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Integral Management Blog

A Brief History of ERP

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The ability to efficiently grow the business and be prepared for unforeseen circumstances are some of the main attributes companies look into when employing business tools for their operations. Giving the workforce powerful equipment for their tasks helps boost productivity and makes the organisation more flexible than before.

This is why many companies invest in reliable ERP (enterprise resource planning) solutions. ERP is now standard technology in any business type as it helps make business-critical processes more efficient for both the employees and their customers. Having a reliable ERP streamlines the supply chain and significantly improves the organisation’s sales and customer support performance.

And what once a system operated and maintained in private servers located in offices (on-premise), the ERP industry has undergone a digital transformation. The rapid innovations in technology have resulted in the digitalisation of many business tools. This allowed companies to effectively alter their business models when needed, which is highlighted by the economic effects of the COVID-19 pandemic.

The need to close down physical offices and pivot to remote work setup during a global health crisis has contributed to the continuous rise of cloud-based ERP, which helped grow the market value of ERP solutions worldwide. The total valuation of ERP software in 2020 reached more than AUD 134 billion and is projected to reach almost AUD 136 billion by the end of this year.

With technological advancements, the trends in ERP will continually change to cater to the ever-evolving consumer behaviour and business needs. And no matter how advanced ERP technology will be in succeeding years, it is always worth looking back to the history that helped it become the billion-dollar industry it is today.

Early History

The infancy of the ERP industry can be traced back to the 1940s, when numerous companies were looking to make calculating machines to assist operations. Several years later, manufacturing companies saw the need for a system that adequately monitors and controls the inventory. This resulted in the development of Inventory Management and Control (IMC) systems that combine IT (information technology) with business processes to effectively maintain critical activities like inventory status reporting and performance target setting.

Although IMC paved the way for the development of ERP technology, Material Requirement Planning (MRP) solutions that emerged in the 1960s are widely considered the predecessor of the modern ERP system.

Construction machinery manufacturer J.I. Case has partnered with IBM to make the first MRP system in the market. Companies mainly used MRP back then for scheduling production processes based on various factors, such as ongoing inventory levels and the current structure of the production system. Many organisations in the manufacturing industry have later on adopted MRP as an integral part of their operations.

Since the original MRP system is run on massive complex computers that are expensive to maintain, it is mainly used by industry leaders that can afford the technology. This is why numerous companies focused on developing cost-effective software for business solutions were founded throughout the 1970s. This led to advancements in MRP technology, allowing it to offer more functions to manufacturers.

The Arrival of MRP II

With more manufacturing companies jumping in the trend, MRP has evolved with more processes added. The 1980s introduced Manufacturing Resource Planning (MRP II), a more sophisticated version of the original MRP with extended capabilities in handling different production processes.

MRP II utilises several software applications that act as a central platform for various manufacturing activities. This kind of system allowed different departments to seamlessly coordinate, which streamlined numerous major manufacturing procedures, such as product planning, product distribution, and procurement of raw materials.

Rise of ERP

The technology of MRP II was further innovated during the late 1980s, allowing it to be used in other areas apart from manufacturing. Industries like finance, engineering, project management, and human resources have benefited from MRP II. As a result, research company Gartner Group conceived the term “enterprise resource planning” in 1990 to recognise that the system is already widely used across many industries.

ERP continued to evolve and be used in various business types during the 1990s. And that includes integrating the internet into the ERP system to make it more efficient and affordable for organisations.

The Cloud ERP Era

Apart from introducing the term ERP, Gartner Group also advanced the idea of ERP II in 2000, which refers to the capability of ERP to extract data from other sources, like CRM (customer relationship management) and SCM (supply chain management) when connected with internet. This is a revolutionary innovation in ERP as having all the systems connected makes it easier to resolve issues and take advantage of opportunities.

The integration of the internet has also made ERP more accessible to the workforce, boosting their productivity and making the supply chain more effective than before. Modern cloud-based ERPs can automate and strongly link the operations and administrative business functions, significantly helping enterprises become more flexible and agile.

Cloud ERP started to become the trend during the 2000s, slowly making on-premise ERP a thing of the past. Private servers are not needed, which is one of the main reasons it is way cheaper than its traditional counterparts.  This made ERP more attractive for small and medium enterprises (SMEs), which boosted the competition in the market.

ERP solutions are also now offered as software as a service (SaaS) which allows companies, especially SMEs, to have their ERPs in subscriptions, compared to the traditional and expensive servers. This is a significant advantage for many organisations to scale their business.

The Present and Future of ERP

Since the introduction of MRP, the technology of ERP has come a long way through innovations and the growing need to improve existing business tools. On-premise ERPs are far from dead, but the benefits of a cloud-based ERP are helping it dominate the market and are expected to continue to do so in succeeding years.

Working with reliable ERP vendors and support services can help maintain and update your ERP adequately. Integral Management Systems PTY LTD, has been in the ERP industry since 1989 and is the preferred Microsoft Dynamics (CRM and ERP) partner in Western Australia. We can provide consultations, migration, implementation to support and maintain all your ERP and CRM needs.