Benefits of ERP: Advantages and Disadvantages of an Enterprise Resource Planning System

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Deciding which technologies your businesses should and shouldn’t invest in is difficult, to say the least. On the one hand, you want to be the one responsible for innovation and growth within your company. But you also don’t want to be the one to pull the trigger on a failed project. So, is an ERP software investment worth the risk? To find out, you need to weigh the benefits of ERP, specifically how ERP system advantages and disadvantages breakdown when compared against each other.

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Benefits of ERP

Whether your business is large or small, there are several ERP benefits your company could gain. Enterprise resource planning software (ERP) is a suite of customizable applications that allow businesses to integrate and manage their most important processes. Although there are plenty of advantages, it’s not all smooth sailing; ERP has its disadvantages, too.

Table of Contents

Introduction to ERP Software

Before we share the key advantages and disadvantages of ERP systems, we’d like to provide introductory information and dispel some myths around ERP.

A Brief Overview

So, how does ERP software work?

In the most basic sense, ERP software is a tool that centralizes a company’s database of information, automates routine tasks and simplifies business processes. The end-goal in using this tool is to optimize operations and free up employee time so they can work on more instinctual tasks. These objectives can lead to an increase in revenue margins and efficiencies while improving communication across the company.

ERP software is unique because it touches many or all of the different aspects of a business. It’s an end-to-end solution with features such as the following:

To learn more about the basics of ERP software, read our article “8 Reasons Why ERP Software is Important in the Coming Year.” Next, we’re going to go over some common myths surrounding ERP software selection.

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Software Selection Myths

Here’s a quick reality check as you embark on your ERP selection project:

1. Cost Should be the Biggest Factor

The best ERP system is one that meets your anticipated requirements now and in the future — and it may not be the cheapest option. Your return on investment (ROI) will depend on the overall value derived from your ERP over time.

2. Selection Should be Entirely Managed by the IT Department

It’s imperative that your ERP selection team includes stakeholders from your key business operations in addition to your IT department. In addition, make sure to speak to the personnel who will use the software on a daily basis. Their needs and wants should be a top concern, as their ability to use the system will ultimately decide if it’s a success or a failure.

3. Selection Should be Entirely Managed by Consultants

Consultants aren’t a replacement for your internal teams who work with your existing systems on a daily basis. A consultant will likely have a better understanding of the software and even your industry, but your own employees play a critical role by applying their knowledge of your company to ensure a successful ERP selection project.

4. The More Functionality, the Better

Many organizations can become more successful by simply streamlining operations. The takeaway is not to be dazzled by software that has countless capabilities. Instead, focus on the solution that addresses each of your business’s actual needs.

5. The Research Phase Ends When You Contact a Vendor

Your ERP software choice may seem like the perfect fit on paper, but will it meet your needs in the real world? It’s always a good idea to get live demonstrations of your critical processes or a software trial before signing any long-term deal. Unfortunately, failed ERP implementations and buyer remorse are far too common.

ERP Implementation Outcome

Source: Panorama

Advantages of ERP

Now that we’ve covered the basics and cleared up some misconceptions, it’s time to move onto why companies all around the globe are implementing ERP software.

ERP systems are an asset for many organizations. They make your business run smoother by unifying and protecting your information, automating processes, and producing easy-to-understand reports. With these and many more capabilities, the benefits of ERP systems in an organization make your day-to-day operations and long-term planning more efficient. Below are several of the biggest ERP benefits when implementing this type of software:

1. Focused IT Costs

Although ERP software is often a large investment, it can unify your IT costs and improve efficiency. Instead of spending resources on multiple systems that all need dedicated staff, infrastructure, support teams and licenses, you can focus all these costs into one ERP system.

Additionally, if you spend more on disparate systems than you would on a centralized ERP, you might even save on IT costs overall. Using a single system also reduces training requirements for end-users, since they only need to learn one system rather than interacting with numerous individual applications.

While an ERP can include numerous functional areas such as customer resource management (CRM), accounting, HR management and supply chain management, the design of the system is to be modular. This lets you use only the pieces that align to your needs. At the core, an ERP is the glue that binds other systems and their data together. Some ERPs let you integrate numerous third-party systems into a unified whole.

2. Total Visibility

This benefit of ERP is one of the biggest selling points for the software. ERP software allows total access to every important process in your business by making data from every department easily accessible to you and your senior management.

For example, you can monitor inventory levels on a daily basis, including future consignments that are yet to be received and inventory currently in transit. By knowing precisely where you stand regarding inventory levels, you can control your working capital on a more precise level.

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In addition, the availability of all of your company’s information in a centralized location allows for increased collaboration and more streamlined completion of tasks. This complete visibility provides more coherent workflows and allows inter-departmental processes to be easily tracked with maximum efficiency. All of this makes it possible to make quick decisions in confidence, as you can rest assured that you’re seeing the full, complete picture at any given moment.

3. Improved Reporting and Planning

Along with improved visibility, better insight is a major advantage of ERP software. Implementing an ERP suite across departments means your organization has a single, unified reporting system for every process. By having a single source of truth, an ERP system can readily generate useful reports and analytics at any time. This software gives you the ability to analyze and compare functions across departments, without the hassle of multiple spreadsheets and emails.

One of the most popular reports involves finances (go figure). Standard financial reports such as income and cash flow statements generally are built-in, and custom reports can be quickly generated without IT intervention.

Oracle JD Edwards reporting

ERP allows users to access sophisticated reports like these.

In addition to this, many ERP vendors also offer business intelligence services with their software. This BI functionality allows businesses to gain a deeper level of analytical insight into their operations. These insights aid in corporate planning by identifying both operational strengths and problem areas that need improvement. Providing this kind of detailed view into a company’s data gives ERP users the ability to make better-informed decisions based on trends and metrics.

4. Flexible Modularity

One of the biggest advantages of enterprise resource planning software in the present day is its modular makeup. Most ERP vendors offer several applications that can be implemented together according to business needs. Barring a few exceptions, each application is designed to be able to stand alone or integrate with the larger suite. This way, your company can pick and choose which components work best and can leave out what you don’t need.

Another aspect involves how the software is implemented. The two major deployments are on-premise and through the cloud. With an on-premise system, physical software must be purchased and installed on all company computers and servers. With a cloud-based system the entire software bundle is handled completely off-site by an ERP provider. Cloud-based ERP software has been on the rise in recent years and is projected to become even more popular.

5. Improved Efficiency

Along with reduced IT and training costs, an ERP can reduce the time and effort required by your workforce to carry out their daily activities. Properly implemented, an ERP solution can greatly reduce or eliminate repetitive manual processes, thus freeing up team members to focus on revenue-affecting tasks. The system likewise can aid in the adoption and enforcement of industry best-practice processes, aligning all actions across the enterprise.

Cutting-edge technologies such as artificial intelligence (AI), machine learning, robotic process automation (RPA) and others support the automation and intelligent suggestion capabilities you see in many ERP software applications. This advanced functionality can manage business activities such as demand forecasting, generating purchase orders and tracking products from manufacturing to delivery.

6. Customer Service

Your company’s clients also receive ERP system benefits, even if they don’t know it. Because client information is centralized and streamlined, your sales team will be able to focus on building and maintaining customer relationships instead of maintaining spreadsheets. At the end of the day, the number one thing a business should be concerned about is customer acquisition and retention. Through the end-to-end tracking and insight offered by an ERP system, you can provide better customer interaction from marketing automation all the way through late-phase customer service.

Most up-to-date ERP suites also support e-commerce integration. This means your business will be better able to handle web-based order processing and client interactions.

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7. Data Security and Quality

One of the biggest advantages of an ERP system is data security. After all, at the heart of the ERP concept is data. Sharing data across functional silos such as customer service, sales, marketing and business development enhances collaboration throughout a company. The other side to widespread data access is controlling who can see and edit the information. ERP solutions have intrinsic controls to ensure the security of your data.

Further, what helps ERP platforms maintain a high level of data security is that they provide a single input system. Merging information from multiple systems often causes conflicts between sources, but having a single repository of information helps improve the accuracy, consistency and security of your company’s data.

Both on-premise and cloud-based ERP systems offer your organization a higher degree of security. The database system the ERP software runs off of also enables centralized backups of your critical and sensitive data. Cloud-based ERP systems, despite what many people think, can offer an extra layer of security. Since all of your company’s data is managed through the cloud, many vendors employ round-the-clock security experts to ensure their servers are protected. This makes it far more difficult for hackers to run test attacks like they would on a private server.

8. Improved Collaboration and Workflows

Collaboration is an essential part of a thriving business. But more often than not, companies find their teams working in silos simply because collaboration requires more time and effort. However, ERP software makes collaboration a piece of cake. An ERP platform streamlines the process of collaborating with others by providing employees with access to the data they need when they need it. They do this by providing an interdepartmental database, where information from each department is funneled into one centralized location.

This allows for real-time project updates and better communication across the whole company. With an ERP system in place, every employee has on-demand access to the entire company’s wealth of data, which allows them to see the big picture. In turn, this gives your employees the tools they need to make proactive decisions while making them feel more valued. The net effect on your business is increased efficiency and reduced operational costs associated with manual data tracking, as well as higher employee engagement.

9. Standardized Business Processes

Most ERP systems are developed according to industry best practices. These tried-and-true processes bring major benefits to the table for businesses of all sizes. It also allows businesses to standardize their own processes and systems, which further enhances productivity and efficiency.

These processes deliver consistent results that allow you to continually improve the way in which you operate your organization. And because many processes are automated, errors and costs are greatly reduced. As a result, there’s less friction and improved synergy between departments.

10. Facilitated Regulatory Compliance

One of the most difficult ongoing tasks for businesses is meeting compliance requirements. Maintaining perfect accuracy within your financial records isn’t exactly easy, but needs to be done nevertheless. ERPs aid in regulatory compliance by virtue of secure and validated data, combined with built-in reports. These reports can also be automated to reduce the cost of continual audits. Additionally, many ERP vendors take specific regulations into account such as the Sarbanes–Oxley Act (SOX) and the Federal Information Security Management Act (FISMA).

11. Improved Supply Chain Management

For companies that deal with the moving of physical inventory and production, an ERP system bolsters supply chain management in a variety of ways. This improvement results in shortened lead times, more on-time deliveries and many other benefits that enhance the overall operation and success of your business. Through a well-designed ERP platform, your supply chain can become better and more responsive via improved demand forecasting, inventory management, procurement and more. A streamlined supply chain also facilitates manufacturing innovations, which can help you reduce costs and develop exciting new products that give your business the competitive edge it needs to stay ahead.

In addition, an ERP system can dramatically improve profitability and reduce overages involving inventory and production. Unified insight into sales, production and delivery schedules permit stock levels to be optimized rather than relying on “best guess” estimates for upcoming volumes.

12. Superior Scalability

To ensure the ongoing success of your business, you have to keep an eye on the future. All too often, businesses fail to plan properly and experience serious growing pains that pose serious roadblocks to whatever progress they’re enjoying. Having a system in place that can elegantly and efficiently accommodate your company’s growth is of the utmost importance, and the right ERP system makes it easy.

Whether you’re expanding your customer base; entering new markets; rolling out new processes, departments or products; or are otherwise growing your business, adding new functionality to an ERP platform is easy with the right software vendor.

Just make sure that when you’re speaking to vendors they understand your intentions for growth in the future.

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Disadvantages of ERP

With so many benefits of enterprise resource planning systems, you might be ready to start comparing systems. But it’s equally as important to understand the drawbacks and risks of this type of software to make sure ERP is the right system for your business. The following are the main ERP disadvantages buyers might experience when implementing a new system:

1. The Cost

If you choose to invest in a traditional ERP system, for example SAP Business One, you could easily end up spending five figures for a single license. For many, this is by far the biggest disadvantage to ERP software. The upfront cost of the software alone can be prohibitively high, especially for small-to-medium-sized businesses. SMBs can avoid the upfront costs with a cloud solution, which is typically billed on a monthly subscription basis. If you’re looking for even more cost-savings and feel prepared for a project, consider an alternative: open source ERP software.

2. Cost of Implementation and Maintenance

While the software alone is a major investment, the implementation process can cost nearly four times as much. Businesses must take into account the cost of manpower and time necessary for a successful deployment. You may need to hire additional IT staff, ERP consultants, software training specialists, etc. Vendors offering traditional systems typically charge a fee for maintenance on top of the license fee. Moreover, you might need to invest in new hardware to properly support your ERP software, such as servers and compatible mobile devices. And again, you’ll need to designate individuals to maintain them.

With a typically painless implementation, no hardware and a limited need for maintenance or upgrades, cloud ERP software represents a good alternative once again. Otherwise known as SaaS (Software-as-a-Service), cloud-based software is designed to be undemanding. The implementation of these types of systems simply involves logging in on any compatible and Internet-enabled device; maintenance and upgrades are typically managed by the vendor.

3. Customization Process

Customization is one of the best aspects of ERP software, but it can easily and quickly get out of hand. Customizing your software takes a lot of time, effort, expertise and money. But too often, businesses completely underestimate how many resources are needed and either don’t finish their customization or end up going way over budget. Customization can end up diminishing the best practices built into the system and make it more difficult to upgrade in the future.

4. Complexity

ERP software solutions provide numerous capabilities, but that also means the software can be complex and difficult to use. It’s not unheard of for companies to get swept up in all the potential of an ERP solution but fail to plan properly for its implementation. Some businesses may find themselves with systems too large and complicated for their processes, leading to a poor ROI. This is especially true if you can’t convince your team to adopt the software due to the complexity.

To prevent falling victim to the complexity of ERP software,

invest in role-based user training and avoid systems with more functionality than you need.

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Should You Invest in ERP or Not?

When making a decision about which platform is right for your business, it’s important to consider the pros and cons of ERP software. But you shouldn’t let the potential downfalls scare you away from the tools that could take your business to the next level. If you need some help getting started on product research, check out our ERP requirements template or our ERP research and reports.

For most companies, the advantages of ERP systems often outweigh the disadvantages. The potential for totally streamlined business functions and boosts in productivity over the long-term makes the benefits of implementing ERP systems a worthwhile investment of time and resources.

Which ERP advantages and disadvantages did we forget to mention? Please let us know by leaving a comment below!

Madeline ReinboltBenefits of ERP: Advantages and Disadvantages of an Enterprise Resource Planning System

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Join the conversation
  • Qasim Mushtaq - August 23, 2017 reply

    Nice and helpful article

  • Kundan Ray - May 12, 2018 reply

    Nice article, it helped me a lot.

  • Fekara - July 31, 2018 reply

    Playing out an ERP software execution without a reasonable comprehension of the advantages as far as dollars and pennies can bring about huge issues as the advance.

  • jyoti sharma - September 7, 2018 reply

    Enterprise resource planning software, or ERP, is a suite of customizable applications that allow businesses to integrate and manage their most important processes. Although there are plenty of advantages, it’s not all 100% smooth sailing etc.

  • kingston - September 22, 2018 reply

    structured and well detailed

  • Olivia Pearson - October 30, 2018 reply

    I like how you said that ERP is a suite of customizable applications that allow businesses to integrate and manage their most important processes. I think it’s so important to have a planning and organizational software tool at work because you’ll be able to deliver reports and make action plans much easier, due to the fact that you have one system to rely on. My friend just started his own business, and is still trying to figure out how to have all of his data and resources in one place. I’ll have to recommend that he find an ERP implementation strategy business that can help him decide which ERP solution would be right to increase productivity in his business.

  • pramod singh - November 21, 2018 reply

    Endeavor asset arranging programming, or ERP, is a suite of adaptable applications that enable organizations to incorporate and deal with their most imperative procedures. In spite of the fact that there are a lot of points of interest, it’s not all 100% smooth cruising and so forth.

  • Amelia Belle - December 5, 2018 reply

    Most ERP vendors offer several applications that can be implemented together according to business needs.

  • software testing - December 12, 2018 reply

    As a Software tester I feel software testing is important because it gives assurance whether the software will work or not. It may have its advantages and disadvantages but it helps to solve the bugs

  • Ranjeet Kumar - January 8, 2019 reply

    True, there are many advantages of ERP System but I feel the cost of the software is a way to high. Especially if the software is SAP based.
    There are a lot of small software development companies who offer cost-effective or even cheap software that provides similar functionalities.

    Kim O'Shaughnessy - January 8, 2019 reply

    Hi Ranjeet, thanks for giving this article a read! ERP definitely isn’t going to be the right system for every business, especially when something simpler like a project management solution or a professional services system would work just as well. However, for businesses that do need a fully equipped ERP, cloud-based software and monthly pricing plans have made this type of software a lot more accessible than it was in the past.

  • Marfo - March 17, 2019 reply

    i think the evolution of ERPs is gradually reducing customization since most of them are built according to business needs.

  • Jack - March 22, 2019 reply

    Why no date line on your article?

    Bergen Adair - March 25, 2019 reply

    We are constantly updating information on our posts, so almost all of our articles have no single published date.

  • Roadmap ERP - July 11, 2019 reply

    Nice article, interesting to read, clearly explains about the advantages and disadvantages of ERP

  • MiniBigTech - July 18, 2019 reply

    ERP is a cross-functional software that supports all the business processes within the organization. In an organization, ERP helps to manage business processes of various departments & functions through the centralized application. We can make all the major decisions by screening the information provided by ERP. Check it out click on erp modules.

  • MiniBigTech - July 22, 2019 reply

    In an organization, ERP helps to manage business processes of various departments & functions through the centralized application. Check it out click on Manufacturing erp modules. Please contact us at any time.

  • MiniBigTech - July 24, 2019 reply

    Mini ERP is a small system to use the business. Through this system, small businesses can eliminate the need for storing multiple copies of data such as spreadsheets, databases, and order forms. The automation also reduces the need for manual tasks which helps speed up critical processes such as order management. Easy retrieval of data and information will also expedite planning and decision making. Check it out click on Mini erp system for small businesses. Please contact us at any time.

  • MiniBigTech - July 24, 2019 reply

    Enterprise Resource Planning (ERP) is an information system that manages, through integration, all aspects of a business including production, planning, purchasing, manufacturing, sales, distribution, accounting, and customer service. Small business use ERP software for several reasons. The main reason for the solution is to improve communication across departments and optimize business processes by providing users with easy visibility of all operations. Another reason why businesses use ERP software is it enables the integration of the business’ information. Check it out click on Enterprise resource planning modules . Please contact us at any time.

  • MiniBigTech - July 25, 2019 reply

    The implementation of ERP software can help small businesses manage these processes and streamline operations. Businesses also use ERP software to reduce inventory and overhead costs. Additionally, ERP software is useful for businesses that wish to standardize their human resources data. Integration of data across the enterprise ensures that you have greater visibility in all areas of your business, from daily operations to a strategic decision level. Insight into production, inventory and data makes it easy to identify opportunities for cost savings and improvements. Check it out click on Manufacturing enterprise resource planning software . Please contact us at any time

    Mike Nangosya - August 2, 2019 reply

    The piece of reading provides meticulous insights on innovative ways of managing real-time data for managerial decisions. Am up to checking it out for our organization.

  • bhavik shah - August 23, 2019 reply

    Thanks for this useful content. It’s always a pleasure to read your great posts filled with tips really!

  • Brett Beaubouef - October 26, 2019 reply

    Great article Kim. Selecting an ERP solution key enabler to business value realization. Implementing a ERP solution does not guarantee business value, regardless of the Cloud ERP provider (vendor). There are countless examples of customers that have not experienced the expected business value articulated in the sales cycle. Why is this? It all has to do with your approach.

    Kim O'Shaughnessy - October 28, 2019 reply

    Hi Brett, thanks for reading. The article you linked also highlights some important points on business value realization, especially when it comes to vendor responsibility. Have a great day!

  • Washington Chikonzo - November 7, 2019 reply

    Thumbs up to this information, it’s precise making it easy to understand. I really enjoyed reading it…

  • Emila Hales - December 11, 2019 reply

    First off all, congratulations on this post. This i really awesome but that’s what you always crank out my friend. Great posts that we can sink our teeth into and really go to work.

    Promise Great share and thanks for the mention here,

    Madeline Reinbolt - December 12, 2019 reply

    Thanks for reading, Emilia!

  • vishal aand - December 17, 2019 reply

    Great Article. thanks for sharing the info.

  • manish - January 12, 2020 reply

    very good article kim , i think u tried to pass all essential details in this article

  • Jordan - February 5, 2020 reply

    Such a great article, very informative, i’m a regular learner from your blog, @writer did amazing job by writing this, an over all ERP Guide is amazing looking forward for more such blog by you, Definitely subscribing your blogs.

  • Bioconus - February 12, 2020 reply

    ERP software helps make reporting easier and more customizable, fit to meet all of your needs. With improved reporting capabilities, your company can respond to complex data requests more easily. This improves productivity, completes process faster and helps to close out projects without large wait times in between. Users can also run their own reports without relying on help from IT, saving your users time to use toward other projects.

  • ankit - February 25, 2020 reply

    Hi I read your blog about the Benefits of ERP, Advantages, and Disadvantages of an Enterprise Resource Planning System. ERP is very important in today’s busy life as all parent’s do not have time because of jobs, It is very easy for them to see all the activities of their student’s on mobile. Keep writing a blog like this, Thanks

    Madeline Reinbolt - February 26, 2020 reply

    Thanks for reading, Ankit. We’ll keep posts like this coming!

  • Payal - March 31, 2020 reply

    Benefits of ERP: Advantages and Disadvantages of an Enterprise Resource Planning System
    Isn’t the title name says it all? Yes it is
    So the blog has covered all the points, Very much Informative.
    Thank you @writer…fabulous work by sharing this knowledge with us.
    Looking forward to all such more blogs.

    Madeline Reinbolt - April 21, 2020 reply

    I’m so glad this article was helpful to you!

  • Singh - April 1, 2020 reply

    Thanks for sharing the information enterprise resource planning ERP advantage and disadvantages. I think your blog very helpful for more people.

    Madeline Reinbolt - April 21, 2020 reply

    Thanks for the comment, Singh!

  • Akash Patel - April 29, 2020 reply

    Very useful Blog! Thanks for sharing such a great information. This blog clear all my doubt and providing me the best data related to Enterprise Resource Planning

  • M.Karthikeyen - June 28, 2020 reply

    Hi, I have gone through your blog with my 100% attention and it is excellent guidance to one who wants to implement an ERP system to their business enhance for productivity, efficiency etc.
    Keep on writing more on the same which will be helpful to many people.

    Madeline Reinbolt - July 1, 2020 reply

    Thanks for reading our blog, M. Karthikeyen.

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