ntegrated enterprise resource planning (ERP) software solutions have become synonymous with competitive advantage, particularly throughout the 1990's. ERP systems replace "islands of information" with a single, packaged software solution that integrates all traditional enterprise management functions like financials, human resources, and manufacturing & logistics. Knowing the history and evolution of ERP is essential to understanding its current application and its future developments. Following is the genesis of ERP by era.
1960s - Pre-Computer Era
The focus of manufacturing systems in the 1960s was on inventory control. In those days when a computer would occupy an entire wing of a building at a local university, most manufacturing companies could not afford to own one. However, companies were able to afford to keep inventory on hand to satisfy customer demand. It was the age of the reorder point system (ROP) where the assumption was that the customer would continue to order what they had before and the future would look very much like the past. In most industries this was a valid assumption, since product life cycles were measured in years.
Inventory was regarded as an asset not only on the balance sheet but also in the mind of the average manager. Therefore, production planners created schedules and managed materials by hand. In the production control office, the manual explosion of Bills of Materials (BOMs) often resulted in errors. Index card files had been used to record material allocations, receipts, and issues. When the unallocated inventory balance on the card seemed low for a certain part, a planner would give a card to a buyer, who would then place a new purchase order. Those card files provided a real help to a planner as long as each index card had been updated in a timely manner and put in the right place.
The order entry/sales department usually created the plant schedule. As a result, persons who had little or no access to material availability information loaded forecasted sales and actual customer orders into the schedule. This lack of visibility, combined with the cumbersome inventory record-keeping process, caused frequent schedule changes and delayed customer deliveries. Often the shop would start an order only to learn that required material was not available. The resulting excessive work in progress (WIP) and raw materials tied up unnecessary capital funds and shop floor space, which ultimately led to a number of other missed opportunities.
1970s/1980s - Advent of Computers in Manufacturing
When computers finally became small and affordable enough to be deployed by an average manufacturing company, the resolution of materials mismanagement initially gained the highest priority status. Silently, the need to order only what was really needed crept onto the horizon. No longer could a company afford to order some of everything. Orders had to be based on what was being sold. What was already in inventory or committed to arrive on a purchase order offset this requirement. As a result, Materials Requirements Planning (MRP) computer systems were developed to provide for 'having the right materials come in at the right time'. The Master Production Schedule (MPS) was built for the end items. The MPS fed into the MRP which contained the time-phased net requirements for the planning and procurement of the sub-assemblies, components, and raw materials.
MRP - The Initial Impact
The impact that the computer had on material planning and enterprise management was huge. From the manual planning and huge posting card decks, this new computer system promised to automatically plan, build, and purchase requirements based on the items to be shipped, the current inventory, and the expected arrivals. The posting originally done on the manual input/output cards was replaced by transactions directly made in the computer and documented on pick lists. The amount on inventory was visible to anyone with access to a computer without having to go to the card deck and look it up.
MRP, or 'little MRP', represented a huge step forward in the planning process. For the first time, based on a schedule of what was going to be produced, which was supported by a list of materials that were needed for that finished item, the computer could calculate the total need and compare it to what was already on hand or committed to arrive. This comparison could suggest an activity to place an order, cancel orders that were already placed, or simply move the timing of these existing orders. The real significance of MRP was that, for the first time, the planner was able to answer the question 'when?'. Rather than being reactive and waiting until the shortage occurred, the planner could be proactive and time phase orders, including releasing orders with multiple deliveries.
Nevertheless, some simplifying assumptions were needed to allow the computers of the day to make the required calculations. One was that the orders should be started at the latest possible date to provide for minimal inventory while still serving the customer's need on time. This method is referred to as 'backward scheduling'. Therefore, all orders were scheduled backwards from the desired completion date to calculate the required start date. There was no slack time in the schedule and the downside of this assumption was that if there were any hiccups in the execution of the plan, the order would most likely be late to the customer. If only one part needed for the finished part was going to be late, there was no automatic way to know the impact on the other needed parts. Slack was built into the schedule through conservative lead times. Despite this drawback, the benefits far outweighed the costs and more companies began to embrace the tools and techniques of MRP.
CRP - The Next Development
As more people learned how to utilize this material planning methodology, they quickly realized something else very important was missing. It did not suffice to have all the parts to get the job done, sufficient plant capacity was needed as well. The idea of closing the loop with a capacity plan was introduced and 'closed loop MRP', 'big MRP', or Capacity Requirements Planning (CRP) was born.
At the same time, computers were increasing in power and decreasing in price. The computing capacity to do the extra mathematical computations was affordable and available. Now, not only could the materials be calculated, but also a capacity plan based on those material plan priorities could be created. In addition to the bills of materials needed for each of the finished parts, defined paths for the production process were necessary. Defined paths for the production process, commonly called 'routings', specified the machines or group of machines (work centers) to be used to build the parts so that capacity and load could be planned and scheduled.
Another critical assumption needed to complete the computations of the computers of the day was that infinite capacity existed at each of these work centers to satisfy this calculated demand when it was required. Infinite capacity is not an accurate reflection of reality, and this drawback in the use of MRP/CRP remains present till today. However, for the first time, reports were available where the overload conditions could be identified and proactively resolved for each machine. This allowed the preparation of plans and options to address the overload situation before the problem occurred. Typically, lead times were long enough to allow work centers to smooth out unbalanced workloads in the short term and still support the overall required completion of the work order.
SOURCE:http://www.technologyevaluation.com/research/articles/the-essential-erp-its-genesis-future-16268/
1960s - Pre-Computer Era
The focus of manufacturing systems in the 1960s was on inventory control. In those days when a computer would occupy an entire wing of a building at a local university, most manufacturing companies could not afford to own one. However, companies were able to afford to keep inventory on hand to satisfy customer demand. It was the age of the reorder point system (ROP) where the assumption was that the customer would continue to order what they had before and the future would look very much like the past. In most industries this was a valid assumption, since product life cycles were measured in years.
Inventory was regarded as an asset not only on the balance sheet but also in the mind of the average manager. Therefore, production planners created schedules and managed materials by hand. In the production control office, the manual explosion of Bills of Materials (BOMs) often resulted in errors. Index card files had been used to record material allocations, receipts, and issues. When the unallocated inventory balance on the card seemed low for a certain part, a planner would give a card to a buyer, who would then place a new purchase order. Those card files provided a real help to a planner as long as each index card had been updated in a timely manner and put in the right place.
The order entry/sales department usually created the plant schedule. As a result, persons who had little or no access to material availability information loaded forecasted sales and actual customer orders into the schedule. This lack of visibility, combined with the cumbersome inventory record-keeping process, caused frequent schedule changes and delayed customer deliveries. Often the shop would start an order only to learn that required material was not available. The resulting excessive work in progress (WIP) and raw materials tied up unnecessary capital funds and shop floor space, which ultimately led to a number of other missed opportunities.
1970s/1980s - Advent of Computers in Manufacturing
When computers finally became small and affordable enough to be deployed by an average manufacturing company, the resolution of materials mismanagement initially gained the highest priority status. Silently, the need to order only what was really needed crept onto the horizon. No longer could a company afford to order some of everything. Orders had to be based on what was being sold. What was already in inventory or committed to arrive on a purchase order offset this requirement. As a result, Materials Requirements Planning (MRP) computer systems were developed to provide for 'having the right materials come in at the right time'. The Master Production Schedule (MPS) was built for the end items. The MPS fed into the MRP which contained the time-phased net requirements for the planning and procurement of the sub-assemblies, components, and raw materials.
MRP - The Initial Impact
The impact that the computer had on material planning and enterprise management was huge. From the manual planning and huge posting card decks, this new computer system promised to automatically plan, build, and purchase requirements based on the items to be shipped, the current inventory, and the expected arrivals. The posting originally done on the manual input/output cards was replaced by transactions directly made in the computer and documented on pick lists. The amount on inventory was visible to anyone with access to a computer without having to go to the card deck and look it up.
MRP, or 'little MRP', represented a huge step forward in the planning process. For the first time, based on a schedule of what was going to be produced, which was supported by a list of materials that were needed for that finished item, the computer could calculate the total need and compare it to what was already on hand or committed to arrive. This comparison could suggest an activity to place an order, cancel orders that were already placed, or simply move the timing of these existing orders. The real significance of MRP was that, for the first time, the planner was able to answer the question 'when?'. Rather than being reactive and waiting until the shortage occurred, the planner could be proactive and time phase orders, including releasing orders with multiple deliveries.
Nevertheless, some simplifying assumptions were needed to allow the computers of the day to make the required calculations. One was that the orders should be started at the latest possible date to provide for minimal inventory while still serving the customer's need on time. This method is referred to as 'backward scheduling'. Therefore, all orders were scheduled backwards from the desired completion date to calculate the required start date. There was no slack time in the schedule and the downside of this assumption was that if there were any hiccups in the execution of the plan, the order would most likely be late to the customer. If only one part needed for the finished part was going to be late, there was no automatic way to know the impact on the other needed parts. Slack was built into the schedule through conservative lead times. Despite this drawback, the benefits far outweighed the costs and more companies began to embrace the tools and techniques of MRP.
CRP - The Next Development
As more people learned how to utilize this material planning methodology, they quickly realized something else very important was missing. It did not suffice to have all the parts to get the job done, sufficient plant capacity was needed as well. The idea of closing the loop with a capacity plan was introduced and 'closed loop MRP', 'big MRP', or Capacity Requirements Planning (CRP) was born.
At the same time, computers were increasing in power and decreasing in price. The computing capacity to do the extra mathematical computations was affordable and available. Now, not only could the materials be calculated, but also a capacity plan based on those material plan priorities could be created. In addition to the bills of materials needed for each of the finished parts, defined paths for the production process were necessary. Defined paths for the production process, commonly called 'routings', specified the machines or group of machines (work centers) to be used to build the parts so that capacity and load could be planned and scheduled.
Another critical assumption needed to complete the computations of the computers of the day was that infinite capacity existed at each of these work centers to satisfy this calculated demand when it was required. Infinite capacity is not an accurate reflection of reality, and this drawback in the use of MRP/CRP remains present till today. However, for the first time, reports were available where the overload conditions could be identified and proactively resolved for each machine. This allowed the preparation of plans and options to address the overload situation before the problem occurred. Typically, lead times were long enough to allow work centers to smooth out unbalanced workloads in the short term and still support the overall required completion of the work order.
SOURCE:http://www.technologyevaluation.com/research/articles/the-essential-erp-its-genesis-future-16268/
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