One set of data, the whole company: how did ERP systems emerge, and how did they change accounting?

The storekeeper received the goods, but the accounting department only found out the next day, on paper or via a file. Meanwhile the sales department, thinking there was no stock left in the warehouse, turned a customer away. When each department works in its own program, this is a common situation. ERP systems emerged precisely to eliminate this "disconnect".

Key theses

The beginning: calculations for the factory. In the early 1960s the J.I. Case company, together with IBM, created one of the first MRP (material requirements planning) systems (Oracle NetSuite). The task was simple: given how much output was planned, calculate how much raw material was needed and when.
MRP II: from production to finance. At the next stage, systems began to cover not only materials but also the company's other resources. This stage is called MRP II (Visibility, Oracle NetSuite).
1972: SAP. Five former IBM employees, Dietmar Hopp, Hasso Plattner, Claus Wellenreuther, Klaus Tschira and Hans-Werner Hector, founded SAP in Germany in 1972 (official SAP history, O'Reilly).
1992: R/3 and client–server. SAP released the R/3 system in 1992 (O'Reilly, Wikipedia). It was based on a three-tier client–server architecture: the database, the application logic and the user interface were split into separate layers.
The term "ERP". The term "enterprise resource planning" is reported to have come into use in the early 1990s through the research firm Gartner (Oracle NetSuite, Visibility). The name signals that the system now covered not just the factory but the whole company.
The key change for accounting. In an ERP system, a receipt document entered by the storekeeper simultaneously changes the warehouse balance, the debt to the supplier and the entry in the general ledger. The accountant does not re-enter data but checks that it is correct.
For the auditor too. Because the data is in a single database, the auditor can analyse the whole data set with the help of a computer. But risk is also concentrated in one place: a single misconfigured rule can make thousands of entries wrong.

Then and now

Aspect	Era of separate programs	ERP era
Data	Each department has its own database	One shared database
Document entry	Repeatedly in the warehouse, sales and accounting	Once, at the source itself
Month end	Manual reconciliation of departments' data	Automatically linked entries, control reports
Accountant's role	Data entry clerk	Controller and analyst

Example: "Paxtakor un" and manual reconciliation

The following example was prepared by the author; the figures are hypothetical.

The hypothetical "Paxtakor un" LLC uses three different programs for the warehouse, sales and accounting. Each month 1 200 waybills are entered separately in three places. Experience shows that 2% of them show a discrepancy between the programs, and finding and correcting each discrepancy takes an average of 20 minutes.

Indicator	Calculation	Result
Documents with a discrepancy	1 200 × 2%	24
Time spent on corrections	24 × 20 minutes	480 minutes
In hours	480 ÷ 60	8 hours

Check: 1 200 × 0.02 = 24; 24 × 20 = 480 minutes = 8 hours, meaning one full working day of the accountant goes on reconciliation alone every month. If a document is entered once, into a shared database, discrepancies of this kind do not arise and the time is left for analysis.

Practical lesson: before switching to a new program, measure how much time month-end reconciliation takes now. Then the benefit of the switch can be assessed with figures rather than gut feeling.

Link to the previous period: electronic spreadsheets freed the accountant from manual calculation, but each file remained separate. ERP took the next step: instead of files, a single company database. Today these systems are moving to the cloud and towards integration with government platforms such as the e-invoice.