What is an ERP System Part 2: The Origins of ERP Systems

Posted by Victor on March 6, 2012

What are the key elements of an ERP System?

The explosion in the use of ERP systems across the world has been a major factor in the improvement of business operations, services and the overall quality of products for the past 20 years. Many people don’t realize how often and by what degree their lives are affected, directly or indirectly, by an ERP system of one type or another. The ability to better, and more reliability track costs, manage inventory, and monitor operations has led to a drastic reduction of waste in some firms allowing them to reduce prices on their products while maintaining or even increasing their profitability.
Yet despite the ever increasing reach and effectiveness of ERP systems, they remain relatively unknown and misunderstood by the firms that purchase them and the employees who interact with them on a daily basis. This article explores the basic elements of an ERP system, how an ERP System works, the history of ERP systems and the trends that influenced their developments over time.

Relational Databases: The Core of an ERP System.

The origins of business ERP systems stems from the theory of relational data management as originally designed by Edgar F. Codd in 1969 (1) which lead to the development, in 1970, of the concept of a relational database at an IBM advanced research lab.(2) According to relational database theories data is held in tables which are linked to each other through the use of key fields unique to each table, and used to identify each record in that table. An example of this is a customer number that uniquely identifies that customer in every transaction with that specific customer. Using the customer number in a sales order, credit memo, or other transaction eliminates the need to copy all of a customer’s information (such as Name, Address, Zip Code) to every transaction which significantly reduces the amount of data stored in a database. As a result, this data structure has facilitated incredibly fast and powerful reporting capabilities allowing companies to quickly and easily analyze historical data.
Relational databases were a huge advancement in the field of data management and were a significant improvement over previous data storage techniques.

Footnotes:

1. “Derivability, Redundancy, and Consistency of Relations Stored in Large Data Banks”, E.F. Codd, IBM Research Report, 1969
2. Codd, E.F. (1970). “A Relational Model of Data for Large Shared Data Banks”. Communications of the ACM 13 (6): 377–387

Want to learn more about ERP systems? Read Part 1 of “What is an ERP System,” and watch our blog for the next article in the series.