Enterprise resource planning was incepted way back in the 1960s; however, it started being widely used in early 1990s. Back then the ERP concept was primarily used in inventory control and management in the manufacturing sector. Programs were devised by software engineers to reconcile balances, monitor inventories and report on inventory status. New developments were made on this concept and by mid-1970s this concept had evolved to material requirements planning systems (MRP) (Madu & Kuei, 2005). The system was used for scheduling production processes. MRP was enhanced, and it grew to incorporate more manufacturing processes. Due to the improvements, it prompted many to call it manufacturing resource planning ii. Further developments were made of the concept, and its functions were more beyond inventory control as well as operational, organizational processes. Other functions incorporated into the system included human resources, accounting and this set a stage for the enterprise resource planning system we know today.
The system has undergone numerous developments to incorporate business intelligence and at the same time managing front office operations such as marketing automation, sales force automation and e-commerce. Many successful companies have attributed their success to the use of the system; this has encouraged many other companies from a broad range of industries ranging from e-commerce to wholesale be now embracing the technology in their operations. Despite the e in the term ERP denoting an enterprise, middle-sized and large corporations are increasingly adopting the ERP concept. The growth of the ERP system to a relatively large extent be pegged on SAAS solutions (software-as-a-service) which are also commonly known as cloud computing (Sheldon, 2005). The SAAS solutions make the ERP system much cheaper and also easier to manage and implement. Moreover, cloud computing is also essential in enabling business intelligence and real-time reporting thus making it more valuable to managers and staff seeking for visibility into the business. The impact of this is that business organizations from diverse industries and of different sizes are now transitioning to cloud ERP systems. Moreover, a statistics from Forrester indicates that cloud computing ERP adoption is expected to rise by 21% annually all through to 2017 (Coyle & Coyle, 2009). Overall, an ERP system can be defined as a computer based system that is primarily developed to process a companys transactions as well as help in the integration and real-time production, planning, and customer response.
B. ERP uses in supply chain
Typically, a supply chain management system is important for getting actual operational information from different business and departments. Failure to having a clear insight into the various working processes and activities that make up the supply chain can deter the creation of procedures that provide sustainable competitive advantage. The ERP system plays an integral role in the supply chain management process. Some of the uses of ERP system in supply chain management include;
Use of ERP system in supply chain planning: this incorporates a selection of promotions techniques, marketing channels, determination of needed stock as well as the needed inventory. Planning also entails ensuring production and replenishment policies can effectively manage the demand. The ERP system is essential in supply chain planning as it offers a more flexible and easier way to establish and modify the parameters that are within the supply chain management system needed to operate.
ERP in procurement, purchasing and execution: the ERP system has software applications that offer a more effective and efficient way to manage procurement and the distribution of products, services and also other resources that are required across the supply chain (Paris, in Meshkat & Caise, 2013). Furthermore, the system offers a cross-platform visibility on various components of the supply chain from warehouse and manufacturing resources to the transportation as well as execution processes.
The role of ERP in supply chain monitoring and maintenance: the system plays an important role in monitoring, reviewing and altering the supply chain activities and efforts in actual time. This is important for ensuring that the company or the organization can sustain the flexibility required to ensure a cost effective operations and also stay competitive.
Use of ERP in supply chain measurement and assessment: it is always a hard task comparing the actual activity about projected targets and goals for business relying on the supply chain that uses different stand-alone workflow processes and systems. How this can be best managed by the ERP system (Bradford & North Carolina state university, 2015). This is because the system provides superior information organization and aggregation that ensures that every unwanted variance within the supply chain is fast identified and efficiently addressed.
Vendor performance: another essential function of the ERP system is in giving business executives as well as the end users the opportunity to assess and also track vendor performance. This is attained through the use of different metrics such as cost, cycle time and the rate of errors. With this information, it is easier to negotiate with the vendors, justify the switching of vendors and negotiate better terms.
ERP helps in exposing fraud and malfeasance: the ERP system not only offers visibility to provide information about the real corruption within the supply system but rather it also deters people having a wrong mindset. The system helps in tracking all the important information thus keeping the organization at rest and assuring them that the data they need is being tracked by the ERP system.
The ERP system is used in attaining economies of scale for the supply chain management: the system enables the management to know how much, when and where the organization expenditure can be the unbeatable point of leverage in price negotiations within the supply chain. The system helps in the consolidation of the companys spending.
II. ERP tasks
A. Distribution process management
One of the primary tasks of the ERP system is distribution process management. The ERP distribution system uses automation that helps the organizations customer-facing sales force to coordinate customer orders and quote directly into back-office inventory management, accounting and fulfilment systems. This ERP technology ensures that client orders and company orders are filled at the appropriate time. Furthermore, ERP distribution systems also incorporate large warehouse management roles that ensure that inventory is optimized to exceed the companys requirements of the supply chain.
B. Supply chain management
As earlier highlighted the ERP system plays a key role in supply chain management. The system enables an organization to gain visibility and access across the platform. Gaining visibility is essential in providing transparency in the processes across all levels within the organization. This has a ripple effect of enhancing the efficiency of the supply chain management. Another task of the ERP system to supply chain management is the provision of automated systems. With automated systems, shipment and orders, as well as other processes within the supply chain, will be automatic thus increasing the overall productivity across all the departments. Further, the ERP software is used in the supply chain for analysis. The ERP analysis software enables enterprises that utilize external vendors can successfully use the system to evaluate the success or failure of using those vendors for the company. The system analyses on whether the costs can be reduced, how the return on investment can be increased (handy, 2005). Effective analysis is important for proper supply chain management. Furthermore, the system is important in detecting fraud or any instance of malfeasance. The system easily detects any wrongdoing within the supply chain. With the chain command, a lot of things will be attained. Things such as increased ROI and loss of prevention as well as effective disciplinary action for any staff member who may need it might be experienced. The supply chain management also gains regarding economies of scale through the ERP system. Understanding the companys economies of scale thus you will be able to understand where the companys money is spent and how best to manage the companys expenditures.
C. Service knowledge base.'
The ERP system and service knowledge base initiatives are not contradictory but rather are complementary. ERP systems help in building service knowledge base. It assists supply chain management companies in utilizing the tacit and explicit knowledge sharing across. Transfer of experience which are attained from the ERP system transition employees, the knowledge from the ERP expert or consultant through sharing is passed down to team members. Contextual knowledge is shared to have a better in-depth understanding of the ERP system. When basic ERP knowledge is shared among the team members, they get enlightened and can easily operate the system. When the system is integrated across all the operations of the supply chain management, better yields are expected to be accrued and increased overall productivity.
D. Accounting and financial applications
Enterprise resource planning financial modules play an essential role in financial and accounting applications. The financial modules help in managing transaction information for use in the supply chain management. Supply chain transaction varies in their difficulty; some are simpler while others are difficult. In most cases, these transactions are mainly done by financial experts to develop the needed entries. Similarly, most supply chain companies prefer using external experts or employing one person and sometimes these experts can fall ill or go on vacations. In such situations, the remaining employees or users might not be able to enlighten adequately in managing financial entries (Krogstie & Allen, 2005). However, with the ERP financial modules, the supply chain management transactions can easily be managed. The challenge is that the ERP systems are usually relatively complex and need specialized skills to handle. Significant training is needed to facilitate the system. However, to mitigate this challenge supply chain management firms are obtaining knowledge based support for employees handling the financial system transactions. There has been the development of a domain-specific natural language based system which comprehended the accounting language and is capable of understanding the events to come up with resulting financial transaction entries (Schubert & Adisa, 2011). Therefore, the ERP financial modules have played important roles in managing finances in supply chain management. It has not only reduced fraud and corruption but has also ensured that financial resources are effectively utilized.
E. Lower purchasing costs
An effective ERP system significantly reduces purchasing costs. The system reduces inventory by ensuring that only the products that are important are regularly stocked. It focuses on the reduction of stock that does not sell. It also advocates for the use of leaner supply chain to save on middlemen costs. Having leaner supply chain results in reduced purchasing costs Furthermore, the ERP system leads to enhanced procurement processes. The company will be able to make an order at the most appropriate time, avoiding last minute purchases. This will help in having better price negotiations with its vendors (shah, 2009). Purchases will be made based on forecast demands. By purchasing the sto...
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