprise applications by era.

By the time each functional area of a company had developed its integrated software program, the need for tightly integrating them became obvious. The next major shift during the late 1980s and early 1990s was that "time to market" was becoming increasingly short, as the shift from Fordist' mass production to nowadays' prevailing mass-customization (see Glossary*) principles and mindset has irreversibly changed the society and economy standards. Lead times expected by the market continued to shorten and customers were no longer satisfied with the service level that was considered world class only a few years earlier. Also, by the 1980s, competition from Japanese manufacturers and their philosophy has caused US and West European enterprises to look for new efficiencies using information technology.

Namely, customers were demanding to have their products delivered when, where, and how they wanted them. Companies were therefore compelled to develop and embrace the philosophies of just in time (JIT) and closer supplier partnerships as a way to remain competitive. During the same time frame, the cost of goods sold (COGS) was shifting drastically from labor to purchased materials. Consequently, planners needed to know materials allocations or finished goods' available-to-promise (ATP) values, immediately after customer order entry. On the other hand, buyers needed to know the sales plan several months in advance in order to negotiate prices for individual materials. Empowerment of employees was needed to provide the agility that was required to compete in the market.

Hence, the need to develop a system with tightly integrated programs that would use data stored on one common database and would be used enterprise-wide (such as, actions in one department's program driving actions elsewhere), became the highest priority for IT professionals. No longer was it tolerable to submit a request to the IT department and wait several "man-months" of programming time to obtain this critical information. This common-database, company-wide integrated system was named enterprise resource planning (ERP), as companies realized the need to see the entire picture.

This is Part Two of a six-part note.

Part One covered developments from the 1960s through the 1980s.

Part Three will discuss the 2000s.

Parts Four and Five will discuss ERP evolution.

Part Six will look at the future.

*There is a Glossary for the terms italicized throughout this article.

ERP Defined

APICS still defines ERP as follows:

"1) An accounting-oriented information system for identifying and planning the enterprise-wide resources needed to take, make, ship, and account for customer orders. An ERP system differs from the typical MRPII system in technical requirements such as graphical user interface (GUI), relational database management system (RDBMS), use of fourth-generation language (4GL), and computer-aided software engineering (CASE) tools in development, client/server architecture, and open-system portability;

2) More generally, a method for the effective planning and control of all resources needed to take, make, ship, and account for customer orders in a manufacturing, distribution, or service company."

Given many new very recent functional and technological developments, which will be analyzed in other upcoming articles, many may rightly consider certain parts of the above definition as somewhat outdated or not all encompassing. In general, the second part of the definition holds true, given traditional ERP involves software packages that by and large automate and support the processes of the administrative, production, inventory, and product development aspects of an enterprise.

Impact of the PC

Further on, the cost of technology continued to plummet and the advent of the personal computer (PC) revolutionized once again the face of business management systems. At a fast pace, the large inflexible mainframes were replaced by new client/server technology. The power of these small PCs exceeded the power of the large mainframes that were routine only a few years earlier. It became possible to run a fully integrated MRPII system on a small PC. Still, these systems have trickled down slowly from large to smaller enterprises. Many manufacturing enterprises were not computerized in the 1980s, which is largely true even nowadays in the segment consisting of a great number of small workshops that still go by with little or no computerization at all.

IT, however, gained momentum in the 1990s, when PCs become even cheaper, software more sophisticated, and companies become more amenable to using technology. The changing pace of technology had once again leveraged forward the planning and control systems in recognition of a real business need. In addition, unlike previous evolutions, the ERP software vendors offered these critical business applications also to non-manufacturing companies, which sell "know-how" rather than physical products.

ERP is far more than just MRPII which runs on a client/server architecture, given it encompasses all the resource planning for the enterprise including product design, inventory management, material planning, capacity planning, quality control, forecasting, budgeting, purchasing, distribution, reporting tools, and communication systems, to name but a few. These critical business issues affect not only manufacturing companies but also all companies that desire to achieve competitiveness by best utilizing their assets, including information. In other words, ERP systems should help companies become leaner by integrating the basic transaction programs for all departments, allowing quick access to timely information. However, ERP inherited MRPII's basic drawbacks, which are the assumption of infinite capacity and the inflexibility of scheduling dates, preventing companies from taking full advantage of speedy information flow.

This concludes Part Two of a six-part note.

Part One covered developments from the 1960s through the 1980s.

Part Three will discuss the 2000s.

Parts Four and Five will discuss ERP evolution.

Part Six will look at the future.

Sources and Recommended Further Readings

  1. ERP: Tools, Techniques, and Applications for Integrating the Supply Chain. Second Edition; Carol A. Ptak, CFPIM, CIRM, and Eli Schragenheim; The St. Lucie Press/APICS Series on Resource Management; 2nd Edition, 2003

  2. Selected Readings in ERP; APICS Complex Industries SIG, 1999

  3. Maximizing Your ERP System: A Practical Guide for Managers; Dr. Scott Hamilton; McGraw-Hill Trade, 2002

  4. APICS Dictionary; 10th Edition
 
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