ERP Benefits: Advantages and Disadvantages

By Lexi Wood • Updated on July 7th, 2020
LinkedIn

Enterprise resource planning (ERP) software offers many benefits to businesses. As a software suite, ERP includes many popular features for customizing your company operations across multiple departments. However, before implementing a new ERP system you should be aware of some potential drawbacks.

Looking for an ERP system for your organization? Check out our list of the best ERP software. Or get free help from one of our software advisors.

ERP Advantages vs Disadvantages

Get to know all the benefits and drawbacks of ERP systems:

ERP Advantage #1: Streamline Workflows

ERP systems are designed to offer multiple modules to handle many of your business processes in one centralized location. Just a few of the most popular applications are:

  • Accounting: Features modules such as accounts payable, accounts receivable, a general ledger, and payroll
  • Budgeting and forecasting: Features departmentalized budgeting, budget approvals, rolling budgets, predictive budgeting, and workforce planning
  • Customer relationship management (CRM): Features contact management, conversation history, lead tracking, order histories, quote/invoice creation, and call center integration
  • Human resources: Features application processing onboarding, time and attendance tracking, and benefits management.
  • Inventory management: Features inventory costings, location tracking, and various methods of stock count tracking
  • Supply chain management: Features requisition and approvals, purchase orders, vendor/supplier management, demand planning, sales forecasting, and warehouse management

With so many applications, ERP can speed up internal processes across every department. Hr can inform management of new hires while accountants can simultaneously send spending reports. By providing a common software interface, the entire company database is managed in a singular manner, allowing much more efficient processes.

ERP Disadvantage #1: Slow Software Implementation

Adding a brand new ERP system to your company can take time, especially if you’re operating with outdated hardware. It’s not uncommon for some ERP implementations to take 2-3 years, depending on the scope of the software. This means if you want an ERP system you have to start planning years in advance to avoid disruptions to your work. Cloud-based ERP solutions may be faster to install, though they can still take time.

After installation, it’s time for training to start. Every user will need some degree of teaching before they can comfortably utilize the new software package. Some may learn faster than others, but a steep learning curve can slow down your company’s transition. Even experienced tech experts will need to start from scratch with a new ERP system, so make sure your workers are ready for the challenge before implementation.

ERP Advantage #2: Better Financial Planning

As mentioned before, ERP solutions have modules for forecasting and reporting a wide variety of data. Analytical tools go through historical and real-time data to provide the best possible information for informed decision making.

Reporting in particular is one of the key features of ERP solutions. The applications are capable of sorting data by region, location, profit center, employee, and other customizable ways based on what your business needs most. This wide range of data allows for more nuanced and accurate decision making in the short and long-term of the business.

ERP Disadvantage #2: Expensive to Start (and Continue)

Any new software will cost money to implement, especially if you have to upgrade your hardware system as well. And ERP software usually requires some level of training from the vendor before you can get started. While the training is generally included in installation costs, it might be a separate fee if you need a lot of sessions. Any updates to the platform may require additional training as well.

Opting for an ERP software as a service (SaaS) can also increase the price. Plans are usually paid in monthly or annual installments, with the yearly plans offered at a slight discount compared to the monthly ones.

There are some free ERP options available, though additional features to supplement the base software come at a price. Extra modules may be available at a set cost or at different subscription levels. And, once again, training may be required.

ERP Advantage #3: Improved Data Security and Accessibility

Managing security permissions and access across a variety of systems is a daunting challenge. A common control system allows organizations the ability to ensure key company data can be shared without being compromised. With all departments using the same Cloud-based ERP system, everything can be stored in one shared database which can be accessed anywhere.

ERP provides mechanisms to monitor your day-to-day processes for continuous improvement. This also adds a layer of transparency to all your work. ERP allows organizations to consider new ways to optimize workloads to save time and money.

ERP Disadvantage #3: Slow Data Migration

The first time you use a new ERP system, you’ll have to input your existing data into the new format. Depending on your industry, this can take a lot of time to complete manually. The more data you have, the longer this process will take. Even digitized data will take time to fit into a new system. You’ll have to double-check no data is lost or duplicated during the migration process.

Fortunately, many ERP solutions are compatible with existing data storage software systems for easy uploading and organizing. Once the data is added, it’s smooth sailing.

ERP Advantage #4: Improved Communication

How your company communicates matters. Phone and video conferences, emails, and scans of physical documents are all used by modern businesses. An ERP helps manage different forms of communication so employees can stay in touch, whether it’s with their own department, vendors, or customers.

Electronic data interchange (EDI) compatibility is another beneficial module included in many ERP packages. This software application allows the exchange of digitized business documents in a standardized electronic format from one computer to another. This can be used for interdepartmental exchanges, or working with third-party contractors who have their own formatting. Creating a standard eliminates the delays of manual B2B communications while cutting down on errors.

ERP Disadvantage #4: Too Complex

Of course, one of the biggest advantages of ERP software is also a major disadvantage: complexity. Since ERP software is capable of so much, it can be hard for users to focus on singular tasks. Training can reduce the confusion, though for some companies all the applications offered by ERP systems are simply too much.

Is ERP Right for Your Company?

Now that you know the advantages and disadvantages of ERP, find out if it’s right for your organization. The benefits of ERP outweigh the disadvantages, though it’s worth checking over first. Can you afford a complete software overhaul? Are your employees receptive to training? How long will it take before the long-term benefits outweigh the initial drawbacks? It all depends on which ERP software you select. Consider starting by exploring the top ERP software vendors of the year.

Explore some of the most popular ERP systems now:

Best
Overall
Dynamics GP Screenshot
Dynamics GP
Over 26 years of use
Extensive network of Microsoft-certified VARs
Flexible deployment and pricing options
Best for
Small Business
Dynamics 365 Screenshot
Dynamics 365
Combine ERP and CRM
Heavily customizable
Similar interface to MS Word and Outlook
Best
Open Source
Odoo Screenshot
Odoo
Free community version
Large support userbase
Heavy customization options
Best
Cloud ERP
NetSuite ERP Screenshot
NetSuite ERP
Modern user interface
Large selection of features
Best for
Manufacturing
Epicor ERP Screenshot
Epicor ERP
Developed exclusively for manufacturers
Built-in artificial intelligence support
Collects real-time shop floor data

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