ERP Evolution: Making Us All a Little Richer
Enterprise resource planning (ERP) software is no longer reserved for corporate giants and large cash transactions. Today, even a small business can reap the benefits of its amazing powers. With real-time capabilities leading to relatively instant receipt of info from one department to the next, and cloud-based services allowing for lower up-front and operating costs, ERP software is accessible even to neighborhood mom and pop establishments.
In the 1960s, businesses began automating inventory systems. Using programming languages like COBOL, ALGOL, and other languages that sound like characters in a J.R.R. Tolkien book, businesses were able to automate their systems using inventory control packages. Then in the ’70s, things got a bit more interesting when MRP systems started being implemented in various businesses. Material requirements planning systems provided important information for businesses, answering the question: How much of this do I need to make that?
Then in the ’80s, during a time of shoulder pads and Members Only jackets, MRP evolved into MRP II, a system that introduced other aspects of an organization into the mix. Businesses were then able to make purchasing, production, and design decisions more efficiently, and base such decisions on the whole picture.
Finally, in the late ’80s and early ’90s, ERP systems were born. Enterprise resource planning systems integrated organization-wide information into a single system where users could access the portions of the information they needed. Over in finance, Jane could approve or deny an order that Jim from sales entered into the system. She could find out if a specific product was in stock and if not, when was the next batch coming in? Is the customer paying on credit and, if so, what does his account look like? Using a single system, Jane can find out just about everything she needs to know to make her day-to-day decisions. These ERP systems came with a gigantic price tag, sometimes up to a few million dollars.
Since the introduction of ERP, systems have become more and more advanced. Most recently, cloud-based ERP systems have become available for businesses of almost all sizes. Businesses can purchase these services for start up cost of under $10,000. ERP Software Blog published data on ERP systems among small and mid-sized businesses. Their data indicates that the best ERP implementations yield a 22 percent reduction in operating costs, and 20 percent reduction in administrative costs. They also showed improvements in areas, such as inventory and schedule compliance.
So, the implementing of ERP systems often results in increased profitability. However, since their development in the ’90s, there have been some pitfalls, and the ERP systems of today are by no means immune to complications. Sometimes, more automated systems rely so heavily on the system to function that these systems become essential for the a business to stay out of panic mode. If sales sends information straight to finance and the warehouse, where the information then turns into an automated shipping order to FedEx, UPS, or whoever, what happens in the event of a system wide problem, outage, or an issue with the ERP service provider? Is there a giant red self-destruct button? Additionally, with this information being sent through cyberspace, what about security risks?
While ERP systems have absolutely resulted in increased efficiency, they are by no means perfect. Perhaps, they never will be. As time goes on, these systems will likely continue to expand and improve, resulting in even smarter organizations. Overall, the benefits seem to outweigh the costs and that’s all anyone can really ask for.