The Advantages and Disadvantages of ERP
There are a number of powerful advantages to Enterprise Resource Planning. It has been used to solve a number of problems that have plagued large organizations in the past. At the same time, it is not without a number of disadvantages. Being able to weigh the two will allow a company to decide if this solution will properly meet their needs.
A D V E R T I S E M E N T
Advantages of ERP:
In the absence of an ERP system, a large manufacturer may find itself with many software applications that do not talk to each other and do not effectively interface. Tasks that need to interface with one another may involve:
- design engineering (how to best make the product)
- order tracking from acceptance through fulfillment
- the revenue cycle from invoice through cash receipt
- managing interdependencies of complex Bill of Materials
- tracking the 3-way match between Purchase orders (what was ordered), Inventory receipts (what arrived), and costing(what the vendor invoiced)
- the Accounting for all of these tasks, tracking the Revenue, Cost and Profit on a granular level.
Change how a product is made, in the engineering details, and that is how it will now be made. Effective dates can be used to control when the switch over will occur from an old version to the next one, both the date that some ingredients go into effect, and date that some are discontinued. Part of the change can include labeling to identify version numbers.
Computer security is included within an ERP to protect against both outsider crime, such as industrial espionage, and insider crime, such as embezzlement. A data tampering scenario might involve a terrorist altering a Bill of Materials so as to put poison in food products, or other sabotage. ERP security helps to prevent abuse as well.
Disadvantages of ERP:
Many problems organizations have with ERP systems are due to inadequate investment in ongoing training for involved personnel, including those implementing and testing changes, as well as a lack of corporate policy protecting the integrity of the data in the ERP systems and how it is used.
Limitations of ERP include:
- Personnel turnover; companies can employ new managers lacking education in the company's ERP system, proposing changes in business practices that are out of synchronization with the best utilization of the company's selected ERP.
- Customization of the ERP software is limited. Some customization may involve changing of the ERP software structure which is usually not allowed.
- Re-engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage.
- ERP systems can be very expensive to install often ranging from 30,000 to 500,000,000 for multinational companies.
- ERP vendors can charge sums of money for annual license renewal that is unrelated to the size of the company using the ERP or its profitability.
- Technical support personnel often give replies to callers that are inappropriate for the caller's corporate structure. Computer security concerns arise, for example when telling a non-programmer how to change a database on the fly, at a company that requires an audit trail of changes so as to meet some regulatory standards.
- ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business process of some companies—this is cited as one of the main causes of their failure.
- Systems can be difficult to use.
- Systems are too restrictive and do not allow much flexibility in implementation and usage.
- The system can suffer from the "weakest link" problem—an inefficiency in one department or at one of the partners may affect other participants.
- Many of the integrated links need high accuracy in other applications to work effectively. A company can achieve minimum standards, then over time "dirty data" will reduce the reliability of some applications.
- Once a system is established, switching costs are very high for any one of the partners (reducing flexibility and strategic control at the corporate level).
- The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale.
- Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software.
- There are frequent compatibility problems with the various legacy systems of the partners.
- The system may be over-engineered relative to the actual needs of the customer.
The success of the system is fully dependent on how the workers utilize it. This means they must be properly trained, and a number of companies have attempted to save money by reducing the cost of training. Even if a company has enough money to implement ERP, they may not be able to successfully use it if they do not have enough money to train their workers on the process of using it. One of the biggest problems with ERP is that it is hard to customize. Very few companies can effectively use ERP right out of the box. It must be modified to suit their needs, and this process can be both expensive and tedious. Even when a company does begin changing the system, they are limited in what they can do.