Enterprise Resource Planning (ERP) is a software used in an organization to streamline business processes including the supply chain, human resource management, e-commerce, customer relationship management (CRM), and finance.
Finding the right ERP solution is critical to the success of ERP deployment in an organization. If the enterprise is able to implement an ERP system effectively, it can achieve significant benefits. However, Enterprise Resource Planning can also have its own disadvantages regardless of how well it is implemented.
Some of the advantages and disadvantages or the ERP system are described hereinafter.
Advantages of ERP
An ERP system that has been properly installed can have significant advantages for the organization. Some of the advantages include:
1) Cost Savings
One of the pros of ERP is reduced costs. An ERP software can drive cost savings in many ways. First, ERP automates tasks and optimizes daily business operations to reduce errors and staffing costs. ERP software can also save costs by reducing inefficiencies that often cause costs to rise. It enables the company to deploy resources more efficiently and reduce costs.
2) Improves Collaboration and Teamwork
Another advantage of implementing ERP in an organization is increased collaboration capabilities. An ERP system creates a single source of information to improve communication and streamline operations. Employees are able to access data and understand how the organization works, hence making it easier for teams to work together.
3) Flexibility and Scalability
The third benefit of having ERP solution in an organization is increased flexibility and scalability. ERP is designed for companies of all sizes and categories. It can be scaled up when the business grows to accommodate more data and resources. An ERP software can also be tailored to meet the different needs of users and handle different processes.
4) Increased Efficiency
Aside from reducing costs, ERPs help in reducing time and effort used in running daily business operations. It eliminates repetitive manual processes and minimizes errors in business operations. ERP software automation also relieves employees to focus on more critical tasks.
5) Transparency and Accountability:
ERP also has significant benefits in terms of reporting and planning. When implemented appropriately, ERP software provides a unified reporting system where managers can provide external stakeholders with accurate real-time data. Using the ERP system, employees can be able to generate reports, identify problems, and offer timely solutions that can be accepted by all key stakeholders.
6) Data Security:
Most ERP software carry security systems to protect a company’s data from theft or unauthorized access. To keep its information secure from third parties, a company should establish a reliable modern ERP solution. ERP software benefits the organization by merging data into a single secure repository and locks them away from unauthorized access.
7) Increased Productivity:
ERP enables business managers to automate their business operations such as invoicing, marketing, and customer relationship management. Business process automation leads to increased productivity in the workplace because more work is done with little resources.
8) Regulatory Compliance
Legal compliance is another advantage of deploying ERP solution in an organization. Every company must be able to comply with legal requirements to avoid litigations and liabilities. ERP provides an enterprise with a system that consists of up-to-date records and accurate information. Its customizable reporting tools help the organization to track their compliance performance across all business areas.
9) Information Sharing
ERP software facilitates effective use of information by integrating information from all departments into one single source. This information can then be shared consistently across the organization. It also promotes accurate data that can be used in the company to make effective decisions in various business areas such as forecasting, customer service, and strategic planning. An ERP software also benefits an organization by enhancing increased coordination across departments.
10) Promotes Competitive Advantage
Another benefit of using ERP system is that it enhances competitive advantage. Deploying the right ERP effectively can enables a firm to stay ahead of competitors in terms of costs, product quality, and customer services. ERP is used to drive real-time data management, decision making, and flexibility. These factors enable a firm to respond to customer needs and achieve customer satisfaction and loyalty.
Disadvantages of ERP
Despite having numerous advantages, ERP also has certain limitations that may hinder business success. Some of the disadvantages of ERP system include the following.
1) Slow Data Migration
ERP is effective in managing data and sharing information, but it takes time to move data to and from an ERP system. This disadvantage is experienced because existing data has to be entered into a new ERP platform. This data migration may take a long process and time to complete, especially if the data migration is done manually.
Another limitation of an ERP system is that it contains a lot of functionalities and capabilities that increase its complexity. Some end users may find it difficult to deal with an ERP software, while employees find it hard to operate. Furthermore, managers may find it difficult to implement an ERP system due to its complexity.
3) High Initial Costs
Associated with the disadvantage of complexity, ERP solution can cost a lot of money during its initial stages of deployment. Building an ERP system can take long, and involve complex and expensive processes. Moving data manually also requires costly investment in people and resources. Companies also incur licensing costs to implement an ERP solution.
4) Slow Implementation Process
ERP is a long term project. Its disadvantage is that it may not be appropriate for companies that are looking for a quick fix to its operations. ERP implementation is a long and complex process that can take up to two years. This is the main reason why you need to plan well for the project; you do not need to take two years to implement an enterprise resource system that is not working.
5) Takes Time to Reap the Benefits
Even when the ERP system has been completed, it still takes time to see results. To get an efficient ERP platform that will give high returns on investment (ROI), it is important to plan for a long time and wait for good results. Patience and commitment is needed as the system is being implemented to ensure that it matches the company’s requirements. It also takes time to train employees and help them get accustomed to the new system.