ERP: Advantages and Limitations

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Advantages of ERP:

The fundamental advantage of ERP is that integrated businesses processes that saves time and expense.

  • Management can make decisions faster and with fewer errors.
  • Data becomes visible across the organization.
  • Sales forecasting- that allows inventory optimization.
  • Chronological history of every transaction through relevant data compilation in every area of operation.
  • Order tracking, from acceptance through fulfillment
  • Revenue tracking, from invoice through cash receipt
  • Matching purchase orders (what was ordered), inventory receipts (what arrived), and costing (what the vendor invoiced)
  • ERP systems centralize business data, which:
    • Eliminates the need to synchronize changes between multiple systems—consolidation of finance, marketing, sales, human resource, and manufacturing applications
    • Brings legitimacy and transparency to each bit of statistical data
    • Facilitates standard product naming/coding
    • Provides a comprehensive enterprise view (no "islands of information"), making real–time information available to management anywhere, any time to make proper decisions
    • Protects sensitive data by consolidating multiple security systems into a single structure
  • ERP can improve quality and efficiency of the business. By keeping a company's internal business processes running smoothly, ERP can lead to better outputs that may benefit the company, such as in customer service and manufacturing.
  • ERP supports upper level management by providing information for decision making.
  • ERP creates a more agile company that adapts better to change. ERP makes a company more flexible and less rigidly structured so organization components operate more cohesively, enhancing the business—internally and externally.
  • ERP can improve data security. A common control system, such as the kind offered by ERP systems, allows organizations the ability to more easily ensure key company data is not compromised.
  • ERP provides increased opportunities for collaboration. Data takes many forms in the modern enterprise. Documents, files, forms, audio and video, emails. Often, each data medium has its own mechanism for allowing collaboration. ERP provides a collaborative platform that lets employees spend more time collaborating on content rather than mastering the learning curve of communicating in various formats across distributed systems.

Limitations of ERP:

  • Customization can be problematic. Compared to the best-of-breed approach, ERP can be seen as meeting an organization’s lowest common denominator needs, forcing the organization to find workarounds to meet unique demands.
  • Re-engineering business processes to fit the ERP system may damage competitiveness or divert focus from other critical activities.
  • ERP can cost more than less integrated or less comprehensive solutions.
  • High ERP switching costs can increase the ERP vendor's negotiating power, which can increase support, maintenance, and upgrade expenses.
  • Overcoming resistance to sharing sensitive information between departments can divert management attention.
  • Integration of truly independent businesses can create unnecessary dependencies.
  • Extensive training requirements take resources from daily operations.
  • Harmonization of ERP systems can be a mammoth task (especially for big companies) and requires a lot of time, planning, and money.

But these limitations are being eliminated day by day through continuous and first development. And a big factor, the initial investment can be regained within a mid-term period.

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