Enterprise Resource Planning (ERP) system is a software solution to support and integrate the functional area of business processes that includes production planning, manufacturing, logistics and warehousing, procurement of goods and services, management, finance, accounting as well as human resource. In this blog, we are discuss the advantages and disadvantages of ERP systems.
ERP is built to cater for each organization based on their size and strength regardless of the type of industries. ERP system focuses on business process integration that allows:
- Integration of system and service
- Automation of business process
- Secure sharing of data among department
However, after years of practices, we have encountered many advantages and disadvantages of an ERP system. Here, in this blog, we will discuss some of them.
What is ERP System?
ERP system is a type of business management software that helps businesses manage and automate their core business processes. ERP systems are typically used to track and manage data related to financials, inventory, manufacturing, human resources, and supply chain management.
An ERP system can be a valuable asset for any business, but it’s important to choose the right system for your specific needs. Not all ERP systems are created equal, and some may be better suited for certain businesses than others. When considering an ERP system, it’s important to keep in mind your specific business goals and objectives. You should also consider the size of your business and your budget. Once you have a good understanding of your needs, you can begin evaluating different ERP systems to find the best fit for your business.
Main Advantages and Disadvantages of ERP systems
Following are advantages and disadvantages of ERP systems below as –
Advantages of ERP System
There are many benefits of ERP (enterprise resource planning) System –
1. Integrated Information Among All Department
In old ways, the company used to store information in each department database. Thus, the information would only be shared within the particular department. If the other department wish to get the data/ information, they have to inquire with the respective department manager in order to access the information.
By using the ERP system, the system can store all the information across all the departments in a single database which means all the employee from the different department can use the information from the database without other department approval.
2. More Efficient for the Business Process
Before the implementation of the ERP system, all the information is stored in a different database. This information may be duplicated and there is a high risk that the information may not be the latest version. Hence, decision made based on this information may not be accurate.
After the implementation of the ERP system, all the information stored in a single database which means everyone can access and update the information from various department to reflect the latest information in the system. This reduces the risk of a duplicate file because all the information will be updated in a single database. Thus, the decision made would be more accurate and reliable.
3. Total Visibility
Another benefits of ERP, It allows total access to every important or major process in the business by allowing data accessible from every department to the management. Through this, management is able to control inventory level on a daily, weekly or monthly basis including future consignments which are yet to be received.
By knowing precisely where the company stand regarding inventory level, it helps management to control working capital in a more précised way.
Moreover, the availability of all company’s information in a centralized location allows for increased collaboration and more streamlined completion of complex tasks. This complete visibility provides better workflows and allows inter-departmental processes to be easily tracked with maximum efficiency.
4. Improved Reporting & Planning
Implementing an ERP software across all department, it means that the organization has a single unified reporting system for every process. By having a single source of truth, an ERP system are able to readily generate useful analytics and reports at any time.
ERP system provides management to have ability to compare and analyze functions across departments and divisions without the bias of multiple emails and spreadsheets.
One of the most popular and important reports involves finance. Standard financial reports such as cash flow and income statements generally are in-built. ERP system allows management to produce their own custom reports and they can be quickly generated without relying on the help of IT.
Disadvantages of an ERP system
There are many drawbacks of enterprise resource planning System –
1. Cost of ERP Software
The upfront cost of the software alone can be very high, especially for small and medium companies. Even though this cost can be avoided using a cloud solution with a monthly basis payment but that too has its own disadvantages, users can only continue to access the data if they continue paying. This would make the cloud-based system slightly more expensive over a product’s lifetime.
2. Customization Process
Another disadvantage of an ERP, This process takes a lot of time, effort, money and expertise. Businesses often completely underestimate how many resources are needed and either don’t finish their customization or end up going way over the budget.
Many companies may also lean on customization when their chosen system does not really fulfil their business needs. This could lead to diminishing the best practices built into the system and make it more difficult to upgrade in the future.
3. Users Participation Is Must
For a successful implementation of an ERP system, there is a must that every employee in the organization should participate in using the system. To use the system efficiently it requires training and learning sessions for the employees in order to understand the system and work. However, it may be hard for a certain group especially the older generation to learn the whole process in the ERP system.
Lack of participation from the employees in handling the system can lead to failure of implementation and operation.
4. Decrease In Effectiveness While Completing Task
Last one disadvantage of ERP, A company should understand that implementing the system requires a long time. This is because it takes time to do a migration of data, organize the training courses for employees and other tasks. This can bring a huge amount of loss to the company in terms of time and cost. The process of implementation can take up from a month to years. If the company did not handle properly on the possible risks, they likely cannot recover from the loss.
Pros and Cons ERP System
The above points will be able to give you an idea about the advantage and disadvantage of of an ERP system. However, if you take my recommendation, I would say one should always keep the possibilities under consideration but success come with self-belief and team work. ERP is a powerful tool and can help your business to grow drastically upon using it effectively.