Is ERP software worth the investment? To find out, you need to weigh the benefits of ERP, specifically how ERP system advantages and disadvantages stack up when compared against each other.

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Whether your business is large or small, there are several ERP benefits your company could gain. Enterprise resource planning (ERP) is a customizable application suite that allows businesses to integrate and manage their most important processes. Although there are plenty of advantages, it’s not all smooth sailing; ERP has its disadvantages, too.

Table of Contents

• Introduction
  • Overview
  • Software Selection Myths
• Primary Benefits
  • Reduces Costs
  • Total Visibility/Data Reliability
  • Improves Reporting and Planning
  • More Flexible Modularity/Scalability
  • Boosts Efficiency
  • Strengthens Customer Service
  • Utilizes Data Security and Quality
  • Expands Collaboration and Workflows
  • Standardizes Business Processes
  • Facilitates Regulatory Compliance
  • Modifies Supply Chain Management
  • Garners a Competitive Advantage
• Disadvantages
  • The Cost
  • The Customization Process
  • The Complexity/Needs Training
  • Slow Implementation
  • No Immediate Results
• Next Steps

Introduction

Before we share some ERP advantages and disadvantages, we’d like to provide introductory information and dispel some myths around this program.

Overview

So, how do ERP systems work?

In the most basic sense, ERP software is a tool that centralizes a company’s database of information, automates routine tasks and simplifies business processes. The end goal in using this tool is to optimize operations and free up employee time to work on more instinctual tasks. These objectives can lead to an increase in revenue margins and efficiencies while improving communication across the company.

ERP software is unique because it touches many or all of the different aspects of a business. It’s an end-to-end solution with features that serve the following departments:

• Accounting
• Customer Relationship Management (CRM)
• Manufacturing
• Inventory Management
• Human Resources
• Analytics / Reporting

Next, we will go over some common myths surrounding ERP software selection.

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Software Selection Myths

Here’s a quick reality check as you embark on your ERP selection project:

Cost Should Be the Biggest Factor

The best ERP system is one that meets your anticipated requirements now and in the future — and it may not be the cheapest option. Your return on investment (ROI) will depend on the system’s overall value over time, which can be one of the greatest advantages of ERP.

Selection Should Be Entirely Managed by the IT Department

Your ERP selection team must include stakeholders from your critical business operations in addition to your IT department. In addition, make sure to speak to the person who will use the software daily. Their needs and wants should be a top concern, as their ability to use the system will ultimately decide if it’s a success or a failure. ERP benefits more than just your IT department.

Selection Should be Entirely Managed by Consultants

Consultants aren’t a replacement for your internal teams who regularly work with your existing systems. A consultant will likely better understand the software and even your industry. Still, your employees play a critical role by applying their knowledge of your company to ensure a successful ERP selection project.

The More Functionality, the Better

Many organizations can become more successful by simply streamlining operations. The takeaway is not to be dazzled by software that has countless capabilities. Instead, focus on the solution that addresses each of your business’s actual needs.

The Research Phase Ends When You Contact a Vendor

Your ERP software choice may seem like the perfect fit on paper, but will it meet your needs in the real world? 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’s remorse are far too standard.

Primary Benefits

Now that we’ve covered the basics and debunked some myths, it’s time to move on to why companies worldwide implement ERP software, and the benefits of ERP system utilization.

ERP systems are an asset for many organizations. A few ERP advantages include, running smoother business processes by unifying and protecting your information, automating processes and producing easy-to-understand reports. With these and many more capabilities, the benefits of ERP systems in an organization make your day-to-day operations and long-term planning more efficient.

Below are several of the most significant benefits of ERP system usage:

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1. Reduces Costs

Depending on the solution, an ERP can cost anywhere from a few hundred bucks to $100,000. However, if you play your cards right, it’s a worthy investment and saves you money in the long run.

Instead of manually inputting data, this program permits you to input it once and carry it over to other departments in real time. You can also streamline redundant tasks like report drafting, invoice allocation, employee payroll, etc., saving you time for other high-priority responsibilities.

Additionally, if you spend more on disparate systems than you would on a centralized ERP, you might even save on IT costs overall. 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.

Centralization and automation are some vital advantages of ERP.

2. Provides Total Visibility/Data Reliability

Transparent and reliable information are key benefits of ERP system utilization. These perks are also significant selling points. ERP software allows total access to every vital process in your business by making data from every department easily accessible for you and your senior management.

For example, you can monitor inventory levels daily, including future consignments that are yet to be received and inventory currently in transit. By knowing precisely where you stand regarding inventory levels, you can control your working capital on a more precise level.

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 grants inter-departmental processes to track with maximum efficiency.

This visibility, and other ERP advantages, makes it possible to make quick decisions in confidence, as you can have no doubts that you’re seeing the entire, complete picture at any given moment.

3. Improves Reporting and Planning

Along with improved visibility, better insight is one of the significant advantages of ERP system management.

Implementing an ERP suite across departments means your organization has a single, unified reporting system for every process. By having a single source of truth, an ERP system can readily generate valuable reports and analytics at any time. This software allows you to analyze and compare functions across departments without the hassle of multiple spreadsheets and emails.

One of the most popular reports involves finances (go figure). Standard financial reports such as income and cash flow statements generally are built-in and generate custom reports without IT intervention.

Many ERP vendors also offer business intelligence services with their software. The BI functionality allows businesses to gain a deeper analytical insight into their operations. These insights aid corporate planning by identifying operational strengths and problem areas that need improvement.

Providing this detailed view into a company’s data permits users to make better-informed choices based on trends and metrics, making reporting and planning vital ERP system benefits.

4. Offers Flexible Modularity/Scalability

One of the most significant, modern ERP advantages is its modular makeup. Most ERP vendors offer several applications that can work together according to business needs. Each application stands alone or integrates with the more extensive suite. This way, your company can pick and choose which components work best and leave out what you don’t need.

Another aspect involves software installation. The two main deployments 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. This system is handled completely off-site by an ERP provider.

One of many ERP trends, cloud software has been rising in recent years and can become even more popular. Allied Market Research predicts the global ERP market will reach $117.09 billion by 2030.

To ensure the ongoing success of your business, you have to keep an eye on the future. Companies often fail to plan appropriately and experience growing pains that pose severe 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 with the right software vendor, making modularity vital in ERP system benefits.

Just make sure that when you’re speaking to vendors, they understand your intentions for growth in the future.

5. Boosts Efficiency

There are numerous ERP advantages and disadvantages across the market. Thankfully, reducing time and effort in daily activities is one of several ERP advantages. Properly implemented, an ERP solution can significantly reduce or eliminate repetitive manual processes, thus freeing up team members to focus on revenue-affecting tasks.

Likewise, the system can aid in the adoption and enforcement of industry best-practice processes, aligning all actions across the enterprise.

Cutting-edge technologies such as artificial intelligence (AI), machine learning, robotic process automation (RPA) and others support the automation and intelligent suggestion capabilities you see in many ERP software applications. The advanced functionality can manage business activities such as demand forecasting, purchase order creation and product tracking from manufacturing to delivery.

6. Strengthens Customer Service

Your company’s clients also receive ERP system benefits, even if they don’t know it. Because client information is centralized and streamlined, your sales team will build and maintain customer relationships instead of keeping spreadsheets. 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 system, you can provide better customer interaction from marketing automation (MA) through late-phase customer service.

Most up-to-date ERP suites also support e-commerce platform integration. This merge means your business will be better able to handle web-based order processing and client interactions.

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7. Utilizes Data Security and Quality

One of the most significant advantages of ERP system leveraging 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 widespread data access is controlling who can see and edit the information. ERP solutions have intrinsic controls to ensure the security of your data.

Both on-premise and cloud-based ERP systems offer your organization a higher degree of security. The ERP system’s database enables centralized backups of your critical and sensitive data. Despite what many people think, cloud-based ERP systems offer an extra layer of security.

Many vendors employ round-the-clock security experts to ensure their servers are protected when managing your data through the cloud. This reliability makes it far more difficult for hackers to test attacks like they would on a private server, making data security and quality vital ERP advantages.

8. Expands Collaboration and Workflows

Collaboration is an essential part of a thriving business. But more often than not, companies find their teams working in silos simply because collaboration in the workplace requires more time and effort.

Collaboration, one of many vital advantages of ERP, is a piece of cake for this solution. An ERP platform streamlines collaborating with others by providing employees with access to the data they need when they need it. They offer an interdepartmental database, where information funnels through departments into one centralized location.

This allocation allows for real-time project updates and better communication across the 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.

9. Standardizes Business Processes

Most ERP developers create programs according to an industry’s best practices. These tried-and-true processes bring prominent perks to the table for businesses of all sizes. It also allows companies to standardize their processes and systems, enhancing productivity and efficiency.

These processes deliver consistent results that improve how you operate your organization. And because many processes are automated, errors and costs are significantly reduced. As a result, there’s less friction and improved synergy between departments. Of all the ERP advantages and disadvantages, standardization is the best perk.

10. Facilitates Regulatory Compliance

One of the most difficult ongoing tasks for businesses is meeting compliance requirements. Maintaining perfect accuracy within your financial records isn’t easy. ERPs aid in regulatory compliance under secure and validated data, combined with built-in reports, making compliance critical among ERP advantages.

You may automate these reports to reduce the cost of continual audits. Additionally, many ERP vendors take specific regulations into account, such as the Sarbanes–Oxley Act (SOX) and the Federal Information Security Modernization Act (FISMA).

11. Modifies Supply Chain Management

For companies that deal with the moving of physical inventory and production, an ERP system bolsters supply chain management(SCM) in a multiple ways. This improvement results in shorter lead times, more on-time deliveries and many other benefits that enhance your organization’s 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 more. 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 it needs to stay ahead.

Also, an ERP system 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. Monitoring SCM, especially in these times, should be a high priority in the benefits of ERP system rosters.

12. Garners a Competitive Advantage

Owning this program gives you relevancy among your competitors. When you boost productivity, implement automation, obtain real-time data on finances and other KPIs and remove bottlenecks from your workflows, you’ll gain more revenue and recognition among clients, stakeholders, colleagues and partners. Your business will run like a well-oiled machine and help you make more informed business decisions.

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Disadvantages

With so many benefits of ERP systems, you might be ready to start comparing systems. But some people also ask, what is an erp disadvantage? It’s important to understand the drawbacks and risks of this type of software to make sure ERP is the right system for your business, which is why we discuss ERP advantages and disadvantages.

The following are the main ERP disadvantages buyers might experience when implementing a new platform:

1. The Cost

If you choose to invest in a traditional ERP system, for example, SAP Business One, could quickly spend five figures for a single license. Pricing is by far the most significant disadvantage of ERP software.

The upfront cost of the software alone can be prohibitively high, especially for small-to-medium-sized businesses. SMBs can avoid the upfront costs with a cloud solution thanks to monthly subscription fees. If you’re looking for even more cost savings and feel prepared for a project, consider an alternative: open-source ERP software.

2. The Customization Process

Customization is one of the best aspects of ERP software, but it can easily and quickly get out of hand. Customizing your software takes a lot of time, effort, expertise and money. But too often, businesses underestimate how many resources are needed and either don’t finish their customization or go way over budget. Customization can diminish the best practices built into the system and make it more difficult to upgrade in the future.

3. The Complexity/Needs Training

ERP software solutions provide numerous capabilities, which means the software can be complex and challenging to use. It’s not unheard of for companies to get swept up in all the potential of an ERP solution but fail to plan appropriately for its implementation.

Some businesses may find systems too large and complicated for their processes, leading to a poor ROI. This disadvantage is especially true if you can’t convince your team to adopt the software due to the complexity.

To prevent falling victim to the complexity of ERP software, invest in role-based user training and avoid systems with more functionality than you need.

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4. Slow Implementation

A new ERP system implementation is a time-consuming process, especially if you’re using obsolete hardware. It can take as long as two years for ERP software installation. Given that fact, if you want to invest in ERP software, you should plan to avoid any disruption in business processes. Although cloud-based deployment can be faster, it can still be cumbersome to implement.

The organization should allocate time to learn the new ERP system post-implementation. Even the tech experts need time to understand the system thoroughly. Some may learn faster than others, but a steep learning curve can be detrimental to the transition process.

5. No Immediate Results

You know the saying: All things come to those who wait. This principle applies to ERP too. Implementations, training and getting used to the new solution are time-consuming and require patience. After all, Romans didn’t build Rome in a day, and you can’t expect to see results until you’ve run the system for a while (ideally a few months, but it all depends on the vendor or reseller you choose).

ERP installation is like buying a home. You won’t see a massive return on investment (ROI) until you’ve learned the system’s ins and outs and how to execute them accordingly. The ideal solution that aligns with your business needs will help your company thrive in time. There are no shortcuts here.

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Next Steps

When deciding which platform is right for your business, it’s vital to consider the pros and cons of ERP software. But you shouldn’t let the potential downfalls scare you away from the tools that could take your business to the next level. If you need some help getting started on product research, check out our ERP requirements template or ERP research and reports.

For most companies, the benefits of ERP systems often outweigh the disadvantages. The potential for totally streamlined business functions and boosts in productivity over the long term makes the benefits of implementing ERP systems a worthwhile investment of time and resources.

Which ERP advantages and disadvantages did we forget to mention? Please let us know by leaving a comment below!