Evolution of ERP Systems: A Comprehensive Analysis

Introduction

The American Production and Inventory Control Society (2001) defines Enterprise Resource Planning (ERP) as an "accounting system" designed for the "effective planning and controlling of all the resources needed to take, make, ship, and account for customer orders in a manufacturing, distribution, or service company." ERP systems create value for enterprises by enhancing overall functions, reducing resource wastage, saving time, and cutting down on total costs.

This research paper aims to explore the evolution of ERP systems from the "ancient" Legacy systems, delineate the features and structure of ERP/ERP II systems, compare the top five ERP vendors' most popular products, and offer an in-depth analysis of the significance of ERP in contemporary business environments.

The final section will provide insights into the future outlook of ERP II systems, highlighting their continued relevance in the dynamic business landscape.

Legacy Systems

Legacy systems, by definition, are those that "no longer support the current business objectives or are inhibiting future developments" (Kelly 2004). The "ancient" Legacy systems referred to here are the outdated IT systems prevalent during or before the mid-20th century.

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These systems operated within individual departments, leading to silos of information and limited communication between departments (O’leary 2000). These "ancient" Legacy systems functioned within a department, often referred to as silos of information, which hindered collaboration and efficiency. The lack of communication between different departments, known as stovepipes, resulted in inefficient and inaccurate data duplications (O’leary 2000).

Evolution of ERP Systems

In the 1960s, "ancient" Legacy systems used mainframe technology to automate inventory control (IC) systems.

These systems, employing programming languages such as COBOL, FORTRAN, and ALGOL, focused on departmental silos and stovepipes, resulting in inefficient data duplication (Rashid, Hossain & Patrick 2002; Pairat 2005; Monk and Wagner 2009).

By the 1970s, as manufacturing businesses grew in complexity, the need for more sophisticated systems became evident. Manufacturing Resource Planning (MRP) emerged, combining Bill of Material (BOM), Routing, Inventory Management, and Master Production Schedule (MPS) to optimize inventory levels, production planning, sales forecasting, and shop floor scheduling (Anderson 2001).

MRP II evolved from MRP in response to Total Quality Management (TQM) in the 1980s. This integration of MRP with other management functions, such as Engineering, Project Management, Logistics, Finance, Sales, Marketing, and Human Resources, marked a significant improvement in production decision-making processes and resource optimization (Anderson 2001).

The advancements in Telecommunications devices, network architecture, Database Management System (DBMS), sophisticated software development, and programming languages in UNIX and C paved the favorable way for an integrated information system (Monk and Wagner 2009). Economic recession in the late 1980s urged companies to shift their focus into cross-functional business processes. In addition, Hammer and Champy (1993) envisioned an enterprise-wide integration system for Business Process Reengineering (BPE). These factors prompted the IT System Vendors to respond with a tightly-knitted centralized ERP system (with a single database) that integrates all the functions of a worldwide organization to ensure operational excellence, automation of the internal system, and the ability to handle multiple currencies and international languages (Subramoniam et al. 2009).

Features and Structure of an ERP/ERP II System

Nowadays, the era for ERP II systems has "Extended ERP" by adding applications for external parties supplying business transactions and market analysis to the core ERP modules. ERP system benefits medium enterprises in all industries instead of only the large organizations with applications such as Customer Relationship Management (CRM), Supply Chain Management (SCM), Knowledge Management (KM), Inventory Optimization, and more (Mallick 2011; Nicolescu et al. 2009).

ERP and ERP II systems typically use either Two-tier or Three-tier Architecture. Two-tier client–server Architecture simplifies the number of disparate systems in an organization. An ERP solution runs on a server while several concurrent users run the same standardized template (equal server-load) in other locations of the other layer. End users work on the Presentation layer and Business layer. Access to the Database layer is restricted from their PCs (Anderson 2001; Gill 2011; Howitz 2010). Whereas Three-tier Architecture separates the Client-Tier (Presentation layer) from its Application Server (Business logic layer) to minimize interaction between them. This architectural distinction enhances flexibility and scalability, allowing for a more robust and efficient ERP system (Gill 2011; Howitz 2010).

Significance of ERP in Contemporary Business Environments

The significance of ERP systems in contemporary business environments cannot be overstated. ERP systems facilitate seamless integration of various business functions, enabling efficient communication and collaboration across departments. This integrated approach enhances decision-making processes, reduces operational redundancies, and promotes resource optimization.

Moreover, ERP II systems, with their extended capabilities, play a vital role in ensuring organizations stay competitive in the global market. Applications like Customer Relationship Management (CRM) and Supply Chain Management (SCM) enable businesses to adapt to changing market dynamics, meet customer demands, and streamline their supply chain processes for enhanced efficiency.

As businesses evolve and expand, the scalability of ERP systems becomes crucial. The architectural distinctions in Two-tier and Three-tier Architecture provide the flexibility needed to accommodate the growing demands of organizations. This adaptability ensures that ERP systems can cater to the unique requirements of businesses of varying sizes and industries.

Future Outlook of ERP II Systems

The future outlook of ERP II systems appears promising, driven by advancements in technology and a continuous focus on meeting the dynamic needs of businesses. The integration of external applications and the emphasis on extended ERP functionalities demonstrate a commitment to staying relevant in a rapidly changing business landscape.

Emerging technologies such as artificial intelligence and machine learning are expected to play a significant role in shaping the future of ERP systems. These technologies have the potential to further enhance decision-making processes, automate routine tasks, and provide valuable insights for strategic planning. As businesses increasingly operate on a global scale, ERP II systems will continue to evolve to meet the challenges of internationalization. The ability to handle multiple currencies and languages, coupled with a focus on compliance with global regulations, will be paramount for the success of ERP systems in the future.

Conclusion

In conclusion, the evolution of ERP systems from Legacy systems to sophisticated ERP II systems represents a transformative journey in enhancing business operations and competitiveness. The integration of various business functions and the incorporation of external applications demonstrate the adaptability and resilience of ERP systems in the ever-changing business landscape. The significance of ERP in contemporary business environments lies in its ability to foster collaboration, streamline processes, and provide a holistic view of organizational operations. As businesses continue to face dynamic challenges, the future outlook of ERP II systems remains optimistic, driven by innovation, scalability, and a commitment to meeting the evolving needs of the global business community.