Advantages & Disadvantages of ERP (Enterprise Resource Planning) Systems

By Rajesh K

In order to understand computer networks better, it would be helpful to have an overview of the applications running on the network. ERP or Enterprise Resource Planning is an important enterprise application that integrates all the individual department functions into a single software application.

ERP Systems make it easier to track the workflow across various departments. They reduce the operational costs involved in manually tracking and (perhaps) duplicating data using individual & disparate systems. In this article, let us have a look at the advantages and dis-advantages of implementing ERP (Enterprise Resource Management) Software Systems.

Advantages of ERP (Enterprise Resource Planning) System:

1. Complete visibility into all the important processes, across various departments of an organization (especially for senior management personnel).

2. Automatic and coherent workflow from one department/function to another, to ensure a smooth transition and quicker completion of processes. This also ensures that all the inter-departmental activities are properly tracked and none of them is ‘missed out’.

3. A unified and single reporting system to analyze the statistics/status etc. in real-time, across all functions/departments.

4. Since same (ERP) software is now used across all departments, individual departments having to buy and maintain their own software systems is no longer necessary.

5. Certain ERP vendors can extend their ERP systems to provide Business Intelligence functionalities, that can give overall insights on business processes and identify potential areas of problems/improvements.

6. Advanced e-commerce integration is possible with ERP systems – most of them can handle web-based order tracking/ processing.

7. There are various modules in an ERP system like Finance/Accounts, Human Resource Management, Manufacturing, Marketing/Sales, Supply Chain/Warehouse Management, CRM, Project Management, etc.

8. Since ERP is a modular software system, its possible to implement either a few modules (or) many modules based on the requirements of an organization. If more modules implemented, the integration between various departments may be better.

9. Since a Database system is implemented on the backend to store all the information required by the ERP system, it enables centralized storage/back-up of all enterprise data.

10. ERP systems are more secure as centralized security policies can be applied to them. All the transactions happening via the ERP systems can be tracked.

11. ERP systems provide better company-wide visibility and hence enable better/faster collaboration across all the departments.

12. It is possible to integrate other systems (like bar-code reader, for example) to the ERP system through an API (Application Programing Interface).

13. ERP systems make it easier for order tracking, inventory tracking, revenue tracking, sales forecasting and related activities.

14. ERP systems are especially helpful for managing globally dispersed enterprise companies, better.

Disadvantages of ERP (Enterprise Resource Planning) Systems:

1. The cost of ERP Software, planning, customization, configuration, testing, implementation, etc. is too high.

2. ERP deployments are highly time-consuming – projects may take 1-3 years (or more) to get completed and fully functional.

3. Too little customization may not integrate the ERP system with the business process & too much customization may slow down the project and make it difficult to upgrade.

4. The cost savings/payback may not be realized immediately after the ERP implementation & it is quite difficult to measure the same.

5. The participation of users is very important for successful implementation of ERP projects – hence, exhaustive user training and simple user interface might be critical. But ERP systems are generally difficult to learn (and use).

6. There maybe additional indirect costs due to ERP implementation – like new IT infrastructure, upgrading the WAN links, etc.

7. Migration of existing data to the new ERP systems is difficult (or impossible) to achieve.  Integrating ERP systems with other stand alone software systems is equally difficult (if possible). These activities may consume a lot of time, money & resources, if attempted.

8. ERP implementations are difficult to achieve in decentralized organizations with disparate business processes and systems.

9. Once an ERP systems is implemented it becomes a single vendor lock-in for further upgrades, customizations etc. Companies are at the discretion of a single vendor and may not be able to negotiate effectively for their services.

10. Evaluation prior to implementation of ERP system is critical. If this step is not done properly and experienced technical/business resources are not available while evaluating, ERP implementations can (and have) become a failure.

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58 Responses to “Advantages & Disadvantages of ERP (Enterprise Resource Planning) Systems”

  1. its too good and ver helpfull4 me…

    #30221
  2. eric

    thank, its good

    #32690
  3. Sweety

    Nice answer.. very useful to us…….

    #34572
  4. ram prabhu

    ya, its really helpful

    #37750
  5. alan maxivn

    wow, great notes. could you also do the same for information technology infrastructure.

    #42932
  6. Tasnia Islam

    its very helpful. it can provide a specific idea about ERP within a few minutes.

    #42991
  7. Prema

    Its very useful.

    #43464
  8. jay

    Thanks. . it’s very useful. . .

    #45727
  9. molly

    thanx

    #47340
  10. saher

    it is good i like this

    #48969
  11. anil

    nice and it is gud and like this.

    #49405
  12. its very good and usefull for me and our guys i want more information for erp

    #53141
  13. Ashwathy R Pillai

    Really good notes. Easy to understand…..

    #63638
  14. farhana

    awsome notes

    #93563
  15. malini

    this is very useful for me

    #115930
  16. Such a complete, precise and self content article! Big time…

    #127749
  17. Ranbir

    It is very useful

    #142561
  18. sampath

    its very useful

    #144913
  19. Yeganerad

    this is very useful for me
    thank you

    #154039
  20. Very useful article. it covers almost all the aspect about ERP System in term of advantages and disadvantages.Easy to understand too.

    #159632
  21. Dananjaya

    Good.. useful, thanks :)

    #173669
  22. ammymickens

    ERP solutions, manages and distributes information across functional boundaries and helps break down information “silos”—those barriers that stand in the way of full cooperation between production, materials, planning, engineering, finance and sales/marketing. The resulting higher quality, reduced time-to-market, shortened lead times, higher productivity and lowered costs can help improve customer service and increase sales and market share as well as margins.

    #174139
  23. Ciro Verdi

    No self respecting computer applications specialist/desogner would EVER recommend ERP system PERIOD! Every advantage advocated about ERP’s can be done better and cheaper than ERP’s. Departmental integration and infotmation flow from one single source, are catch words for those who dont have the slightest idea about how computer based application are defined, designed, programmed, implemented and managed to say the least.

    Advocating ERP systems are bought by people who dont know what their doing and believe force-fitting ERP’s are a way out, but deceiving themselves. ERP’s exploit the ignorant who dont know what they dont, but ERP saleman go ahead with implementation knowing it will be a guarenteed failure. I’ve got over fifty years in computer applications design — from hands-on programming major applications, project management, and managing programming and analysis and not taken in by ERP BS. Challenge me.

    #178835
    • Bob Jane

      Ciro, I complement you on having the courage to speak out against the norm. The problem is that if you want your argument to be taken seriously I suggest you use correct punctuation and spelling, as this adds professionalism and accuracy to your statements.

      #180958
      • Ciro Verdi

        1) It’s interesting that you comment on “correct punctuation and spelling” rather than the substance of my post.
        2)

        “Ciro, I complement you on having the courage to speak out against the norm. The problem is that if you want your argument to be taken seriously I suggest you use correct punctuation and spelling, as this adds professionalism and accuracy to your statements.”

        #181325
        • Ciro Verdi

          Ciro did not complete the reply, my fat fingers hi the wrong place. To continue:
          2) If the “norm” is going ERP’s there will be a lot tears.
          3) How about addressing my specifics.
          4) Lets get specific, where have I lack professionaliosm, and accuracy?
          5) How much programming systems implementation have you accomplished?
          6) How many languages and platforms are you accomplished?
          7) I was very specific about my background, what is yours?

          Ciro

          #181327
          • Ciro Verdi

            My apologies, my thinking is faster than my clumsy fingers – if you can overlook a bad start, I would like ask some questions about ERP’s. Ciro

            #181378
    • Anonymous

      You are a dinosaur and an egotist who knows nothing at all about the subject. I also have 30 years of successful erp installations and your rant shows your total ignorance – of ERP and business generally. So get your hand off it – but if thats what you do best nget your hands off the keyboard and back on yourself

      #283094
  24. Shrutee

    please tell the same about ERP II also. Thanks in advance.

    #180817
  25. Orlando

    Very good article and to the point. This applies mostly to traditional ERP systems. There is some more flexibility with a cloud ERP.

    #186452
  26. sakuni

    How ERP imblementation affects in accounts Department in a manufacturing company.

    #209815
  27. Ciro Verdi

    Hello,

    First: ERP systemss are not for beginners — beginners dont know what theydont know.
    Two: In-house programming provides all the “pro” benefits of ERPs, and none of the “cons.”
    Third: Let me hear from someone who has a programming background implementing COBOL interective multi-user applications please.

    #210155
  28. Ciro Verdi

    This site can be quite useful if it addressees technical inquiries insteaad of ERP boiler-plate sales pitches. For example: where do ERP end-user data files reside — somewhere in cyberspace, or in the end-users in-house site? How are end-user transactions processed — thru syber, or via in-house processing? Ciro

    #210162
  29. waweru k

    Very nice notes.Thankyou

    #214468
  30. Ciro Verdi

    To Bob Jane.

    I keep revisiting this web-site in response ro e-mail notifications, and I welcome them, but I must repeat my myinitial post giving the reasons “no self respecting developer would go ERP”. The only response which may be valid referred to my grammer and punctuation.

    The horror stories surrounding ERP applications centers around unprofessional and unscrupulous ERP software vendors knowingly selling end-users software that is beyond their competence and wherewithal.

    Computer applications designer/analysts can easily assess the end-users capcity to utilize such complex software, but vendors side step that assessment and sell the software anyway. While the end-user has to deal with the debris of a failed implementation, the vendor walks away with the money!

    Perhaps if you can get pass my poor grammar and puctuation and address the issues I have presentaed, I would like to hear from you or anyone else. Ciro Verdi ciroverdi2@aol.com

    #215666
  31. Ciro

    Thank you for asking.

    It appears that asking certain questions about ERP systems is like an attempt to pry into national security, but until I’m arrested, I’ll keep trying.

    ERP systems, I presume, are Web-based, meaning the end-user processes their transactions via the internet. If that is correct:

    1. Where do the user applications and data files reside?
    a. All at the vendors site, or half and half?
    b. If its half and half, who has what half?

    Thank you, Ciro
    ciroverdi2@aol.com

    #226887
    • Very good points Ciro. So far no one has responded to the points you have raised – its easier for them to attack your grammatical skills. I would like the ERP advocates to tell us why a small business should go for ERP. What are the determining factors? Size? Scope or complexity of operations? Service industry vs manufacturing?

      #228157
  32. Swathi Chandrashekar

    Seriously the matter is very usefully for the freshers. its excellent

    #227418
  33. Ciro

    Sawafuji, it’s apparent you have an interest in exploring the feasibility of implementing ERP software, but it is also apparent (no disrespect intended) that you may not have a technical background in design, programming and software applications implementation.

    May I ask what professional background (or available technical resource) do you have that would equip you to embark on a major undertaking that implementation of ERP software would entail?
    Why do you have an interest in ERP software?

    How do you think it will benefit your enterprise compared to your current operations? Do you have a thorough understanding of your own enterprise work-flow, decision making process, and employee skill and experience levels, to assess an ERP software fit? Does you enterprise have the wherewithal to support ERP software, and do you know what that means?

    Do you have some sense of how ERP software would be integrated into your operations; its impact on existing work-load, and employee disruption and disorientation?

    Do you have a sense of how compatible ERP “best practices” fit with your existing practices and to what degree adjustments both to the ERP software and your operations that would have to be made to achieve a satisfactory fit, AND the cost of doing so? Are you acquainted with ERP “best practices”?

    ERP software systems are Web-based, meaning that your applications and data files are processed via the “World Wide Web” referred to as the internet. Do you know, or care, where the ERP software and data files would reside? How secure from intrusion, how the system is maintained and who does it, and who’s responsible for systems breakdown or disaster recovery?????

    Do you have a sense of how your existing data files would be converted to ERP software, their format compatibility, how that would be accomplished, and under who’s control? What then would happen to those data files in the event you decide to discontinue the use of the ERP software?

    Sawafuji, I’ve just covered the tip of ERP issues and you can get an eye full by searching the internet for “ERP Horror Stories.” What the “horror stories” may not tell you is that ERP’s are honey traps for Financial and Human Resources Administrators who erroneously believe they can “leverage” their lack of expertise, or by-pass that resource by buying it from a third party. The end results are usually a disrupted work-place, unrecoverable millions spent, and unusable software!

    Good luck Sawafuji. Ciro ciroverdi2@aol.com

    #228621
  34. it really helps me. ERP is software system in which it is accessed by all departments and reduces manpower.

    #234795
  35. Shahabas

    thank you , its good

    #236247
  36. Rashid Shankar

    verry goooooooood article and useful for us.

    #238592
  37. Ciro

    From the anonymous responses and questions posted on this blog seeking information about ERP’s rather than giving information, it’s a dead give-away as possible ERP software “honey trap” victims.
    There is an account of Financial and Human Resource persons, perhaps well-meaning but never-the-less misguided, who believed they could “leverage” their lack of expertise by buying it, and embarked on the acquisition of ERP software without a technical background that was vastly beyond their organizational wherewithal to support. It ended in a debacle that cost unrecoverable multi-millions of dollars, disrupted work processes and resulted in very unhappy workers and administrators.

    The short of it was, the end-user presumed the ERP vendor would do all the work, while the ERP vendor presumed the end-user knew what they were doing, and when they both realized that they were not on the same page, the house of cards fell apart.

    What is unbelievable – this end user who spent 14 years trying to get two ERP software systems (PeopleSoft and Lawson) to work at a loss of $10million, and was contemplating another $19.1Million to update a previous ERP system?

    HOW COULD THAT HAPPEN?

    1. PRIMARILY there was not an in-house Business Systems Department tasked as THE technical resource available to scrutinize and approve interdepartmental software acquisitions. (Nowhere in the Administrative Organization Chart could anything resembling a tech group could be identified).

    2. The Administration Department Head was negligent, incompetent or inexperienced in structuring (including) a Business Systems Department within the administrative organization as an interdepartmental technical resource.

    3. And therefore, the Administration Department Head was negligent, incompetent or inexperienced in establishing a “policy & Procedures” directive that all administrative departments considering the acquisition of administrative software applications must be approved by THE Business Systems Department as a “checks & balances” process.

    ABOUT A BUSINESS SYSTEMS DEPARTMENT

    A Business Systems Department can be a department staffed by professionals and facilities with the mix of backgrounds that are necessary to design, implement, and support and manage computer applications on a large scale, OR ONE PERSON who has all that experience, or most of it, tasked on a smaller scale!

    That is where small businesses should begin their journey toward more complex integrated computer applications – taking it one step at a time and within their wherewithal. In that way experience is gained in workflow improvement and may suggest other feasible computer applications efficiency’s.

    So where does it leave Financial and Human Resource Heads who recognize the potential for computer applications, but have nether the technical background nor access to consultants.

    How does one research and decide on buying a home, car or investment? How does a business research and structure its operations to make a profit?

    Take a page from Research & Development industry practices – by first developing a prototype before going into production. It’s a small inexpensive step to assess its utility, and a mechanism to inexpensively optimize before embarking on a major expensive project effort.

    Ciro ciroverdi2@aol.com

    #239991
  38. ishfaq

    better understanding

    #245673
  39. A well-thought post. You have given us the two sides of the coin. Thanks.

    #252460
  40. As far as ERP is concered there are many advantages but incase your trying to achieve integrated solutions

    There is another area where Integrated ERP solutions can be useful – for e.g. – An eCommerce merchant who sells products via variety of online platforms such as Amazon, eBay, Magento, PrestaShop and so on . . . Integrating third party online solution helps eCommerce merchants with many advantages.

    An ERP solution specifically Integrated with other tools can help manufacturers, trader and small sized businesses also to understand the data flow in more clear way – further Integrated ERP solution provide you with clear visibility in every department.

    Thanks
    Globalteckz Team
    http://www.globalteckz.com

    #259261
  41. An ERP system introduces fundamental innovations in managing resources, which eliminates delays and thus reduces cost of operations. For instance, use of mobility allows real-time collection of data, which is indispensable to lowering costs.

    Further if you are choosing Open source ERP software you gain advantage of no vendor lock-in.

    #280349
  42. This should not be showed like this

    #284520

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