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A new acronym has landed in the executive suite of North American manufacturer's—ERP(Enterprise Resource Planning). When a new concept emerges we know from past experiences that a barrage of "techno-Speak" is not far behind. Since ERP has significance in terms of competitive advantage, the sooner a comprehensible (non-technical) discussion takes place with manufacturing industry executives the better. This paper starts that discussion.
An accurate understanding and appreciation for Enterprise Resource Planning (ERP) are essential for securing the full benefits of the concept's implementation. This paper provides a simple, concise set of explanations of ERP suitable for executives outside the Resource Management and Information Technology disciplines that will make possible this understanding and appreciation. Technical jargon is omitted and a logical foundation is put in place for future study and investigation by the reader. Also ERP's relationship to other concepts is carefully (and clearly) established, i.e., MRP, closed loop MRP, MRPII, Just-In-Time(JIT)andComputer-Integrated-Manufacturing(CIM). Understanding this relationship is critical in that much confusion still exists today regarding these concepts and their purpose relative to each other. All of this information is conveyed via historical overviews and illustrations which have proven to be appropriate in communications with senior management. The discussion will include: An explanation of ERP, a brief historical overview, how ERP relates to MRPII, JIT and CIM, what ERP's major elements will be given, what ERP really does for an enterprise, the potential benefits from it and the studies that support these possibilities, including how to calculate an ROA. Also the questions, should we fit ERP to the company or the company to ERP as well as what does it really cost to implement ERP, will be answered.
What Is ERP?
Brief Historical Overview
ERP is a comprehensive planning and control framework that has evolved over a thirty year period. During this time, trial and error and creative thinking by innovators slowly but progressively developed the framework as we know it today. Three ancestors of ERP serve as milestones: Material Requirements Planning (MRPII), Closed Loop MRPII and Manufacturing Resource Planning (MRPII). The American Production & Inventory Control Society (APICS), a non-profit professional society aggressively disseminated conceptual and "how to" information about each of ERPs ancestors to themanufacturingindustry. With
such a large number of companies involved, the innovation increased and the information on what worked and what did not work spread rapidly. Throughout this era computing technology became more manageable and cost effective, which enhanced the understanding of what was possible to improve resource management in manufacturing industry.
During the eighties, two philosophies joined MRPII on the center stage: Just-In Time (JIT) and Computer-Integrated -Manufacturing (CIM). Also new segments of manufacturing industry, most notably firms that produced and managed on a project basis, including the aerospace and defense (A&D) community, started to investigate and enhance MRPII. Consistent with the experience with MRPII's forefathers (MRP and Closed Loop MRP), it absorbed the new techniques proven to produce business benefit, this time from JIT, CIM and project oriented environments. Unfortunately we continued to call this greatly enhanced resource management tool MRPII which doesn't adequately describe its scope.
Several years ago two Information Technology analyst firms, Gartner Group and AMR, started the process of defining the next generation of resource management systems. Their focus was oriented toward the technical aspects of the new generation but nevertheless provided the opportunity to re-label the greatly extended MRPII model which in this presentation we will call ERP (AMR's model is called Customer Oriented Manufacturing Management System or COMMS). Exhibit 1 in schematical form depicts ERP and Exhibit 2 represents the full evolutionary record. At this point we will move on to how ERP relates to JIT and CIM, what the major elements of ERP are, and what ERP really does for organizations in search of competitive advantage.
To be Continued
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