History of ERP systems

History of ERP systems

The main purpose of implementing production management systems in the 1960s was inventory control. At that time, companies could afford to maintain a high level of inventories, as this allowed them to fulfill unpredictable orders and thus maintain their competitiveness.

Therefore, the management methods of that time focused on searching for more effective methods of managing high stock levels. The software (usually properly adjusted) was designed based on traditional assumptions.

In the 1970s it turned out that companies could not afford the luxury of storing large amounts of inventory. This has led to the development of Material Requirements Planning (MRP) systems, which are a significant step in the field of management.

They make it possible to calculate the gross material demand on the basis of the superior production plan and material lists that define what raw materials are necessary to make a given finished product. Based on reliable records of stock levels and information on the quantities of stocks available immediately or scheduled deliveries, you can precisely determine the material demand.

Inventory handling also requires the coordination of other activities, such as placing a new order, and canceling or modifying an existing order. The implementation of material requirements planning systems therefore meant introducing formal prioritization mechanisms in a production environment where continuous change is necessary.

The ERP system allows you to efficiently and systematically create schedules for individual stages of the production process, thus guaranteeing a huge increase in efficiency and quality improvement. However, defining the priorities of the production process and material planning are not the only problems in the field of production management. Capacity planning is also a big challenge. Therefore, the basic functionality of MRP systems has been enriched with production capacity planning.

Tools were developed to support sales and production planning processes (sales and operations planning) and to support the preparation of specific schedules (overarching production schedules), forecasting, sales planning, order promises (demand management) and in-depth resource analysis (production capacity planning).

As part of the MRP systems, methods of planning the work of the plant staff and deliveries were also provided. At that time, MRP software began to be perceived as proprietary systems. These changes led to a further evolution that resulted in the development of closed-loop material and capacity planning systems (MRP systems).

In the 1980s, companies began to take full advantage of the capabilities of these systems, due to their availability and lower purchase costs. The most important advantage, however, was the combination of inventory movements with financial processes. Further efforts, which led to the creation of the next generation of systems – MRP II, focused on the parallel development of financial accounting and financial management systems as well as material management systems. New solutions allowed companies to integrate these systems.

As a result, it was possible to plan material requirements and production capacities in the context of specific action plans, taking into account all activities, generate related financial statements, and indicate activities enabling the correction of deviations from the plan.

Technological development in the 90s resulted in the further expansion of MRP II systems towards the management of all company resources. Planning covered areas such as product design, information storage, material requirements and capacity planning, communication systems, enterprise resource management, finance and projects. This is how the concept of enterprise resource planning was born. Currently, not only production companies implement the concept of resource planning, but also all enterprises that strive to increase competitiveness through the effective use of their resources, including information.

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