Evolution of Erp Systems

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This research paper aims to discuss the evolution of ERP systems, the major stages in the evolution process, as well as the structure and features of an ERP system. It will also briefly look at the major vendors in the ERP market and how technology has changed the way companies implement their ERP systems. 2. Legacy Systems Legacy systems are generally thought of as older, highly modified computer systems or applications developed or purchased long ago.

Many companies still use these non-ERP systems simply because they work and have been customized to suit their business needs. In the next section, we will look at the legacy systems such as MRP, Closed-loop MRP and MRP II. 3. Evolution of ERP systems The evolution of ERP systems consist of 4 main steps, from legacy systems to current modularized ERP systems (Wallace & Kremzar 2001 ). 3. 1 Step One – Material Requirements Planning Systems (MRP, or MRP I) Materials Requirements Planning Systems was launched in the 1970s. It is a computer-based inventory ordering and time-phased scheduling technique, which uses bill of material, inventory data and the master production schedule to calculate requirements for material and determine when to release the material replenishment order. ” (Torkzadeh and Sharma, 1991, p78) Disadvantages of MRP systems MRP is also sometimes referred to as a Push system. There are several disadvantages of MRP systems, such as; 1. They are often slow and unable to react to changes in the market place. . Products may become obsolete as consumer preferences and demand changes for a certain product. 3. Higher costs and inefficient handling of inventory. 4. Does not take account manpower, machine or supplier capacity constraints. 3. 2 Step Two – Closed-loop MRP systems Closed-loop MRP System is often considered “a second-generation system which enhances the MRP system, by adding 2 features known as priority planning and capacity planning. “(Wallace and Kremzar 2001, p120).

Closed Loop MRPs synchronize the purchasing or materials procurement plans with the master production schedule, so that these plans can be adjusted according to capacity and other requirements. The system is called a closed loop MRP because of its feedback feature, which is also referred to as closing the loop. 3. 3 Step Three – Manufacturing Resource Planning (MRP II) Systems Manufacturing Resource Planning (MRP II) System is a direct successor of MRP, introduced in the 1980s. The main features in MRP II: purchasing, capacity planning and master scheduling, as well as inventory and production planning (Kessler, 1991).

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MRP assisted manufacturers by tracking all the raw materials and spare parts during the production phase. This allowed them to know when those parts needed to be replenished, as well as stock they needed to have on hand for production. MRP II is concerned with the coordination of the entire manufacturing production, including materials, finance, and human resource management. The main objective of MRP II is to provide data to all those involved in the manufacturing process as the product moves through the production line. 3. 4 Step Four – ERP Systems

ERP was developed in the 1990s and is an improvement of MRP II with additional capabilities, such as better graphical user interface, open system portability and offers a better integrated, modularized structure than MRP II. MRP systems are often standalone applications, whereas ERP supports multiple modules. In the next section, the structure and functions of an ERP system will be further elaborated. 4. Definition and structure of an ERP System Enterprise Resource Planning (ERP) systems are module-based software packages that integrate and provide real-time information to users in any part of an enterprise.

This allows everyone to access critical business information and coordinate their different job roles, from production to sales and human resources management. 5. Structure of ERP system Each ERP system runs on client/server system which comprises of 3 key layers of logic: 1. Database layer: Stores the bulk of data and supports end-user querying using Structured query language (SQL) . This is the most important and critical part of the ERP system. 2. Applications layer: Business rules, functions, logic and programs acting on data received/transferred from/to the database servers. . Presentation layer: Presents the end-user with a graphical user-interface(GUI) for displaying data and information from the system. Different ERP vendors provide their own software modules which can either work as stand-alone units or several modules can be combined together to form an integrated system. These systems can operate on different platforms such as Windows, IBM (AS/400, S/390 mainframe) or UNIX. 6. Main features of ERP systems An ERP system has the following characteristics: 1. Comprises of many integrated business modules such as a) Manufacturing

Engineering, bills of material, scheduling, capacity, quality control, cost management etc. b) Supply chain management (SCM) Inventory, order and purchasing, commission calculation etc. c) Financial Accounting (FI) Accounts payable, accounts receivable, general ledger etc. d) Human resource management (HRM) Payroll, time and labor tracking and benefits administration e) Customer relationship management (CRM) Customer details, sales, marketing and call center support f) Project Management Costing, billing, time and expense 2. Uses a centralized common database management system (DBMS) . Real-time system with online and batch processing capabilities 4. Flexible and offer best business practices 5. Provides business analytics to analyze trends and track performance of activities 6. ERP software can be customized and configured according to the needs of the Enterprise There are many advantages with using ERP. It enhances management decision- making by tracking and forecasting of resources and inventory, thus improving efficiency, performance and productivity. 7. Commercial ERP vendors There are over 50 ERP vendors in the market.

However 5 ERP vendors dominate the market in 2010 – SAP (24%), Oracle (PeopleSoft, JD Edwards) (18%), Microsoft Dynamics (11%), Sage, Bann. Combined they control over 75% of the ERP market. SAP AG SAP is the biggest and most popular ERP vendor in the market. SAP R/3 and mySAP. com are both flagship products of SAP. However, there are also several SAP ERP software that are popular with corporations, especially the smaller enterprises. SAP Business One and SAP BusinessByDesign are examples. SAP Business ByDesign is a hosted solution which is based on the SAP R/3 core.

Companies pay a small fee to use SAP’s servers and this process is completely hassle free and provides a hassle free experience for those companies with limited budget and payroll. At the 2011 SAP summit in Boston, SAP introduced its HANA Architecture (High-Performance Analytic Appliance), a cloud-enabled application infrastructure derived from NetWeaver and based on the SAP HANA Database. SAP is strong in R;D and has a long term vision to develop ERP applications. Oracle Corporation Oracle is one of the largest software companies in the world, with its acquisition of PeopleSoft and JD Edwards in 2005.

Oracle Applications is the backbone of Oracle’s ERP software and it is interesting to note that Oracle’s database systems supports other ERP vendors like SAP, Bann. Oracle has introduced several internet-based products to support e-business, of which Oracle Small Business Suite (OSBS) is one of Oracle’s popular products. PeopleSoft PeopleSoft was established in 1987 and specializes in HR management and accounting modules. Its flagship product is PeopleSoft8. PeopleSoft has gradually shifted away from the traditional client/server architecture and based its entire PeopleSoft8 online.

All of a company’s business functions can be run on a web browser. J. D Edwards OneWorld is J. D Edwards’ main ERP software. It can run on several platforms and different databases, with the ability to be easily configured and thus is increasingly popular with smaller companies. Microsoft Dynamics Microsoft Dynamics ERP and CRM are applications geared towards the SMEs. With over 300,000 customers and over 10,000 resellers worldwide, Microsoft is poised to increase its share of the ERP market. 8. Future of ERP With the emergence of cloud technology and mobile applications, there is a huge market waiting to be tapped.

Many ERP vendors are already jumping on the bandwagon and raising awareness on how cloud technology can enhance businesses and reduce costs. Many in the ERP industry are also looking into developing mobile applications running on tablets and other mobile devices. Indeed it would be exciting to see how businesses will embrace the concept of shifting their core ERP applications to the “cloud”. Security concerns and regulatory compliance are the 2 major factors cloud services have not been very popular with businesses.

However during the economic downturn of 2008, companies especially small and midsized enterprises, realized the potential savings in the cloud services model. This resulted in many companies deploying their noncore applications to the cloud, for example, their software systems portfolio, including systems of record like CRM, HR, and financials. Buying on-premise ERP software frequently requires significant up-front licensing and implementation costs, and requires the company to recognize those expenses on its balance sheet.

On the other hand, paying “as you go” for user-seat subscriptions allows the company to recognize the costs as they are incurred as an operational expense. 9. Conclusion ERP has evolved through the decades, from old stand-alone legacy systems to a fully integrated real-time system. It is also capable of utilizing online technologies, the internet and even cloud technology to help businesses project, forecast and implement their corporate strategies globally. To ensure lower costs and higher productivity, ERP vendors must constantly redefine customers’ needs and tailor their software to meet their clients’ expectations.

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