The advantages and disadvantages of ERP systems
Enterprise resource planning (ERP) solutions offer organizations a one-stop-shop for managing daily operations. The business management software has gained popularity in the business world as organizations try to keep up with the changing landscape. As with most business solutions, there are advantages and disadvantages of ERP systems to consider.
It’s important to understand how enterprise resource planning can work for an organization and its capabilities at a granular level. Here are some key benefits an enterprise resource planning system can bring when managing all aspects of the business.
Advantages of ERP
Improve customer service
The business world is hyper-competitive and that’s no different when it comes to attracting and retaining customers. The customer service experience is a vital part to an organization and an ERP solution can help advance customer relationship management. Since a new system like ERP software puts all customer information into one place, it can facilitate quicker customer service and a more personalized approach.
ERP stores contact information, order history, past support cases and more in one simplified system. Separately, since ERP will track past orders and real-time inventory the customer is much more likely to receive the correct items on time. If those factors are in place, it’s much more likely a customer leaves happy and will return for more down the road.
Customize reporting
Real-time data reporting is one of the highlights of an ERP solution and why it’s a serious advantage over other business management systems. With ERP reporting tools, organizations can customize reporting across many different functions, such as finance, inventory, procurement and human resources and be able to calculate it depending on what matters most to the organization. This tailor-made approach lets the business measure whichever KPIs they find most important and track performance of different business components.
The other advantage is ERP offers the latest data in real-time. This means if an employee is trying to assess an issue, they don’t have outdated data to analyze and instead have the most accurate and up to date numbers to refer to. The customized reporting can help an organization make informed decisions, which is critical when the business environment is ever-changing.
Expand collaborations
The way that ERP solutions are built make for excellent collaboration across different departments. With integrated applications and data storage all under one solution, teams get a clear picture into how each is functioning and contributing to the business.
With the enterprise resource planning system in place, teams across the organization can communicate freely as they aren’t functioning on separate platforms. The integration on the back-end is extremely important and helps employees integrate and work as one. With access to all data, one employee on a completely irrelevant team might be able to point out a malfunction or something that cuts down on duplicate work. This expanded collaboration can increase decision-making, while being a single source of truth for all data entry.
Greater sustainability
The fast-paced ever changing business world has seen a big emphasis on sustainability. C-suites are facing pressure from boards, investors, customers and others to regulate the negative impact of their carbon emissions.
To find out how organizations use ERP implementation to attain sustainability goals, the IBM Institute for Business Value (IBV) and SAP, in collaboration with Oxford Economics, surveyed more than 2,125 senior executives involved in their organizations’ environmental sustainability strategies—around the world and across industries. The surprising result: those who outperform their competition in both environmental and financial outcomes also boast the most deeply engaged ERP implementation.
Improve transparency and insights
One of the benefits of ERP is that it offers full access to every business function and process in an organization all in one place. With the implementation of ERP, data from every department can be accessed by executive-level employees. The ERP solution monitors data daily and can provide day-to-day information, helping an organization be as precise as possible when it comes to factors such as inventory levels and business operations.
The complete visibility ERP provides gives organization leaders better functional business insights and more accurate business forecasting. As a result, this can streamline tasks and make clearer, more concise workflows. In addition, having accurate forecasting models is a competitive advantage, as they allow for improved data-driven strategy and decision-making. As ERP can monitor each department and keep all data in one place, there’s an opportunity for more efficient processes and improved cross-collaboration. In addition, ERP can improve business data security across the whole organization for both on-premises and cloud-based ERP systems.
An example of the success of an ERP implementation is Neste, a market leader in renewable diesel, sustainable aviation fuel, and renewable polymers and chemicals based in Espoo, Finland. The company took a joint-team approach when it came to implementing its new ERP system. Neste worked with IBM Consulting™ for SAP to roll out the SAP S/4HANA solution on the Microsoft Azure cloud across most of its operations, including its renewables supply chains. Neste’s new ERP platform is enabling supply chain process efficiency improvements and making its data more transparent. “Among the most far-reaching benefits,” notes Neste Head of Integrated ERP, Marko Mäki-Ullakko, “is the ability to spot and resolve process inefficiencies.”
“We’ve been able to use SAP’s process discovery capabilities to spot supply chain and production bottlenecks,” he explained. “In that way, integrated SAP has been and will be a critical tool for our process optimization efforts.”
Increase flexibility and scalability
One of the unique features of ERP software is the inclusion of applications or modules across many different business needs. ERP applications, such as procurement, supply chain management, inventory and project management, are all separate applications offered under ERP.
ERP applications can stand on their own but can also be integrated in the entirety of the ERP system, making for easier scalability and configuration in an organization. By being able to add or take away applications, ERP can help scale a business as it evolves over time.
Scalability will look different depending on which ERP solution your organization chooses to use. If a business plans to grow rapidly over time the cloud-based ERP system is the best choice since cloud ERP systems are run on remote servers.
Increase productivity
By automating different tasks, ERP software frees up employees to work on more pertinent tasks and increased efficiency. The ERP system boosts productivity in a range of different ways that all stem from the automation of basic tasks and making processes more straightforward. With the streamlined approach from an ERP system, there is less time dedicated to digging up information and allows for employees to perform other tasks faster. Manual data entry is not necessary, making tasks such as inventory management much easier and making metrics tracking much simpler.
With a lens into the entire organization, employees are no longer tasked with tracking down the right data set or the employee who knows how a certain process works and can instead focus on more important tasks and projects. ERP solutions offer these features using technology, such as artificial intelligence (AI), machine learning, robotic process automation and more. These technologies support the automation and intelligent suggestion features in ERP software applications.
Reduce ongoing costs
The way an ERP solution is structured makes it so data input only occurs one time but can serve multiple purposes across the organization. This can result in saving the business time and money as it streamlines redundant tasks. The upfront costs and cost savings will also depend on which type of ERP solution you choose.
Without a centralized ERP software solution, organizations rely on numerous systems to run the business. The more systems, the higher the potential IT costs. An ERP system could potentially reduce those costs. Separately, it could also reduce training requirements for the end-user since they would only need to learn on one system. This could result in more profitability and less disruptions.
Standardize business processes
The purpose of implementing an ERP solution is to highlight and build from an organization’s best practices and consistencies. This allows you to streamline operations and standardize workflows, ultimately to reduce manual labor and human error across your business. Platforms such as customer relationship management (CRM) can simply be integrated into the ERP system.
ERP software offers many advantages, but standardization is one of the most important. By relying on standardization and configuration, organizations could also see reduced project costs and better cross-team collaboration with less friction.
Disadvantages of ERP
Increase complexity
ERP is an all-encompassing business management tool, and it can be quite complex. The software can be exciting. Organizations can get caught up in that excitement and risk failing to make a well-thought-out plan for ERP implementation.
The processes of some organizations may find the ERP solution to be too large and not well-suited for its needs. This can result in a poor ROI and should be avoided if possible. The best way to avoid these pitfalls is to build role-based user training and simplify your ERP software to fit your organization’s needs.
Add short-term costs
There are multiple factors to consider when thinking about switching to an ERP software. One of them is cost; not only the cost of the software, but the cost of time and resources needed to implement the system and train employees across all departments.
Another aspect of cost is the ongoing operational costs required of an ERP solution, specifically an on-premises ERP solution. The best way to avoid this ongoing cost is to utilize a cloud-based ERP system, which is a Software-as-a-Service (SaaS) solution that can be run from any location.
One other factor to consider is the change management that is required when implementing an ERP system. ERP implementation requires changes to business processes and workflows. These changes are major investments in time and resources. When selecting ERP software, consider these factors and select the system type that best fits your organization’s needs.
More time-consuming
Since ERP is customizable, and not a one-size-fits-all software, it can become very time-consuming. Customization is a huge advantage to the ERP solution, but can be a challenge as it needs to be built from the ground up.
An implementation process takes time; organizations must prepare for a lengthy process. The time it takes to transfer to the ERP system depends on which legacy system is being used. The best way to avoid this issue is, again, to have an ERP implementation plan in place that is clear, concise and includes an assigned implementation team.
IBM and ERP
The migration from a legacy system to ERP software can be a huge undertaking no matter the size of the organization. When considering an ERP solution, it’s important to bring in experts to help run a smooth and transparent implementation plan.
IBM Consulting® experts can help your organization successfully migrate legacy ERP applications to the cloud, redesign processes to leverage data, AI and automation, and transform finance into a competitive advantage within your business.
SAP managed services for applications and ERP can help manage an organization’s workloads, giving you more time to focus on innovation and new opportunities. Managed services for SAP applications enable agility and resource optimization by supporting and optimizing underlying operational functions. Areas like security and compliance reporting, application management, and service delivery to lines-of-business become more predictable from a pricing, resource and workload perspective.
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