Understanding Advantages & Disadvantages of ERP
Deciding which technology your company should and shouldn't invest in, is the most difficult task. On the one side, you want to be responsible for innovation and growth in your company. But you also don't want to catch a failed project trigger. So, is it worth investing in ERP software? To understand it, you need to evaluate the advantages of ERP, specifically how the advantages and disadvantages of ERP systems are shared between them.
There are several benefits of ERP that your business can take advantage of, no matter your business is big or small. Enterprise Resource Planning (ERP) software is a complete package of specialized applications that enable enterprises to integrate and manage their most important processes. 88% of organizations consider their ERP implementation helped them to succeed according to Selecthub. While there are many advantages, not all of them are smooth; ERP also has its drawbacks.
In the simplest sense, ERP software is a tool that centralizes a company's information database and automates and simplifies routine tasks and business processes. The ultimate goal of using this solution is to streamline operations and give employees time to perform more instinctive tasks. These goals can increase sales margins and efficiency while improving communication across the company.
ERP software is unique in that it affects many or all different elements of a business. It is a complete solution with features like the following:
• Accounting
• Customer relationship management (CRM)
• Manufacturing
• Inventory Management
• Human Resources
• Analytics and Reporting
Advantages:
ERP solution is indeed an asset to many companies. They make your business run more smoothly by aggregating and protecting your information, automating processes, and producing easy-to-understand reports. With these and many other functions, the advantages of an ERP system in an organization make your daily routines and long-term planning more efficient.
Below we have discussed the biggest advantages of ERP when implementing this type of software:
Dedicated IT Costs:
While ERP software is often a large investment, it can combine your IT costs and increase efficiency. Instead of spending resources on multiple systems, all of which require specialized personnel, infrastructure, support teams, and licenses, you can concentrate all these costs on a single ERP system.
In addition, you can even save on overall IT costs if you spend more on different systems than on a ERP. Using a single system also lower down training needs for end-users as they need to understand one system rather than interacting with several individual applications.
While ERP can cover several functional areas such as customer resource management (CRM), accounting, human resource management, and supply chain management, the system design must be modular.
General visibility:
This ERP advantage is one of the biggest selling points of the software. ERP software allows full access to all critical processes in your company and makes data from everyone easily accessible to you and your management.
In addition, centralized access to all information about your company allows for increased collaboration and more efficient task execution. This complete transparency ensures a more consistent workflow and makes it easy to follow processes across departments with maximum efficiency.
Improved reporting and planning:
Apart from increased transparency, better performance is a major benefit of ERP software. By implementing a cross-departmental ERP package, your company has a single, uniform reporting system for each process. ERP systems can easily generate useful reports and analyses at any time. Through ERP solutions, you can analyze and compare functions across departments without worrying about a lot of spreadsheets and emails.
In addition, many ERP providers also offer business intelligence services with their solutions. This BI functionality allows companies to achieve an analytical understanding of their operational processes.
Flexible modularity:
One of the largest enterprise resources planning software today is its modular structure. Most ERP vendors offer multiple applications that can be implemented together depending on business requirements. Each application is designed to stand alone or be integrated into a larger package with a few exceptions. This way, your company can choose which components work best and leave out what you don't need.
Another aspect is software implementation. Two of the most important deployments can also be done through the cloud. For on-premises systems, software should be installed on all company computers and servers. With a cloud system, the entire software package is processed completely externally by the ERP provider. Cloud ERP software has evolved in recent years and is expected to become more popular. The global ERP market is expected to grow at a CAGR of over 10.2% through 2026, according to allied market research.
Improved efficiency:
In addition to reducing IT and training costs, ERP can reduce your employees' time and effort in completing their daily activities. On average, ERP systems can cut operational costs by 23% and general administration costs by 22%. This is a significant amount of savings over a period of time. ERP solutions can significantly reduce or eliminate repetitive manual processes if implemented correctly so team members can focus on sales-related tasks. The system can also assist in adopting and implementing industry best practices and coordinate all actions within the company.
Technologies like artificial intelligence (AI), machine learning, robotic process automation (RPA), and more support the automation features and intelligent suggestions you can experience in various ERP solutions. This advanced level of features can manage business activities like forecasting demand, generating orders, and tracking products from production to delivery.
Customer service:
Your company's customers also benefit from an ERP system, even if they are unfamiliar with it. Because customer information is centralized and simplified, your sales team can focus on making and maintaining customer relationships rather than managing spreadsheets. After all, companies have to worry about attracting and retaining customers. Through the extensive tracking and insights that ERP systems provide, you can deliver better customer interactions from marketing automation to late-night customer service.
Most of today's ERP packages also support e-commerce integration. This means your company can better handle order fulfillment and web-based customer interactions. According to data on the Forbes website, 62% of shoppers in the United States say they will shop more online than ever before during the pandemic. Therefore, your ERP solution must support e-commerce integration.
Data security and quality:
One of the biggest benefits of ERP solutions is data security. After all, data is at the heart of the ERP concept. Sharing data in functional silos such as customer service, sales, marketing, and business development enhances collaboration across the enterprise. The flip side of broad data access is controlling who can view and edit information. ERP solutions have internal controls to ensure the security of your data.
In addition, the ERP platform helps maintain the high level of data security offered by single input systems. Aggregating information from multiple systems often creates source conflicts.
Improved collaboration and workflow:
Collaboration is an important part of a business. But more often, companies work in silos because collaboration takes more time and effort. However, ERP software makes collaboration easy. ERP platforms optimize collaboration processes with others by giving employees access to the data they need when they need it. They do this by providing a cross-agency database that pulls information from each department to a central location.
This enables real-time project updates and better company-wide communication. With an ERP system, every employee has access to a wealth of company-wide data if desired and thus has an overview. This, in turn, gives your employees the tools they need to make proactive decisions while making them feel more valued. The net effect on your business is greater efficiency and lower operating costs associated with manual data tracking, as well as increased employee engagement.
Standard business process:
Most ERP systems are developed keeping in mind industry practices. These best practices bring massive mass benefits to businesses of all sizes. It also allows companies to standardize their processes and systems, further increasing productivity and efficiency.
This process produces consistent results that allow you to enhance the way you manage your business continuously. And because various processes are automated, errors and costs are significantly reduced. This results in less friction and better synergy between departments.
Facilitated compliance with regulatory requirements:
One of the most difficult tasks for companies today is meeting compliance requirements. Keeping your financial records accurate is not easy, but it must be done. ERP helps meet regulatory requirements thanks to secure and validated data combined with integrated reports. These reports can also be utilized to reduce costs. In addition, many ERP vendors consider specific regulations such as the Sarbanes-Oxley Act (SOX) and the Federal Information Security Management Act (FISMA).
Improved supply chain management:
For companies involved in inventory and production, ERP systems support supply chain management in various ways. These improvements result in shorter lead times, more on-time delivery, and many other benefits that increase your business's overall performance and success. With a well-designed ERP platform, your supply chain can become better and more responsive through better demand forecasting, inventory management, ordering, and more. A streamlined supply chain also facilitates manufacturing innovation that can help you cut costs and create exciting new products that give your company the competitive edge it needs to stay on top.
Excellent scalability:
To make sure the success of your business, you need to keep an eye on the future. Too often, companies fail to plan well and have severe growth difficulties that pose serious obstacles to any progress they enjoy. It is essential to have a system that can handle your business growth gracefully and effectively, and the right ERP system will make it easy. 14% of organizations moved out of their legacy system to advanced ERP in 2019-2020, according to Hubspot.
Are you expanding your customer base; Entering new markets, introducing new processes, departments or products, or growing your business in other ways, adding new functionality to the ERP platform is easy with the right software provider.
Make sure when talking to suppliers that you understand your intentions for future growth.
Disadvantages:
With so many advantages of enterprise resource planning systems, you can start comparing systems. However, it is critically crucial to understand the drawbacks and risks of this type of software to ensure that ERP is perfect for your business. Below are the main ERP drawbacks that buyers can experience when implementing a new system:
Cost:
If you decide to invest in a traditional ERP system like SAP Business One, you can easily spend five digits on a license. For many, this is the main drawback of ERP software. Especially for small and medium-sized companies, the upfront costs for the software alone can be too high. Medium-sized companies can avoid upfront costs with cloud solutions, typically billed on a monthly subscription basis. If you are looking for more savings and feel ready for a project, consider an alternative: open source ERP software.
Implementation and maintenance costs:
While the software itself is a huge investment, the implementation process can cost nearly four times as much. Organizations need to consider the labor costs and time required to implement them successfully. Conventional system providers usually charge a maintenance fee in addition to a license fee. You also have to invest in hardware to properly maintain your ERP software, such as compatible servers and mobile devices. Again, you need to name the people who will support you.
Adjustment process:
Customization is one of the greater elements of ERP software, but it can get out of control easily and quickly. Software customization takes a lot of time, effort, experience and money. But all too often, companies completely underestimate resource requirements and fail to complete adjustments or end up over budget. Adjustments can ultimately reduce the best practices built into the system and make future improvements more difficult.
Complexity:
ERP software solutions offer many possibilities, but it also means that the software can be complex and difficult to use. It is not new for companies to realize the full potential of ERP solutions, but the problem is they do not plan their implementation properly. Some companies may find themselves with too large and complex systems for their processes, resulting in poor ROI. This is especially true if the complexity prevents you from convincing your team to accept the software.
While finalizing which platform is right for your company, it is important to consider the pros and cons of ERP software. But you shouldn't delay potential mistakes with tools that can take your business to the next level. If you need help with product research, check out our ERP requirements templates or our ERP studies and reports.
For most companies, the advantages of an ERP system often outweigh the disadvantages. The potential for completely simplified business functions and long-term productivity improvements make the advantages of introducing an ERP system a valuable investment of time and resources.
Katalyst Technologies has vast experience in implementing end-to-end ERP solutions in the cloud. Being a value-added reseller for SAP, Oracle and NetSuite and the integration of ERP Solution into a cloud e-commerce platform, our experts will help you select the right ERP for your business.
