The Evolution of the Service Economy

Enterprise Resource Planning (ERP) has become the nervous system for nearly every organization big and small.  Fundamentally ERP links functional business groups (Sales, Accounting, Marketing, HR, Production, etc.) through a centralized shared data model as a means of coordinating the Division of Labor first referenced in Adam Smith’s Pin Factory.  

ERP’s origins come from concepts first developed in the 1960s such as Materials Resource Planning (MRP) and its successor Manufacturing Resource Planning (MRP II).  MRP is a production planning, scheduling, and inventory control system used to manage manufacturing processes, MPRII extends MPR by taking a more holistic approach to the manufacturing ecosystems by including other planning/control areas such as[1]

  • Master production schedule (MPS)
  • Item master data (technical data)
  • Bill of materials (BOM) (technical data)
  • Production resources data (manufacturing technical data)
  • Inventories and orders (inventory control)
  • Purchasing management
  • Shop floor control (SFC)
  • Capacity planning or capacity requirements planning (CRP)
  • Standard costing (cost control) and frequently also Actual or FIFO costing, and Weighted Average costing.
  • Cost reporting / management (cost control)

Ironically, despite the overwhelming shift from manufacturing to services (see chart below), ERP systems by-and-large remain manufacturing focused (e.g., converting raw materials into WIP, into finished goods), neglecting the unique characteristics of the service segment (see table below).

 A Question Looking for Comments

If global GDP within the Industrial World is predominantly service based, and if services design, development and delivery is uniquely different than its manufacturing counterpart, why haven’t we seen management theory, processes and controls such as ERP for services developed?

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