Disadvantages to ERP

ERP isn't without its risk and detractors. There can be disadvantages and pitfalls to it.

• The very rigid structure of an ERP solution oftentimes makes it difficult to adapt
to the specific needs of individual organizations.
• Because ERP software is enormously sophisticated, there is often a tendency to
implement more features and functions for a particular installation than is actually
needed. This drives up costs and may reduce usage if the system proves to be too
complex to use.
• The cost to implement and maintain ERP systems is very high, and can challenge
ROI calculations.
• Some departments and users may be hesitant to agree to the implementation if
they feel they're giving up control of their data by switching from a department
application to an enterprise-wide solution.

Advantages
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.

Some security features are included within an ERP system to protect against both
outsider crime, such as industrial espionage, and insider crime, such as embezzlement. A
data tampering scenario might involve a disgruntled employee intentionally modifying
prices to below the breakeven point in order to attempt to take down the company, or
other sabotage. ERP systems typically provide functionality for implementing internal
controls to prevent actions of this kind. ERP vendors are also moving toward better
integration with other kinds of information security tools.[12]
Disadvantages
Problems with ERP systems are mainly 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.

Disadvantages

• Customization of the ERP software is limited.

• 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 leading to a new category of "ERP light"
solutions
• 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.
• 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.
• Some large organizations may have multiple departments with separate,
independent resources, missions, chains-of-command, etc, and consolidation into
a single enterprise may yield limited benefits.
• The system may be too complex measured against the actual needs of the
customer.

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Benefits of ERP

The benefits accruing to any business enterprise on account of implementing are

unlimited. According to the companies like NIKE, DHL, Tektronix, Fujitsu, Millipore,
Sun Microsystems, following are some of the benefits they achieved by implementing
ERP packages:
 o Gives Accounts Payable personnel increased control of invoicing and
payment processing and thereby boosting their productivity and
eliminating their reliance on computer personnel for these operations.
o Reduce paper documents by providing on-line formats for quickly
entering and retrieving information.
o Improves timeliness of information by permitting, posting daily instead of
monthly.
o Greater accuracy of information with detailed content, better presentation,
fully satisfactory for the Auditors.
o Improved Cost Control
o Faster response and follow up on customers
o More efficient cash collection, say, material reduction in delay in
payments by customers.
o Better monitoring and quicker resolution of queries.
o Enables quick response to change in business operations and market
conditions.
o Helps to achieve competitive advantage by improving its business process.
o Improves supply-demand linkage with remote locations and branches in
different countries.
o Provides a unified customer database usable by all applications.
o Improves International operations by supporting a variety of tax structures,
invoicing schemes, multiple currencies, multiple period accounting and
languages.
o Improves information access and management throughout the enterprise.
o Provides solution for problems like Y2K and Single Monitory Unit (SMU)
or Euro Currency.

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ERP Advantages & Disadvantages

Advantages
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
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:

Success depends on the skill and experience of the workforce, including training about
how to make the system work correctly. Many companies cut costs by cutting training
budgets. Privately owned small enterprises are often undercapitalized, meaning their ERP
system is often operated by personnel with inadequate education in ERP in general, such
as APICS foundations, and in the particular ERP vendor package being used.

• 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.

Benefits of ERP

ERP is truly today an indespensable tool for businesses and industries though it is
difficuly to operate. The biggest advatage of this software is that it facilitates cordination
amongst different departments.

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Advantages of ERP

Faster Without ERP, a business may turn over its inventory once or twice a year
inventory With ERP to automate processes such as production planning and
turnover procurement, many manufacturers and distributors increase inventory turns
by tenfold and reduce inventory costs by 10% to 40%. The result is
significant reduction in inventory expense, as well as associated
transportation, storage and warehousing costs. This, in turn, leads to better
cash flow.
Improved To remain competitive, manufacturers are looking to improve their
customer customer-order fulfillment rates. In many cases, an ERP system can increase
service fill rates to 80% or 90% by providing the information that allows the
company to have the right product in the right place at the right time. The
result is higher customer satisfaction and retention. Although it’s hard to put
 a price on lost business, customers will take their business elsewhere if the
products they want are not available when they need them.
Better Some manufacturers physically count inventory each month-in some cases,
inventory each weekend often have an inventory accuracy rate as low as 20%. An ERP
accuracy, fewer system can increase inventory accuracy to more than 90%, while reducing
audits the need for frequent physical audits. For many, a comprehensive physical
inventory is not only costly in itself, but requires a temporary shutdown of
business to count, tag and check stock.
Reduced setup Manufacturers often spend anywhere from one to three shifts setting up
times major pieces of production machinery. An ERP system can improve setup
time by 25% to 80%-from days to a few hours by grouping similar
production jobs together, ensuring coordination of people, tools and
machinery, and planning for maximum equipment use and efficient machine
maintenance to minimize downtime. Optimizing production in this manner
translates into increased capacity, which means you can make more products
with the same amount of machinery and people, thus increasing revenue and
ROI without having to increase capital expenses.
Higher quality, In some plants, re-work rates, because of unacceptable quality, may fall
less re-work between 15% and 40% of production output. The production staff may not
realize there is a problem until after the product has been manufactured. ERP
software with a strong manufacturing component proactively pinpoints
quality issues, providing the information needed to increase production
efficiency and reduce or eliminate re-work.
Timely revenue Some companies take up to 90 days to collect on customer invoices. An ERP
collection, system can automatically generate a list of late paying customers, send
improved cash notifications as needed, and "redflag" customers whose credit should be put
flow on hold before more products are manufactured or shipped. ERP systems
give manufacturers the power to proactively examine accounts receivable
before significant problems occur, instead of merely reacting. Timely
receivable equates to better cash flow, freeing up funds for the business to
invest in revenue generating assets.

Disadvantages of ERP

When an ERP project fails, the finger pointing often begins with the software. But in
many cases a lack of planing prior to implementation and unrealistic expectations are the
real points behind an unsuccessful ERP execution.

"We find companies are buying the software but they really don’t know what there doing
with it" says Barry Levine, practice leader at Toronto-based Richter Consulting Group.

The companies install their ERP projects like:

 The Big Bang In this, the most ambitious and difficult of approaches to ERP
implementation, companies cast off all their legacy systems at once and
implement a single ERP system across the entire company.

Franchising strategy This approach suits large or diverse companies that do not
share many common processes across business units. Independent ERP systems
are installed in each unit, while linking common processes, such as financial book
keeping, across the enterprise.

This has emerged as the most common way of implementing ERP.

Slam-dunk ERP dictates the process design in this method, where the focus is on
just a few key processes, such as those contained in an ERP system’s financials
module. The slam-dunk is generally for smaller companies expecting to grow into
ERP.

The goal here is to get ERP up and running quickly and to ditch the fancy
reengineering in favor of the ERP system’s "canned" processes.

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Advantages and Disadvantages of ERP

The advantages and disadvantages of ERP is an interesting Study. The foremost

advantage of an ERP system is bringing down the costs and saving the valuable time
which would have otherwise been wasted in procedural maneuvers and unwanted delays.
Different software programs maintained in the departments were proving to be a great
hurdle. Since ERP is a uniform platform it ensures that there in no discrepancy in the
information that is processed.

Industry wise advantages

Manufacturing Sector--------------------Speeding up the whole process.

Distribution and retail Stores-----------Accessing the status of the goods

Transport Sector---------------------------Transmit commodities through online

transactions.

Project Service industry-----------------Fastens the compilation of reports.

The advantage and disadvantage of ERP is best understood by studying them under
different categories. Hence the next paragraph presents information on corporates as a
whole because the advantage of ERP systems in a company is different when compared
industry wise.
Advantages in a corporate entity
The accounts department personnel can act independently. They don't have to be behind
the technical persons every time to record the financial transactions.

Ensures quicker processing of information and reduces the burden of paperwork.

Serving the customers efficiently by way of prompt response and follow up.

Disposing queries immediately and facilitating the payments from customers with ease
and well ahead of the stipulated deadline.

It helps in having a say over your competitor and adapting to the whims and fancies of
the market and business fluctuations. The swift movement of goods to rural areas and in
lesser known places has now become a reality with the use of ERP.

The database not only becomes user friendly but also helps to do away with unwanted
ambiguity.

ERP is suitable for global operations as it encompasses all the domestic jargons, currency
conversions, diverse accounting standards, and multilingual facilities .In short it is the
perfect commercial and scientific epitome of the verse "Think Local. Act Global".

ERP helps to control and data and facilitates the necessary contacts to acquire the same.

Disadvantage

Inspite of rendering marvelous services ERP is not free from its own limitations. ERP
calls for a voluminous and exorbitant investment of time and money. The amount of cash
required would even be looming on the management given the fact that such an outlay is
not a guarantee to the said benefits but subject to proper implementation, training and
use. In the ever expanding era of information theft ERP is no exception. It is alarming to
note the time taken to implement the system in the organization. These means large
amounts of workers have to shun their regular labor and undertake training. This not only
disturbs the regular functioning of the organization but also runs the organization in the
huge risk of losing potential business in that particular period. There are great benefits
rendered by the system. On the other hand when one thinks of this information reach in
the hands of undeserving persons who could do more than misuse ,it is evident that there
is no way of ensuring secrecy of information and larger chances of risk will be generated
as long as they are in the public domain.

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Advantages:

Integration
Integration can be the highest benefit of them all. The only real project aim for
implementing ERP is reducing data redudancy and redudant data entry. If this is set as a
goal, to automate inventory posting to G/L, then it might be a successful project. Those
companies where integration is not so important or even dangerous, tend to have a hard
time with ERP. ERP does not improve the individual efficiency of users, so if they expect
it, it will be a big disappointment. ERP improves the cooperation of users.

Efficiency

Generally, ERP software focuses on integration and tend to not care about the daily needs
of people. I think individual efficiency can suffer by implementing ERP. the big question
with ERP is whether the benefit of integration and cooperation can make up for the loss
in personal efficiency or not.

Cost reduction

It reduces cost only if the company took accounting and reporting seriously even before
implementation and had put a lot of manual effort in it. If they didn't care about it, if they
just did some simple accounting to fill mandatory statements and if internal reporting did
not exists of has not been fincancially-oriented, then no cost is reduced.

Less personnel

Same as above. Less reporting or accounting personnel, but more sales assistants etc.

Accuracy

No. People are accurate, not software. What ERP does is makes the lives of inaccurate
people or organization a complete hell and maybe forces them to be accurate (which
means hiring more people or distributing work better), or it falls.

Disadvantages:

Expensive

This entails software, hardware, implementation, consultants, training, etc. Or you can
hire a programmer or two as an employee and only buy business consulting from an
outside source, do all customization and end-user training inside. That can be cost-
effective.

Not very flexible

It depends. SAP can be configured to almost anything. In Navision one can develop
almost anything in days. Other software may not be flexible.

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SAP ERP
Business Benefits

SAP ERP delivers a comprehensive set of integrated, cross-functional business processes.

With SAP ERP, you can gain the following benefits:

• Improve alignment of strategies and operations

o Run your enterprise in accordance with strategy and plans,
accessing the right information in real time to identify concerns early.
o Pursue opportunities proactively.
o Achieve corporate objectives by aligning workforce and
organizational objectives.
o Find the best people and leverage their talent in the right job at the
right time.
• Improve productivity and insight
o Leverage self-services and analytics across your organization.
o Improve operational efficiency and productivity within and beyond
your enterprise.
• Reduce costs through increased flexibility
o Use enterprise services architecture to improve process
standardization, efficiency, and adaptability.
o Extend transactions, information, and collaboration functions to a
broad business community.
• Support changing industry requirements
o Take advantage of the SAP NetWeaver platform's latest open,
Web-based technology to integrate your end-to-end processes seamlessly.
• Reduce risk
o Solve complex business challenges today with SAP, your trusted
partner for long-term growth, with 30 years of experience working with
organizations of all sizes in more countries than any other vendor.
o Join SAP's world-class partner network, uniquely qualified to
support the best business practices in more than 25 industries.
• Improve financial management and corporate governance
o Gain deep visibility into your organization with financial and
management accounting functionality combined with business analytics.
o Increase profitability, improve financial control, and manage risk.
• Optimize IT spending
o Integrate and optimize business processes.
 o Eliminate high integration costs and the need to purchase third-
party software.
o Deploy other SAP Business Suite applications incrementally to
improve cash flow and reduce costly borrowing.
• Gain higher ROI faster
o Install SAP ERP using rapid-implementation techniques that cost
less than half what traditional approaches cost.
o Leverage preset defaults and prepackaged versions available for
specific industries.
• Retain top performers
o Retain your top performers through clearly defined career and
development plans.
o Link employees' performance to compensation programs such as
variable pay plans and long-term incentives.
• Provide immediate access to enterprise information
o Give employees new ways to access the enterprise information
required for their daily activities.

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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.

It should first be noted that companies that fail to utilize systems such as ERP may find
themselves using various software packages that may not function well with each other.
In the long run, this could make the company less efficient than it should be.

There are a number of processes that a company may need to integrate together. One of
these processes is called design engineering. When a company is in the process of
designing a product, the process of actually creating it is just as important as the end
result. ERP can be useful in helping a company find the best design process. Another area
where ERP can be useful is order tracking. When a company receives orders for a
product, being able to properly track the orders can allow the company to get detailed
information on their customers and marketing strategies. If different software packages
are being used, this data may not be consistent.

Perhaps one of the most important advantages of ERP is its accounting applications. It
can integrate the cost, profit, and revenue information of sales that are made, and it can
be presented in a granular way. Enterprise Resource Planning can also be responsible for
altering how a product is manufactured. A dating structure can be set up which can allow
the company to be informed of when their product should be updated. This is important,
because it will allow the company to keep better track of their products, and it can allow
the products themselves to be produced with a higher level of quality. Another area
where ERP can be an indispensable tool is the area of security. It can protect a company
against crimes such as embezzlement or industrial espionage.

However, with all the advantages that ERP offers, there are a number of disadvantages as
well. Perhaps one of the biggest disadvantages to this technology is the cost. At this time,
only large corporations can truly take advantage of the benefits that are offered by this
technology. This leaves most small and medium sized businesses in the dark. A number
of studies have shown that the biggest challenges companies will face when trying to
implement ERP deals with investment. The employees must be continually trained on
how to use it, and it is also important for companies to make sure the integrity of the data
is protected.

ERP has a number of limitations. 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.

Most ERP vendors will not allow the structure of the software to be altered. One
advantage to ERP is that making the necessary changes to use it may actually make a
company less competitive in the market. In addition to the costs involved with
implemented ERP and training workers to use it, the ERP vendors may charge additional
license fees, putting a strain on companies that do not have enough resources to pay for
them. The technical support of ERP departments has been questioned, and a number of
problems could arise due to security, since corporate representatives must give sensitive
information to the tech support department.

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Benefits of ERP

A good ERP system will help IT departments in just about every organization to make
sure that computers are interfacing with each other and there is no information loss. This
can be one of the most frustrating aspects or running a business. It doesn’t matter if your
current platform is a Microsoft Dynamics NAV based one or if you sell apparel instead of
plastics, an ERP system can make sure that all of your data is one central location that
everyone can access. The logistical advantages behind an ERP based SCM system are
that it is designed to reduce costs overall and allow the data flow between single
departments or international offices to move smoothly and in real time for better
processing. It can also help with the analysis of design engineering, streamlining
purchasing functions, managing the basics and advanced functions of bill of materials,
three-way matching of purchase orders, inventory, and costing, reports and all accounting
function. The engineering details portion of the ERP system is especially handy for
companies looking to streamline the current process by either trimming it or making it
faster and less bulky. It can track a rollover timeline from the old version to the new, tell
employees when new ingredients are to be used and the old to be discontinued, and even
help businesses determine how they want to label or identify version numbers of their
products. One often overlooked advantage of an ERP system is the security features that
are built into the software. They are designed to protect the company from industrial
espionage and other outsider crime as well as insider crime such as embezzlement. There
is an improved functionality in the most current ERP systems that implement internal
controls to will keep data from being tampered with in addition to the integration of other
security tools that are currently being utilized in today’s market. There is no doubt that in
this economic conscience society that organizations of all types want to be able to reduce
their manufacturing costs. By streamlining the data flow between departments and
allowing employees to view all of the information pertinent to do their jobs, they will be
able to provide customers with quicker answers and waste less time trying to figure the
answer out, saving the company valuable time and money and allowing the employees to
work more efficiently.

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Advantages of ERP Systems

There are many advantages of implementing an EPR system; here are a few of them:

• A totally integrated system

• The ability to streamline different processes and workflows
• The ability to easily share data across various departments in an organization
• Improved efficiency and productivity levels
• Better tracking and forecasting
• Lower costs
• Improved customer service

Disadvantages of ERP Systems

While advantages usually outweigh disadvantages for most organizations implementing
an ERP system, here are some of the most common obstacles experienced:

Usually many obstacles can be prevented if adequate investment is made and adequate
training is involved, however, success does depend on skills and the experience of the
workforce to quickly adapt to the new system.

• Customization in many situations is limited

• The need to reengineer business processes
• ERP systems can be cost prohibitive to install and run
• Technical support can be shoddy
• ERP's may be too rigid for specific organizations that are either new or want to
move in a new direction in the near future.