Evolution of ERP
Traditionally, implementing and maintaining an ERP would be a costly undertaking that was only conceivable by large business corporations with massive budgets. Since the 1960s, ERPs have evolved from being multi-million dollar investments, to systems that are becoming readily available and affordable among smaller businesses. The remarkable developments in the realm of computer software and hardware systems are the driving force behind the evolution of ERP software (Liaqat & Patrick & Rashid, 2002). In the 1960s, organizations could design, develop, and implement centralized computer systems that automated their inventory control systems via Inventory Control Packages (IC). These systems were typically coded in programming languages such as ALGOL, COBOL, and FORTRAN.
In the 1970s, Material Requirements Planning (MRP) systems were developed. These systems involved planning whole products or parts as required by the master production schedule. Using this production route, the developers would later produce MRP II and be introduced in 1980s. These new systems optimized the process of manufacturing through synchronizing materials with units of production. MRP II could integrate areas such as project management, shop floor and distribution management, human resources, finance, and engineering.
ERP systems initially featured in the late 1980s and the outset of 1990s. Building upon the foundations of MRP and MRP II, the ERP systems could integrate business processes such as manufacturing, accounting, financial management, human resources, project management, inventory management, distribution services, and maintenance across an enterprise. In the 90s, ERP vendors started adding more modules and functions as “add-ons”. This move ushered in the concept of “extended ERPs.” The ERP extensions included advanced planning and scheduling solutions (APS), supply chain management (SCM), and customer relationship management (CRM) modules (Liaqat & Patrick & Rashid, 2002).
From the 2000’s, a clear distinction between two services could be identified within the traditional ERP – on-premise ERP, and hosted ERP. On-premise ERP solutions could be acquired via a license model. In this case, the software would be installed onto computers and servers in-house, and the enterprise would be responsible for the platforms and the ERP infrastructure. The enterprise would also be required to handle all the maintenance and disaster recovery processes (The difference between hosted and cloud computing for ERP software, 2012). With the introduction of ERP hosting, services can now be offered to an individual or an enterprise without deploying the physical infrastructure in-house. The vendor or hosting provider hosts the hardware and software off-site; significantly reducing IT related responsibilities for the end user. Hosted ERPs are offered either through a direct network connection or over the internet (Fripp, 2011).
Nowadays, the ERP trend has now moved from hosted ERP to cloud-based ERP (Lin & Chen, 2012). While both the hosted and on-premise ERPs have comparable benefits, hosted and cloud ERPs have overlapping benefits, and clients should carefully weigh their options to obtain the best value (Scavo et al. 2012). The figure below is a summary of the historical milestones associated with the modern ERP system.
Figure. 1.1 Evolution of ERP
Up until early 2013, cloud and SaaS ERP solutions were considered the fastest growing market segments in the IT industry, as seen by the rapid shift from the traditional ERP (Lin & Chen, 2012). This was mainly attributed to the large uptake of lower cost offerings by small and medium businesses (Kimberling, 2014). Cost for large businesses is also considered a factor, as total spending on ERP software has steadily increased for many years. For example, in 1998 the total spending on ERPs was estimated at US$17 billion, and by 2000, the spending had grown to US$21.5 billion representing a 13.1% growth (Liaquat & Patrick & Rashid, 2002). The rapid growth may also be attributed to the introduction of the Extended ERP, which has included new applications such as customer relationships management, supply chain management, advanced planning and scheduling, as well as internet-based applications for e-commerce.
However, according to the 2014 ERP Report released by Panorama Consulting Solutions (2014) cloud and SaaS offerings dropped 11 points to 15% of all ERP deployments in the space of 1 year. These figures indicate that 85% of all ERP implementations today are still on-premise deployments. Panorama (2014) attributed this to end user’s “lack of knowledge about cloud offerings” and “risk/fear of security breach”. This proves that regardless of the real-world benefits and popularity of cloud and SaaS offerings in the past, there is still much uncertainty and lack of awareness amongst potential users.