ERP beginning and its role in business an Overview

In this article I thought I’ll discuss a bit about an interesting topic that is common to all ERPs.I am certain most of us are aware of what an ERP is and its role in businesses, but have you ever thought of how this came into being and what was its initial purpose.

With this in mind, let’s take a look at where it all began. Like everything else, ERP too had to come through an evolution.

Inventory Management

Initially at the very beginning, businesses concentrated more on the tangible products they had. The product that could be seen and touched was the final product and businesses were concerned about how best they could monitor these to do business efficiently. In order to do this, the business needed to be aware of their physical stocks and how best to maintain them in the most efficient manner. This needed a system in place and hence the term “Inventory Management”. A very famous term that came with the introduction of the Inventory Management system is what we now refer to as BOM (Bills of Material).

The BOM is a very significant term in the AFS Industry as well, simply because of the complexities that come with being up-to-date with the latest fashion trends puts a considerable strain on the proper definition and structure of a BOM.

Material Requirement Planning (MRP)

With the inventory management systems in place, it provided businesses with a track on their stocks, after this the attention moved on towards requirement planning to cater to the needs of production. With the finished goods in mind, there needed to be a system that would help in planning the material requirements in order to produce what was needed and in the most efficient manner.

Hence the term, Material Requirement Planning. In the SAP AFS Solution MRP plays a key role, since it is used in determining the requirements of a finished product based on the BOM and generating the purchase requisitions and planned production orders.

This task was considered cumbersome during the 1970, but as we all know now, with solutions such as SAP AFS its just a matter of executing a single transaction (J3AD) and the rest of the operations are auto executed.

Manufacturing Requirement Planning (MRP 2)

Continuing from the previous process of calculating the material requirements in order to start manufacturing the finished goods, the next significant operation would be the manufacturing process. With the complexities involved with Manufacturing came the need to build systems that would interface with the various operations outside the manufacturing framework such as planning, procurement and distribution with the operations of manufacturing itself.

Given the nature of the AFS Industry, it’s understood that there are many stages involved before the completion of the finished product, and it is a requirement that the nature of the product in these stages are known at given point of time to enable the efficient planning of subsequent operations such as delivery & billing and consequently planning the next production cycle.

Finally…. Enterprise Resource Planning (ERP)

Most of the previous processes we looked at were more often than not concentrated on front end operations, this was realized during the 1990 and so came the need to have systems to cater to the requirement of efficiently carrying out backend and value adding operations as well. These operations are none other than what we now know as, Financials, Marketing, Human Resource, Customer Relationship Management (CRM), Corporate Performance Management (CPM) etc.


The need to cater to these brought into the existence of systems that were designed to specialize in these separate areas and then to integrate it all into one package, and hence the name ERP.

However, its not safe to make any assumption that this would be the final term used when referring to systems that integrate all aspects of business operation into one single package since the gaining prominence of Service Oriented Architecture (SOA), Software as a Service (SAAS) and Web Portal solutions could very well have an impact on the next term we all would be using instead of ERP.

Also See: Processing the Batch Input Session (SM35)

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