The Evolution of Erp Systems

The Evolution of ERP Systems

This paper discusses the evolution of ERP systems, from an old standalone system to a new system of integrated business processes. The discussion will first talk about the legacy system before there was the ERP system, including its features and the challenges faced. Then this paper will touch on the evolution and birth of ERP systems by defining ERP systems, describing the structure of modern day ERP systems and its features before moving on to the business values it brings about.

A legacy system is a stand-alone system inherited from the past. It is a system whereby all business processes are segregated and independent of each other.

Legacy systems were programmed using languages such as COBOL, ALGOL and FORTRAN. A main legacy system that was popular is a system known as MRP, short for Material requirements planning developed in the 1970s used in the manufacturing industry for planning of parts and raw materials. (Rashid et al., 2002, p.4)

Legacy systems are considered primitive and have various associated issues.

Legacy systems all have their own implementation and designs which does not communicate or link among other one another. (Ambler, 2000, pp. 4) This makes generating a report or analysing data extremely tedious.

Other associated issues revolve around people, technology and processes. An example would be at the intra-organisational level within an organisation. For example, the warehousing people are unable to communicate with the accounting people. For small businesses this is still acceptable but for bigger businesses, whereby there may be few hundred stock movements in a day, there tend to be a lot of miscommunication in terms of the tracking stock, setting pricing, goods movement etc.

Issues also occur at inter-organisational level when organisations need to coordinate stock movement within organisations. The flow of information if is not automated will cause the organization to become less competitive in providing its goods and services.

Some data are required to be manually re-entered into another legacy system during reconciliation activities which could be automated. Furthermore, this will cause resentment among staff and increase in human error. (Pallmann, 1999)

Another problem faced by the legacy system is the difficulty in adapting and maintenance. During the year 2000, many companies had problems patching their old legacy system to combat the millennium bug. Large amount of money were required to rewrite the programming codes using old languages. (Garvey, 1999)

Because of all these issues the ERP system was born. ERP or Enterprise Resources Planning is an integration of the various business processes in a company's operations into a single information system.

Some even say that ERP systems are a spin off from Manufacturing Requirements Planning (MRP) which integrates the core principals of managing movements of goods in a manufacturing facility. (Sudalaimuthu & Vadivu, p.1)

ERP systems were developed to solve issues that the legacy systems were facing mainly in when it comes to communication within the various departments. All departments in a company were having their own way of doing their job that didn't match each other. That is all smooth until they had to share information for reporting or analysing data. (Koch, p.1)

Below is a figure (Figure 1: ERP systems concept) depicting the structure of an ERP system.

Looking at the structure of an ERP system, we can see that all modules, each representing a particular department are all integrated into one as a single unified software. All other standalone legacy systems are relinquished. (Koch, p.1)

Reviewing the structure of ERP systems, we identify a few core modules that are very important to businesses in general. They are Accounting management, Financial management, Manufacturing management, Production management, Transportation management, Sales & distribution management, Human resources management, Supply chain management, Customer relationship management and E-Business. (Rashid et al., 2002, p.7)

Being unified as a single unit, does not mean that the ERP modules are dependent on one another. Each module is also capable of working independently. It takes a modular approach allowing modules to be added as and when need. The modules all speak the same language sharing a common operating platform making sharing of data and reporting congruent. (Rashid et al., 2002, p.4)

ERP systems have also evolved tremendously over the last few decades. There are both opensource and Proprietary ERP systems. Proprietary ERP software include SAP, Open sourced ERP systems like openbravo. Open source are programs which the source-codes are free for distribution and modification.

The system is modular meaning that all the components are distinct and separate from each other such as accounting, distribution, financial, manufacturing etc. Clients can customise their ERP system by only selecting the modules that they require.

They share a common database management system (DBMS) which is centralised. Because the interfaces are standardised with the same outlook, this increases transparency and improves the data flow among the modules during and after integration.

Another feature is that ERP system is highly complex with endless lines of programmable code resulting in its high implementation