This is the modern definition of an ERP: a system that uses information from the entire supply chain, integrated across all functional and cost centers, to optimize profitability for the enterprise at the heart of that supply chain. First developed by manufacturing companies, ERP systems generally use pre-packaged, configurable software rather than proprietary software written by or for one enterprise. The goal of a team of ERP integration consultants is to configure business processes using the ERP software that enables the enterprise client to adopt the best business practices embedded in the ERP system.

ERP Development

ERP systems are characterized by enterprise-wide integrated business processes supported by cross-functional software. The modern trend towards ERP began when integrated business software systems were first developed in the 1970s as part of a new concept called Material Requirements Planning (MRP). MRP began as a process for improving the way manufacturers plan their inventory by exploding a bill of materials into work orders and associated purchase orders. Integrating work orders with purchase orders was revolutionary, and it enabled manufacturing businesses to streamline inventory by ensuring that they only ordered that which they were scheduled to use within a short time horizon. MRP systems were what enabled just-in-time inventory scheduling to become reality. Although these systems didn't meet the definition of an ERP system, their development marked the beginning of what eventually became the ERP software industry.

MRP II

MRP was only the first step in cross-process software. The next generation of integrated software system, which was developed in the late 1980s, was called MRP II. MRP II represented an improvement on the original MRP process in that it considered not just manufacturing-related processes such as work orders and purchase orders for planning purposes, but also functioned as marketing and finance processes. It enhanced the planning capabilities on the manufacturing side of the enterprise as well by expanding that functionality to include manufacturing cost centers to help management identify manufacturing costs. Although MRP II systems still didn't meet the definition of a complete ERP system, their ability to process integrated data for planning purposes paved the way for modern ERP systems.

Modern ERP

Modern ERP systems were designed to integrate operations and reduce costs for manufacturing enterprises, but they've now also been implemented by a whole host of non-manufacturing companies such as banks and insurance companies. Organizations bent on reducing costs to make themselves more competitive need the business intelligence inherent in the ERP database to identify processes that need to be streamlined--or discarded altogether, if streamlining isn't possible--to eliminate waste. The ERP system helps the enterprise determine what its core business is, or should be.

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What is an ERP?