What is ERP? is a common question even with ERP or Enterprise Resource Planning practitioners,  this article goes over the evoluiton of the term and what an ERP system is intended to do for your organization. 

ERP which is an acronym for Enterprise Resource Planning has evolved from the large, enterprise-wide software development movement over the last thirty five years.  The acronym ERP actually evolved from another acronym MRP, short for Material Requirement Planning or in some cases, Manufacturing Resource Planning. 

MRP originated in the early 80’s as a term that encapsulated the calculation of the entire materials requirement for a large company or enterprise.  As companies moved to JIT, or just in time, inventory planning, and sales forecast became more dynamic, moving for annual forecasts to monthly and even weekly forecasts, demand for a new flexible system was required to manage company wide operations planning.

The term Enterprise Resource Planning was coined by the large tech analysts and research firms of the 80’s whose meaning as the name suggests, is a company-wide software solution that links all major functions and departments of an enterprise, regardless of industry, business model or size.  Technically speaking, at least two departments or systems must be bridged together in order to be an ERP solution such as accounting, finance, HR, manufacturing, inventory, information systems, sales and administration.

Depending on the IT resources within a organization, a company may chose to integrate components or modules of one ERP system and bridge it together with another ERP system that is being used for different departments within an organization.  Ideally, however, a company using only one ERP software solution for its entire company from a single database would be considered the optimal goal of ERP software developers and vendors to strive for.

A decade later in the demand for ERP systems really heated up in preparation for the Y2K legacy system scramble as companies raced to prepare for the impact the year 2000 would have on current systems with digital numbers that would turnover to double zeros after the year 1999.  The industry as would be expected cooled down after year 2000 as companies ramped up in the late 90’s to have systems in place for the turn of the century.

Before the vision of ERP systems, each department within an organization pretty much ran as a stand-alone entity, each having its own computer system.   Sales, marketing, HR, accounting, manufacturing, inventory and finance each had their own separate database and computer system.  Compiling consolidated financials, budgets and annual forecasts required a massive effort to tie in all of the numbers and input from each department.

Because of the integration of multiple departments and compounded with the integration of one or more legacy systems within an organization, the implementation of an ERP system can be quite involved and is not something a company should take on without considerable preparation and business process analysis of where the company currently is and where to company wants to go both short term and long term.

Because the implementation process and integration of ERP systems is a complicated and difficult process, major consulting firms and implementation experts from the ERP Vendor themselves are usually hired to help a company implement an ERP solution.  Depending on the level of integration of the ERP solution, customization services may be required to bridge particular departments within an organization that choose to keep current legacy systems or chose a new but different solution than the one implemented company wide.

Written by :

rich