ERP Evolution: From Inventory Control to Enterprise Systems

Introduction to ERP Software

Enterprise Resource Planning (ERP) is a category of software used for business management. ERP is the descendant of Manufacturing Resource Planning software — an extended version built on the same concept — that assists in the automated management of incoming orders by administering the manufacturing line and industrial warehouses. ERP is deployed as a set of integrated software utilities providing management for financial, human resource, manufacturing, and industrial functions, all of which compile the background product supply functionality of a business (Sharma, 2004).

Different companies are involved in the development of ERP software, including Oracle, SAP, JD Edwards, and PeopleSoft. ERP aims to extend and integrate software management into the main IT infrastructure of a business for the purpose of organizing and directing the flow of data into and out of the company in a swift and managed way. Its goals include recording every important step of the business, eliminating room for errors, administering processes, providing system flexibility, dissolving internal boundaries between departments, giving easy access to relevant shared information for customers and partners, and boosting the company's responsiveness to the marketplace (Sharma, 2004).

IT innovation has provided business administration with an outstanding solution in the form of ERP. These software solutions are designed to manage and assemble operational processes and information flows within the structural orientation of a company, supporting key resources including employees, materials, money, and machinery. In the early stages of its introduction, ERP solutions were largely limited, in terms of affordability, to multinational vendors and large infrastructure organizations (Sharma, 2004).

Management of inventory control — a core enterprise function involving the maintenance of supply chain management, warehousing, and stock status — was accomplished through a combination of IT and industrial processes. The business processes managed under this IT framework included establishing inventory requirements, setting stock limits, establishing replenishment mechanisms and response protocols, directing the usage of materials, creating inventory balance records, and monitoring inventory status (Sharma, 2004).

Timeline of ERP Evolution

Material Requirements Planning (MRP) was used to assemble schedules for industrial manufacturing processes using software utilities. MRP designed time frames for purchasing and operational processes determined by production requirements, the structure of the manufacturing department, inventory status, and material handling for each operation (Hanson, 2004).

MRP II, or Manufacturing Resource Planning, employed software solutions for administering production processes including product planning, purchasing, inventory control, and distribution (Hanson, 2004).

ERP utilized integrated software solutions to enhance the background industrial operations of a business. Under the ERP model, departmental boundaries became softer and more fluid, supporting business activities such as product planning, purchasing, supply management, inventory control, replenishment and response, and order tracking. Beyond process management, financial tools covering marketing management, finance management, and human resource management could also be integrated into the software (Hanson, 2004).

With the advent of computing machines in the 1940s, their industrial application in the form of ERP attracted growing interest. In the early 1960s, through a collaboration between IBM and J.I. Case — a manufacturer of agricultural and construction equipment — ERP was officially invented. This software concept was intended to serve as a virtual administrator for the operational and management functions of a business, such as planning and scheduling for the manufacturing industry. Disorganized and inefficient solutions for MRP were introduced in the 1970s; these were also unaffordable and required large maintenance staffs to carry out tasks on the mainframe computers for which they were built (Hanson, 2004).

Five engineers from Mannheim, Germany founded the company known as SAP in 1972, with the aim of developing and marketing standard software for business solutions. In 1975, Bill Lawson, Richard Lawson, and their business partner John Cerullo founded Lawson Software. In 1976, the concept of Material Requirement Planning (MRP) became essential to the manufacturing industry, driving interest in pre-packaged enterprise technology (Hanson, 2004).

History and Key Milestones of ERP Development

In 1977, ED McVaney, Dan Gregory, and Jack Thompson formed JD Edwards, taking part of each founder's name to create the company's name. Larry Ellison also founded Oracle Corporation around this time. In 1978, Jan Baan founded Baan Corporation, providing administrative and financial services (Millman, 2004).

In 1979, Oracle offered the first commercial SQL relational database management system. In the early 1980s, IBM System became a central focus for JD Edwards. MRP evolved into MRP II, which was more accessible for distribution management and shop floor activities. In 1981, Baan began using UNIX as its primary operating system. Baan released its first software product in 1982, while JD Edwards was concentrating on the IBM System/38. In 1983, Oracle offered a record written in C (for portability) along with a database in VAX mode (Millman, 2004).

By 1984, Baan was placing greater focus on manufacturing development. In 1985, JD Edwards became recognized as a leading supplier of application software, and IBM's AS/400 computer — the direct descendant of the System/38 — achieved widespread success. In 1987, Ken Morris and Dave Duffield founded PeopleSoft, and in 1988 PeopleSoft developed its Human Resource Management System (HRMS) (Millman, 2004).

Through indirect sales channels, Baan software reached 35 countries by 1990. In the early 1990s, the term "ERP" was coined as MRP II was extended to include project management, human resources, finance, and engineering. In 1991, PeopleSoft expanded into Canada and subsequently into the Pacific Rim, South and Central America, Africa, Asia, and Europe. By 1992, Baan had grown to employ 1,000 workers and had over 1,800 customers (Millman, 2004).

By 1999, JD Edwards had over 4,700 customers in more than 100 countries, while Oracle served 41,000 customers worldwide (including 16,000 in the United States). PeopleSoft held more than half of the human resource software market. SAP had grown to become the largest inter-enterprise software company and the fourth largest independent software supplier, with 20,500 employees in over 50 countries. Approximately 4,800 sites worldwide were running 2,800 Baan enterprise systems (Millman, 2004).

The demand for ERP systems declined following the September 11, 2001 attacks. In 2002, ERP systems were enhanced to become "Internet-enabled," allowing customers direct access to their ERP suppliers. In 2004, Service-Oriented Architecture (SOA) became a standard, enabling communication between different systems (Millman, 2004).

The period from 2003 to 2004 saw significant industry consolidation. Oracle acquired Siebel, PeopleSoft, JD Edwards, and the E-Business Suite. Sage emerged as the most prominent mid-market system. Infor absorbed Mapics, Baan, and a variety of other products. Microsoft consolidated Solomon, Great Plains, Axapta, and Navision under its Dynamics brand (Millman, 2004).

ERP's history dates to the 1960s, when the earliest systems were developed to assist with manufacturing processes. MRP, introduced around 1975, was the first major software developed in this progression. Its successor, MRP II (Manufacturing Resource Planning), expanded on its capabilities. However, neither MRP nor MRP II provided the full breadth of benefits that true ERP delivers (Millman, 2004).