Operations Management: An Integrated Approach, 5th Edition

THE EVOLUTION OF ERP

First-Generation ERP

An ERP system provides a single interface for managing all routine activities performed in manufacturing—from order entry to after-sales customer service. In the later 1990s, ERP systems were extended to external members of the supply chain (suppliers and customers). These extensions provide customer interaction and supplier management modules. Using a single interface can provide significant savings. Large companies—for example, ExxonMobil—consolidated 300 different information systems into one ERP system by implementing SAP R/3 (a leading ERP system) in its U.S. petrochemical operations. Initially, ERP was designed to handle business transactions and not to support supply chains. The second generation of ERP was designed to overcome this deficiency.

Second-Generation ERP

First-generation ERP was designed to automate routine business transactions and did it very well. Merrill Lynch reported that almost 40 percent of U.S. companies with greater than $1 billion in annual revenues had implemented ERP. Most companies had received the major benefits of ERP systems by the late 1990s. The development of second-generation ERP systems has begun. Its objectives are to leverage existing systems to increase efficiency in handling transactions, improve decision making, and support e-commerce.

While first-generation ERP systems gave planners plenty of statistics about what happened in the company, in terms of costs and financial performance, the reports ...