History of Enterprise Resource Planning

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History of ERP

The first truly integrated manufacturing planning and control system was IBM's Communications-Oriented Production Information Control System (COPICS) in the 1970s. In fact Oliver Wight, the father of MRPII, developed the fundamentals of MRPII whilst managing the design of this system. Legend has it that the initial customers for this package where surprised when they took delivery of what they thought was a system only to find they had received 'The Black Books of COPICS' which outlined the management approach being adopted. 'Is this what you wanted?', they were asked

The early systems built around MRP provided integrated Master Production Scheduling, Stock, Purchasing and WIP modules - in other words, the fundamental requirements for driving MRP - together with Sales Order Processing (a module which allowed customer orders to be entered and passed for picking, packing and despatch.)

Integration with the financial ledgers was something to come along fairly closely behind. Thus a purchase invoice could be matched against the Goods Received Note generated within the purchasing module and the invoice price compared with that on the purchase order as part of the approval process. If the business were using standard costing and the price varied from the standard set for the item this would be noted in the general ledger as such - where we have added £500 to inventory whilst only paying £400 we have a favourable variance and hence additional profits. Corresponding features were built in between sales orders and sales invoices - despatch downdated our inventory record and thus our inventory value and generated an invoice for the price as defined on the sales order. The difference was order margin. Later the systems allowed a more sophisticated interface with shop floor production recording systems and the automatic calculation of recovery variances.

So these integrated systems were known variously as MRPII systems, or perhaps simply 'planning and control' or 'production and inventory management' systems though the 1980s. Then this term 'ERP' appeared. Maybe one day some bright spark in the marketing department of a package supplier pointed out to his colleagues that 'we don't just help plan the materials, or just production. We manage planned shipments to customers so we also help look after warehousing and the vehicle fleet. We provide tools for taking care of aftermarket demand for current and old product. We have modules to help the design office create new product. We help with looking after all the resources of the total enterprise. Let's call ourselves a provider of ERP solutions!'

(Or maybe some author or consultancy coined the term to show themselves to be at the leading edge? In fact the term was introduced by Gartner, the IT research group, to denote the fact that systems had grown beyond the traditional limitations of MRP. They did more than plan production, procurement and inventory and Gartner chose to use the term 'Enterprise'.)

Major sellers in the business systems marketplace - BPCS, PRMS, MFG/PRO, MAPICS, SAP, Baan, Fourth Shift, IMPACT and numerous others - were sold under this banner and people knew what the packages addressed. These systems provided the integrated functionality for the planning and control of manufacturing business. They comprised, in one form or another:

  • High level planning, usually known as Sales and Operations Planning
  • A more detailed level of planning, Master Production Scheduling, to drive production and procurement
  • Some form of planning engine to convert the master schedule into detailed plans for all finished products, components and raw materials. (Usually MRP but an alternative was emerging - see later!)
  • Inventory recording and management.
  • Sales order processing from receipt of the order through picking, packing and despatch to invoice generation
  • Purchase order processing.
  • Production order processing.
  • Distribution management - to handle multiple warehouses and their replenishment.
  • Financial management- receivables, payables, general ledger and the management of fixed assets.

The systems have continued to evolve as computing power has grown. Many of the more sophisticated solutions now also offer additional functionality such as customer relationship management, human and product data management modules as well as useful tools such as product configurators. Most these days also come with built-in executive information systems - tools by which key management information can be readily extracted from the core data within the system.

~ Ian Henderson ~

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