From MRP to ERP
ERP has its roots in material requirements planning (MRP) in manufacturing. MRP, as set out by Orlicky (1975), used the production schedule and the bill of materials (BOM) to calculate how much material was needed and when. In the 1980s it broadened into manufacturing resource planning (MRP II), which added capacity and finance, and in 1990 Gartner called the enterprise-wide extension of this system ERP, and the term stuck. Packages such as SAP R/3 drove its spread in the 1990s.
Structure and features
- Integrated database: every module shares one database, so departments do not have to re-enter the same data.
- Modular structure: firms can choose modules such as financial accounting, management accounting, production, materials management, sales and logistics, and HR.
- Real-time processing: a single sales order is immediately reflected in inventory, the production plan and accounting entries.
- Best practices: the package contains standard industry business procedures.
BPR and implementation
Davenport (1998) pointed out that ERP strongly affects a company's strategy, organization and culture, and that a firm must decide whether to adapt itself to the way of working the package assumes or to modify the system. ERP implementation is therefore often carried out together with business process reengineering (BPR). Markus and Tanis (2000) divided the process into four phases: chartering, project, shakedown, and onward and upward.
Success factors and risks
Commonly cited success factors are top management support, clear goals, project management, user training and minimal customization. Cost and schedule overruns, resistance from users and excessive modification are often cited as risks of failure. For this reason ERP is understood as both a technology project and an organizational change project. It is also closely related to supply chain management, which extends the link to outside partners.
See also: Knowledge Management and the SECI Model
References
- Orlicky, J. (1975). Material Requirements Planning: The New Way of Life in Production and Inventory Management. McGraw-Hill.
- Davenport, T. H. (1998). Putting the enterprise into the enterprise system. Harvard Business Review, 76(4), 121-131.
- Klaus, H., Rosemann, M., & Gable, G. G. (2000). What is ERP? Information Systems Frontiers, 2(2), 141-162.
- Markus, M. L., & Tanis, C. (2000). The enterprise systems experience: From adoption to success. In R. W. Zmud (Ed.), Framing the Domains of IT Management (pp. 173-207). Pinnaflex.