An
Enterprise is a group of people with a common goal, having resources to achieve
that goal; resources include money, manpower, material, machines, technologies,
etc. Whereas planning is a necessary tool which hooks up all resources
together. Enterprise Resource Planning (ERP) provide platform to integrate all
the business processes of different departments and functions across a company
onto a single computer system that can serve particular needs of the different
departments. ERP combines all the business requirements of the company together
into a single, integrated software program that runs off a single database so
that various departments can share information and communicate with each other
to accomplish the departmental / organizational objectives. The concept of ERP
evolved during the last 40 years and today it is considered as an important
requirement to align the operations of business with best practices of the
industry as the modern techniques from Supply Chain, Accounting and Finance,
Manufacturing and Operations segments have been incorporated in the available
ERPs.
There
is no doubt that ERP systems are in great demand nowadays and industry analysts
are forecasting growth rates of more than 30% during the next five years.
According to recent reports on ERPs carried out by International Data
Corporation, corporate growth has been indicated as the most compelling driver
for adoption of ERP systems amongst senior management, in result the
organizations have improved their Customer Services, Supply Chain Systems and
reduced operational expenses. Almost two third of the 50 CEOs/Senior Management
have agreed that ERP is an important tool to achieve competitive advantages.
Prior
to 1960s, business had to rely on the traditional ways of inventory management
to ensure smooth functioning for the organization. These theories are called
classical inventory management or scientific inventory control methods. The
most popular amongst them was EOQ (Economic Order Quantity). In this method,
each item in the stock was analyzed for its ordering cost and inventory
carrying cost. A trade off was established on a phased out expected demand of
one year and this way the most economic ordering quantity was decided. This
technique was a deterministic way of managing inventory.
In
1960s a new technique of MRP (Material Requirement Planning) was evolved, this
technique fundamentally reveals the end product demand obtained from the MPS
(Master Production Schedule) for a specified product structure into a detailed
schedule purchase order. The 1970s showcased the expansion of hardware, plus early
PCs, some inclusion of accounting functions, and an initial focus on business
processes. In 1980s, the need was felt to integrate the financial resources
with the manufacturing activities. Thus Software companies such as SAP and JD
Edwards appeared and MRP II was evolved. IBM was the major hardware vendor in
this era.
The
1990s witnessed a rapid growth in both hardware and ERP software systems with
an emphasis on business process integration across and within all functional
areas. Process integration increasingly included ‘order-to-cash’ and
‘purchase-to-pay’. In 1990s with the expansion of Internet, Application Service
Providers (ASP) appeared which provided small businesses with the service of
hosting and managing specialized business application. Early 2000s saw a
reversal of the 1990s with major software vendor consolidation, Oracle and SAP
were the major ERP software firms in this era that survived Supply chain,
accounting and HR business process software suites which were rapidly expanded
to accommodate the extended enterprise planning and execution environment.
Starting from 2003, the SaaS (Software as a Service) became popular because it
replaces rigid, complex, expensive and difficult-to-modify applications with
solutions that increase productivity, TCO and ROI and also provide a substitute
for limited out-of-the-box functionality with close alignment to key business
processes and priorities and easy adaptability as priorities change. SaaS
increased speed of internet connections, ultimately in up coming era of
electronic world all software will be web-based and pay-as-go.
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