What is Enterprise Resource Planning (ERP)?

  • January 11, 2019
  • ERP

ERP History

ERP is a widely used term in the technology solutions world especially with enterprise software professionals, consultants and ERP practitioners.  The word ERP is an acronym for Enterprise Resource Planning and has decades of history behind it.  The words and its meaning has sprouted from the “big”, enterprise-wide software implementation movement over the last forty years.  Oddly enough, the acronym ERP started out originally from another acronym describing the same idea, Material Requirement Planning and Manufacturing Resource Planning or MRP.

The Acronym and meaning behind MRP originated in the late seventies as a term that covered the management of the whole materials planning and need for large companies or enterprises, particularly with companies in the manufacturing space.  As companies moved to “just in time” inventory planning or JIT, to cut warehousing and inventory costs by better organization and production planning, sales forecast became more fluid and accurate, changing what were annual forecasts to weekly forecasts.  This spurred the need fora new dynamic enterprise system that was needed to manage company’s enterprise-wide processes.

ERP’s – New Enterprise Applications Falling Under the ERP Umbrella

A decade or so later, this need for enterprise systems that enabled managers to streamline not only manufacturing process but all other business processes evolved into a more broader term, Enterprise Resource Planning or ERP.  The term Enterprise Resource Planning was created by technology analysts at one of the largest technical research and firms in silicon valley during the 1980’s and its meaning encompasses the system-wide solutions or ERPs, that would enable an organization to link every department, business processes, and functions within a business or enterprise, no matter what type of industry, business structure or size.  Even service companies, which are not manufacturing were key customer for ERPs, or enterprise resource planning solutions and ERP software were developed by vendors specifically catering to human resource capital, or people.  Different strains of ERP application solutions started to develop focusing on specific departments.  For example, for sales departments ERP CRM or customer relationship management applications came out on the market helping companies to better manage their sales force and customer relationships.  ERP CRM solutions combined with the delivery efficiency of the internet and hosted applications skyrocketed demand for these enterprise solutions. The technical definition or ERPs or ERP software solutions required that the solution or application connect at least two business processes, functions, or departments such as sales, finance, human resources, manufacturing, information technology and administration.

The evolution of ERPs or enterprise solutions now makes application available to virtually all shapes and sizes of companies, not just large manufacturing Fortune 100 entities.  Depending on the IT staff and the resources available, a company looking for an enterprise solution may opt to integrate components or modules of two ERP systems and connect them with another enterprise application currently in use within various other groups or departments within a company. Ideally, the better and more seamless solution would only use one enterprise system for the whole organization with one database repository. The definition of the ultimate ERP system yielding the highest benefits and ROI to a company’s investment would be to use only one unified and  complete ERP solution.  This is the goal of ERP application developers and vendors.

Moving forward another ten years or so, the demand for ERP systems started to skyrocket as the turn of the century, year 2000 approached and companies started to scramble to prepare for the potential technology meltdowns that were forcasted to possibly happen.  The Y2K or year 2000 legacy system panic spurred organizations to prepare for the effect the year 2000 would have on existing IT systems with digital numbers that would turnover to double zeros in the year 2000.  Business was booming, but as all business booms, the enterprise industry as would be expected began to settle down in the mid 2000s.

Its key to note that before the visionaries behind developing an enterprise wide system, every department within an organization were literally operating in their own world, on an island.  Every department had their own computers and IT systems such as marketing, manufacturing, accounting, human resources, administration to name just a few.  With each having their own databases and reporting systems it was a monumental task to prepare a company-wide forecast, prepare budgets and tie monthly, quarterly and annual numbers for companies.

When sourcing out the right ERP system for a particular company, its important that the organization complete a thorough top down business process analysis within the entire organization and fix any broken processes prior to implementing a full scale ERP system.  Knowing what the strategy of the organization is both short term and long term is also a key.  An ERP implementation involved and touches literally every departments and will involve the added complexity of legacy systems.  A company needs to know where they going and what pain points and goals the ERP system investment will help address.

An ERP implementation is a very complicated and difficult process.  Large consulting firms and implementation experts from boutique firms and from the ERP vendor themselves are usually used to ensure a successful ERP solution implementation.  Depending on the complexity of the integration of the complexity of enterprise application itself, customization resources may be needed to bridge departments and business processes within an organization that keep legacy systems or chose to migrate to a completely new enterprise solution.

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