Enterprise Resource Planning

the way manufacturing companies are managed. It is a strong contributor
to America’s amazing economic performance of the 1990s
and the emergence of the New Economy. A half century from now,
when the definitive industrial history of the twentieth century is written,
the evolution of ERP will be viewed as a watershed event. Let’s
describe Enterprise Resource Planning as:
An enterprise-wide set of management tools that balances demand
and supply,
containing the ability to link customers and suppliers into a complete
supply chain,
employing proven business processes for decision-making, and
providing high degrees of cross-functional integration among
sales, marketing, manufacturing, operations, logistics, purchasing,
finance, new product development, and human resources, thereby
enabling people to run their business with high levels of customer
service and productivity, and simultaneously lower costs and inventories;
and providing the foundation for effective e-commerce.
Here are some descriptions of ERP, not definitions but certainly
good examples.
Enterprise Resource Planning is a company increasing its sales by
20 percent in the face of an overall industry decline. Discussing how
this happened, the vice president of sales explained: “We’re capturing
lots of business from our competitors. We can out-deliver ’em.
Thanks to (ERP), we can now ship quicker than our competition,
and we ship on time.”
Enterprise Resource Planning is a Fortune 50 corporation achieving
enormous cost savings and acquiring a significant competitive
advantage. The vice president of logistics stated: “ERP has provided
the key to becoming a truly global company. Decisions can be made
with accurate data and with a process that connects demand and
supply across borders and oceans. This change is worth billions to us
in sales worldwide.”
Enterprise Resource Planning is a purchasing department gen-
Enterprise Resource Planning 5
erating enormous cost reductions while at the same time increasing
its ability to truly partner with its suppliers. The director of purchasing
claimed: “For the first time ever, we have a good handle on our future
requirements for components raw and materials. When our
customer demand changes, we—ourselves and our suppliers—can
manage changes to our schedules on a very coordinated and controlled
basis. I don’t see how any company can do effective supply
chain management without ERP.”
That’s ERP. Here’s how it came to be.
THE EVOLUTION OF ENTERPRISE RESOURCE PLANNING
Step One—Material Requirements Planning (MRP)
ERP began life in the 1960s as Material Requirements Planning
(MRP), an outgrowth of early efforts in bill of material processing.
MRP’s inventors were looking for a better method of ordering material
and components, and they found it in this technique. The logic
of material requirements planning asks the following questions:
• What are we going to make?
• What does it take to make it?
• What do we have?
• What do we have to get?
This is called the universal manufacturing equation. Its logic applies
wherever things are being produced whether they be jet aircraft,
tin cans, machine tools, chemicals, cosmetics . . . or Thanksgiving
dinner.
Material Requirements Planning simulates the universal manufacturing
equation. It uses the master schedule (What are we going
to make?), the bill of material (What does it take to make it?), and inventory
records (What do we have?) to determine future requirements
(What do we have to get?).
For a visual depiction of this and the subsequent evolutionary
steps, please see Figure 1-2, a modified version of a diagram in Carol
Ptak’s recent book on ERP.ii