ERP Overview

Information in large organizations is often spread across numerous homegrown computer
systems, housed in different functions or organizational units.  While each of these
“information islands” can ably support a specific business activity, enterprise-wide
performance is hampered by the lack of integrated information.  Further, the maintenance
of these systems can result in substantial costs.  For example, many of the older programs
cannot properly handle dates beyond the year 2000, and they must be fixed at a steep
costor replaced.
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While the Y2K bug has been fixed over time (at an estimated cost of $600 billion
worldwide), the lack of integration is a pervasive problem.  Consider, for example,
Boeing, which relies on hundreds of internal and external suppliers for the millions of
components needed to build an airplane.  The goal of putting the right parts in the right
airplane in the right sequence at the right time was managed at Boeing by four hundred
systems that were designed in the sixties and were all but integrated.  Information
inconsistencies were prevalent and the systems were not synchronized.  As a result, parts
often arrived late, idling partially-built airplanes on Boeing’s assembly lines.  In 1997, as
Boeing faced unprecedented demand for its aircraft, these problems became unbearable,
and the company’s manufacturing ground to a halt.  Boeing was forced to shut down two
of its major assembly lines and take a $1.6 billion charge against earnings.  Boeing has
since replaced these systems by an integrated Enterprise Resource Planning (ERP) system
based on commercial, off-the-shelf software.
With the advent of E-Business and the need to leverage multiple sources of
information within the enterprise, ERP software has emerged as a major area of interest
for many businesses.  Back-office enterprise software has its roots in the 1960s and
1970s, as computing power became affordable enough for companies to automate
materials planning through MRP and financial processing through payroll and general
ledger software.  MRP, short for Material Requirements Planning, was developed in the early 1960s at IBM and had become the principal production control paradigm in the U.S.
MRP consists of a set of procedures that convert forecasted demand for a manufactured
product into a requirements schedule for the components, subassemblies and raw
materials comprising that product.
MRP is limited to controlling the flow of components and materials, and does not
lend itself to more complete production control and coordination.  The next generation of
manufacturing software, known as MRP II, was developed to address this shortcoming
and to further integrate business activities into a common framework.  MRP II divides the
production control problem into a hierarchy based on time scale and product aggregation.
It coordinates the manufacturing process, allowing a variety of tasks such as capacity
planning, demand management, production scheduling and distribution to be linked
together.
However, even MRP II is primarily a specialized tool designed to serve the needs
of the manufacturing function within a company.  Its data and processes are not integrated
with those in the rest of the enterprise, such as marketing, finance and human resources.
ERP entered the scene to facilitate information sharing and integration across these
different functions and to operate the enterprise more efficiently and effectively, using a
unified data store and consistent processes.