Your Guide to Software Selection

ERP Advantages and Disadvantages

Whether your business is large or small, there are several advantages of enterprise resource planning software. 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; ERP has its disadvantages, too.

Get our in-depth ERP Software Matrix Report.

But before we share the key advantages and disadvantages of using an ERP system, we’d like to dispel some myths around ERP. As we’ve found in our discussions with technology buyers, selecting and implementing a new ERP solution can confound even the most experienced IT professional. It’s this confusion that leads to many of the myths and fallacies surrounding ERP software selection. Here’s a quick reality check as you embark on your ERP selection project:

1. ERP Cost is the Biggest Factor

If you’re purchasing an ERP system, it’s to improve your business operations for years to come. It might be more cost effective to buy a comprehensive system with a bigger price tag than to “save” money on less-expensive software that doesn’t fit your company’s needs. Weigh what each ERP solution can offer against the goals you have set for your company. Your return on investment (ROI) will depend on the overall value derived from your ERP over time. The best ERP system is one that meets your anticipated requirements now and in the future—and it may not be the cheapest.

2. ERP is an IT Solution

Your IT team will most likely spend the most time conducting the ERP research and performing the implementation, but your entire company will reap the benefits. It’s imperative that your ERP selection team includes stakeholders from your key business operations as well as your IT department. Those in charge of your company’s most important functions need to play a big role in the selection process. Selecting an ERP solution may not seem like it needs much involvement from your executive team, but since they have the most insight into individual operations, it’s crucial that they be part of the decision.

3. The More ERP Functionality, the Better

To understand why going for most ERP features might not be your best selection strategy, you want consider two important factors: what makes an ERP software company successful, and what drives success for your company. A software company can thrive by making software that meets the needs of their target market without overwhelming them with unneeded functionality. Likewise, many organization can become more successful by simply streamlining operations. The takeaway is not to be dazzled by software that has many capabilities. Instead, focus on the solution that addresses each of your business’ actual needs. Choosing a software that can do a lot of what you don’t need is never the right solution.

4. Have External ERP Experts Choose Your System

Using an external consultant can be a great idea to help with selecting and implementing the right software. Your internal IT team is probably taxed to the limit managing day to day operations. However, your IT department needs to play a leading role in the process–because their experience and insight on your operations can have a major impact on the success of the ERP implementation. A consultant might have a better understanding of the software and even your industry–but your own IT team plays a critical role by applying their knowledge of your company to ensure a successful ERP selection project.

Read more on choosing the right system: Technology Selection Boggles the Minds of CIOs — and Everyone Else

5. Pick the Solution That Checks all the Boxes

Your ERP software choice may seem like the perfect fit on paper—but will it meet your needs in the real world of your business environment. 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.

The cost to your business in wasted resources and lost opportunity can be devastating. Ask each ERP vendor on your shortlist to provide a reasonable way for you to experience the software and the type of support, and expertise you can expect. Buying ERP software means having a long term relationship with vendor, including their customer service reps and technicians. It’s a good idea to give yourself time to observe and assess the relationships that come with your new software.

ERP Advantages and Disadvantages

Enterprise resource planning systems are an asset for almost any organization. They make your business run smoother by unifying and protecting your information; automating processes and reports; managing important information through total systems integration; and providing easy views into trends. With these and many more capabilities, a company-wide ERP makes your day-to-day operations and long-term planning easier and faster. To better understand how these systems work, below is a list of major advantages, as well as some possible disadvantages, to implementing an ERP system within your company.

ERP Advantages

First up, let’s look at the main reasons why businesses choose to use ERP. There are several more advantages to using ERP than disadvantages (if there weren’t, who would use it?). Below are several of the biggest advantages of using ERP software for your business needs:

Lower IT Costs

One simple reason to do an ERP implementation is to lower IT costs and improve efficiency. Having a unified ERP system can greatly lower IT-related expenses, including management/administration staff, support, infrastructure needs, and application licensing. 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.

Contrary to conventional thinking, modern ERPs are not a single overwhelming application. While an ERP can include numerous functional areas such as Customer Resource Management (CRM), Financial Accounting, Human Resources Management, Supply Chain Management, and Purchasing/e-Commerce, the design of the system is to be modular. This lets you use only the pieces which align to your needs. At the core, an ERP is the glue that binds other systems together. Indeed, some ERPs let you integrate numerous third-party disparate systems into a unified whole.

Total Visibility

ERP 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 that’s currently in transit. By knowing precisely where you stand regarding inventory levels, you can control your working capital on a more precise level and more easily adhere to the strategy that you’ve developed for the long-term success of your business.

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.

Improved Reporting and Planning

Implementing an ERP suite across departments means your organization has a single, unified reporting system for every process. By having a single source of information, 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 involve finances (go figure). Standard financial reports such as income and cash flow statements generally are built-in, and custom reports can be quickly generated by users without IT intervention.

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 end-to-end trends and metrics.

Complete Customization

One of the biggest advantages of ERP software is its modular makeup. Most ERP vendors offer multiple platforms, and each one contains several applications that can be implemented according to business needs. Each application is designed to be able to stand alone or integrate with the suite, so your company can pick and choose which components work best. This means that businesses are able to craft an interface tailored to their company’s needs. Most ERP implementations are designed with the ability to seamlessly integrate into the full suite or to be used as a standalone module.

Another aspect of customization involves how the software is implemented. The two major platforms 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 like NetSuite, the entire software bundle is handled completely off-site by an ERP provider.

Improved Efficiency

Along with reduced IT & training costs, an ERP can reduce the time and effort required by your workforce to carry out their daily activities. Properly implemented, an ERP 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, lending familiarity to all actions across the enterprise.

Customer Service

Your company’s clients also receive benefits from the utilization of an ERP system, 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, both domestically and globally. 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, you can provide better customer interaction from targeted marketing 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.

Data Security

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 wide-spread data access is controlling who can see and edit the information. ERP solutions have intrinsic controls to ensure the security of your data. What helps ERPs maintain a high level of data security is that it provides 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 that the ERP runs off of also enables centralized backup of your critical and sensitive data. Cloud-based ERP systems, despite what many people think, offer an extra layer of security. Since all of your company’s data is managed through the cloud, they employ round-the-clock security experts to ensure their servers are protected.

Improved Collaboration and Workflows

A lot of progress can be made through collaboration. However, people aren’t going to go out of their way to collaborate. An ERP platform simplifies 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 simple interdepartmental collaboration, 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.

Deep Integration

Most ERP vendors offer additional services for further integration of your business. A few examples include:

  • E-commerce integration packages for web-based ordering
  • Application Programming Interface systems that allow peripheral systems, like barcode readers, to be integrated into your existing system
  • Business Intelligence functions that identify potential problem areas throughout the business
Improved Data Quality

When compared to manual data processes and other approaches, ERP systems’ data quality represents a drastic improvement. This is mostly because the underlying processes used to develop the data are drastically improved, so there are fewer errors and omissions. Indeed, ERP tools largely eliminate human input, which is where most errors occur. As a result, you can be confident in the integrity and reliability of the data you’re using, which makes it easier to make crucial business decisions. This allows you to more readily take advantage of new opportunities that may slip through the cracks without prompt action.

Improved Data Accessibility

You can’t hope to operate an efficient and successful business without impeccable data control. It’s crucial for the right people to be able to access the right data at the right time, and it’s equally important to prevent certain users from accessing certain types of information. ERP systems include advance access control and user management features that allow you to manage everything down to the finest detail. At the same time, they provide for easier access when it’s needed through support for mobile devices and the cloud.

Standardized Business Processes

Most ERP systems are developed according to industry best practices and proven business processes. 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. Because these processes are generally automated, transparency is greatly improved while errors are greatly reduced. As a result, there’s also improved synergy among processes and between departments.

Facilitated Regulatory Compliance

One of the most difficult things for businesses to do is consistently assure they’re meeting compliance requirements. ERPs aid in regulatory compliance by virtue of secure and validated data, combined with built-in reports. Just as important is that this reduces the amount of effort it takes to meet compliance requirements. Additionally, producing information for regulations such as the Sarbanes–Oxley Act (SOX) and Federal Information Security Management Act (FISMA) is much easier.

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, improved 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 the like. 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 that it needs to stay ahead.

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

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.

ERP Disadvantages

Direct Cost

This is by far the biggest disadvantage to ERP software. The up-front cost of the entire implementation process can be prohibitively high, especially for small-to-medium-sized businesses. This includes the full process of planning, testing, configuring and customizing the software as well as the cost of actual implementation.

Indirect Cost

Financial cost is not the only associated expense with ERP implementation. Businesses must also take into account the opportunity cost of manpower and time necessary for a successful deployment. Planning out a realistic timetable will give you a better idea of whether or not the cost is worth it for your company.

Customization

While this is a potential advantage, it can just as easily become a disadvantage if handled incorrectly. This blog post by expert ERP consultant Eric Kimberling outlines potential problems as well as tips for avoiding the pitfalls of both over-customization and under-customization.

In summary, when making a decision about which platform is right for your business, it’s important to consider potential disadvantages as well as advantages. Experts like Mr. Kimberling recommend making an honest assessment of your organization’s needs and problem areas and then seeking out an ERP system that will give your business the most potential to improve.

Further Considerations: Cloud ERP Benefits

From retail to manufacturing and beyond, cloud ERP offers distinct advantages to the majority of organizations. While ERP in any form is a valuable data-management tool, many businesses find that cloud ERP solutions meet their needs especially well.

Like standard ERP systems, cloud-based ERP offers data management for all stages of your organization. You can use cloud ERP for huge number of business-related tasks, from budgeting and payroll to customer care management, inventory tracking, sales analysis and complex manufacturing processes.

The flexibility, accessibility and mobility of cloud ERP sets it apart from other systems. Because it’s administered off site and delivered and accessed via the cloud, cloud ERP systems are typically easier to use and much faster to deploy than traditional options. When considering cloud ERP software, take into consideration the presence – or absence – of the following ERP software features.

1. Accounting and Financials

Cloud ERP helps you manage all of your business’s accounting and financial challenges. From payroll, purchasing, acquisitions, sales data and all phases of financial reconciliation, ERP provides a reliable, solid and intuitive framework through which employees can perform duties easily and thoroughly.

2. Human Capital Management

With ERP, you can optimize staffing levels, administer employee benefits, analyze individual performance and much more. This provides valuable information you can use to attract, build and maintain a strong team.

3. Sales and Inventory Management

Inventory management and sales analysis is among cloud-based ERP’s greatest advantages. ERP’s functionalities allow you to reduce expenses, maximize use of staff time, automate the majority of data-driven tracking processes, determine and maintain optimum inventory levels and more – all while ensuring flawless accuracy and thorough tracking of stock, as well as expense and profit management.

4. Supply Chain Management

ERP’s benefits also carry over to the supply chain. ERP allows you to easily order stock, schedule deliveries, track time spent from order to fulfillment and manage and minimize costs associated with the supply chain.

5. Customer Service Management

Many organizations take advantage of cloud ERP’s remarkably strong customer service tools. With ERP, you can set up and manage off-site call centers, create and deploy customer satisfaction metrics, devise customer-centric policies and measure customer satisfaction. These capabilities ensure your team meets the needs and exceeds the expectations of customers.

6. Integration Capabilities

Cloud ERP provides powerful integration capabilities. While all ERP systems integrate into your existing structure in order to properly collect, analyze and administer data solutions, cloud-based systems are particularly valuable. They provide faster, more seamless integration, which ultimately leads to a more intuitive system, better workflow and improved collaboration processes.

7. Support

Another major advantage of cloud ERP solutions is the comprehensive tech support. With software in the cloud, business owners don’t have to worry about updates, patches, improvements or troubleshooting. The ERP provider includes system maintenance in your product. By eliminating these concerns, cloud ERP provides a significantly more reliable work platform.

8. Materials Management

Materials management is a vital component of the manufacturing process. With ERP, you can easily determine supply and demand needs, which gives you the information you need to find and maintain proper materials balance and ensure your processes are smooth, efficient and cost-effective.

9. Manufacturing and Distribution

ERP’s modules easily manage all facets of manufacturing and distribution. The system simplifies order management, invoicing, purchasing, product and inventory tracking and inventory control. It also allows you to schedule and manage manufacturing processes. This saves time, eliminates unnecessary staff hours and ultimately ensures a more productive environment.

With cloud ERP, you can streamline production, manage data and optimize all levels of your organization’s performance. The system ensures efficiency, targets and strengthens weak areas and ultimately gives you the information and tools you need to build a stronger business.

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

Get our in-depth ERP Software Matrix Report.

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