Technology has changed the way we do business. From processing information on computing machines to relying on internet connectivity for quick and efficient communications, technological advancements have made doing business a little easier. However, these tools have also made it possible for companies to grow bigger while also have increased business requirements to succeed in their respective field. To manage this growth, most businesses rely on the help of Enterprise Resource Planning (ERP) software.
This system helps the different parts of the company to work in coordination with each other. It ensures that the same accurate information is available to all business units so that resources can be utilized properly and efficiently. If you have realized the importance of an ERP system to the growth of your business, you probably can’t imagine running the company without it. But as recently as 30 years ago, businesses didn’t have such tools to manage their corporate requirements.
The history of ERP systems started in the 1960s when a tractor and construction machinery manufacturer sought a better solution for tracking the materials inventory for their business. This led J.I. Case to work with IBM in developing new software that focused on material requirements planning or MRP.
Considered as the earliest form of ERP software, this MRP system allowed the company better control over their inventory, including managing manufacturing schedules and determining purchase orders. Other manufacturing companies followed suit and had MRPs designed for their own companies. However, these custom software were very expensive and required maintenance from a team of experts, so only the biggest and richest of manufacturing companies had access to this technology.
Though MRP systems became more widely adopted in the 1970s, the cost was prohibitive while the computing power remained limited. It was during this time that some software companies set out to make the technology more affordable for smaller businesses. In Germany, a new company called Systems, Applications & Products (SAP) opted to focus on developing software that provided real-time data. SAP ended up developing its first financial accounting software in 1973, just a year after the company first started.
By the 1980s, the MRP II system had been developed to provide more functionality. The MRP II made it possible for better internal coordination among the different business units and added advanced features in production schedules. This allowed the software to manage all elements involved in production processes.
The technological advancements of manufacturing companies attracted the attention of businesses in other industries. If it was possible to apply a software system to the whole production process, why not for the rest of business operations? The Gartner Group introduced the term “enterprise resource planning” in the 1990s as accounting, finance, and even human resource management were integrated into the new software.
The early ERP systems used an on-premise model, which required the user companies to maintain their own servers onsite. However, Netsuite changed the game when it launched a cloud-based ERP system in 1998. Instead of companies needing to invest in both hardware and software, the ERP system could now be accessed with an internet connection.
The Gartner Group refers to the internet-enabled update as ERP II, and this is the ERP system that most companies use today. Though on-premise solutions continue to be available, the cloud-based system is more popularly used because of its affordability and minimal requirements.
As with most innovations, the development of today’s ERP system evolved out of a need to do things more efficiently. Its history also emphasizes the importance of learning from other industries and exploring more applications for available technologies.
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