Benefits of ERP: Advantages, Disadvantages & Selecting an Enterprise Resource Planning System (2022)

Advantages and Benefits of ERP Software Solutions

Read Next: Top 10 ERP Selection Criteria

Read time: 5.5 min.

Organizations from a variety of industries benefit from Enterprise Resource Planning (ERP) software, but, there are certain types of businesses that see more benefits of ERP.

Here, we will talk to some key trends that suggest when it’s time for a business to implement or upgrade their ERP system, which include:

  1. Times of Growth
    • The organization is growing, has grown or is planning to grow significantly
  2. Issues with Operations
    • The organization needs enterprise software to better manage processes
  3. Mergers or Acquisitions
    • For example, the parent organization needs to streamline systems across companies
  4. Old Legacy Systems
    • The organization’s current system is outdated and not available for upgrades, or no longer serves the business and users adequately
  5. Strategic Roadmapping
    • Organizations with forward-thinking executives have outlined a business technology roadmap that includes a new enterprise solution

While many factors indicate the need for implementing an ERP system, companies in certain industries stand to gain the most from making the move.

(Video) #37 Enterprise Resource Planning ( ERP ) - Advantages & Disadvantages Contemporary Management |MS|

Benefits Of ERP

What are the key business benefits of ERP software?

  1. Enhanced Business Reporting:
    • Better reporting tools with real-time information
    • A single source of truth – one integrated database for all business processes
  2. Better customer service:
    • Better access to customer information
    • Faster response times
    • Improved on-time delivery
    • Improved order accuracy
  3. Improved Inventory Costs:
    • Only carry as much inventory as needed, avoid these common issues
      • Too much inventory, and higher overhead costs
      • Too little inventory, and longer customer fulfillment times
  4. Boosted Cash Flow:
    • Better invoicing and better collections tools to bring cash in faster
    • Faster cash means more cash on-hand for the business
  5. Cost Savings:
    • Improved inventory planning
    • Better procurement management
    • Better customer service
    • Improved vendor relationship management
  6. Better Data & Cloud Security:
    • Dedicated security resources
    • Avoid installing malicious software
    • Data distributed across multiple servers
  7. Business Process Improvements:
    • Automate manual or routine tasks
    • Implement smarter workflows
    • Gain efficiency
  8. Supply Chain Management:
    • Effective demand forecasting and lean inventory
    • Reduce production bottlenecks
    • Transparency through the business
(Video) Enterprise Resource Planning (ERP), what is ERP, Benefits and Limitation of ERP

Cons of ERP – Important Factors & Disadvantages

  1. Costs of an ERP Software
    • Third-party software add-ins
    • Implementation costs
    • Maintenance
    • Initial and continuous training
  2. Complex Data Conversion
    • Developing a solid data conversion strategy can be difficult
    • You have to define, examine and analyze data sources
    • Bad data conversion will cause delays and increased costs
  3. Requires thorough training
    • Training needs to cover all of the ERP system’s features.
    • ERP training sessions need to be in line with business processes
    • IT users need to be trained for the technical aspects of the ERP System

ERP projects are an investment of time and money and the most successful ERP software implementations require:

  • Alignment between the business and IT
  • Executive sponsorship and support
  • Internal team leaders
  • Trusted external partners (consulting and software vendors)

ERP software is like any business technology – the tool on its own doesn’t cause failure or success. The business environment, leadership, and end-users determine the ROI of an ERP system – along with the project planning, methodology, and implementation.

What can cause an ERP implementation failure?

  • Data conversion
    • One of the biggest issues during an ERP project is data conversion – moving data from the old system and mapping it into the new ERP.
  • Integrations
    • Early in the project, you need to start thinking about what other systems need to integrate with your ERP system and have a solid plan for integrations.
  • People
    • An executive needs to be involved in the ERP project, and other key business leaders need to be included. Having a communication plan is also key.
  • Training
    • Training needs to be an integral part of the ERP project. Internal teams and end-users have to be comfortable with the new software.
  • Project planning
    • Planning is crucial to ERP implementation success. Following a methodology is also fundamental to avoiding failure.

ARE YOU CONSIDERING AN ERP PROJECT? UNCOVER THE TOP 10 ERP SELECTION CRITERIA TO CONSIDER

Will an ERP System Work For Your Business Needs?

New research shows that ERP projects today are much more successful than in the past. Coupled with the fact that cloud ERP software options available on the market today are easier to implement, and keeping in mind the benefits listed above, there’s a real business case for ERP. Timing is also an important aspect to consider. In addition to the trends we mentioned at the beginning of this article, you can start by reviewing the five questions below to see if it’s time to start considering ERP software for your business.

(Video) Advantage & disadvantage of ERP system

  1. How accurate is your business data?
    • Implementing comprehensive ERP software not only provides access to important data, ERP also enables a better process for collecting and analyzing data
  2. Are your business systems connected?
    • Moving to one company-wide ERP solution can help improve internal processes – one common platform fosters better internal communication
    • Better processes and communication leads to increased efficiency and enhanced company performance
  1. Is your company growing?
    • As companies increase in size it’s easy to quickly outgrow existing processes and technology. Growing pains are a good problem to have, but like all other business challenges these issues need to be addressed in order to continue the path towards future progress. A comprehensive ERP solution can help.
  1. How satisfied are your customers?
    • Disruptions internally – growing pains, problems between production and sales, or the inability to access important data – affect the customer experience. Modern ERP solutions help you save time and meet customer expectations.
  1. Do you need to reduce costs?
    • ERP software enables you to be more cost effective through gained efficiencies in these areas (and more):
      • Faster financial close
      • Improved inventory planning and accuracy
      • Accurate forecasting
      • Reduced days sales outstanding
      • Shop floor optimization
      • Reduced purchasing spend
      • Reduced freight spend

What types of businesses that benefit the most from ERP software?

The versatile nature of ERP software allows companies in a variety of industries implement solutions based on their business needs. Major industries that use ERP include:

  • Manufacturing
  • Distribution
  • Professional Services
  • Construction
  • Industrial Services
  • Service Business
  • Healthcare
  • And more

One manufacturing executive we’ve worked with said implementing ERP (in their case,Oracle JD Edwards) gave the company a “robust platform” to manage and control their manufacturing processes. “The tools and information available in the system will allow us to better manage our distribution and manufacturing businesses.”

Professional services is another industry where ERP is often used and see copious benefits of ERP software. The needs of these organizations differ from manufacturing and distribution. Businesses in this industry are often project-based and need tools for project planning and execution, managing project costs, strong customer relationship management and more.

The CIO of a project-based company we recently worked with to implement a cloud ERP system commented: “By moving our project management process to the cloud, we can keep up with our business growth and continue to serve our clients to the best of our ability.”

How does ERP software improve business processes?

ERP systems solve many problems you may be facing, including a need for:

  • One source of truth as one master system of record for all important company data
  • Automating manual processes, such as invoice creation, routine communications, financial report generation, product and service delivery and material requirements planning
  • Better visibility into all aspects of the supply chain, increased efficiencies and improved productivity
  • Improved business data security, whether storedon-premise or in thecloud.

Next Steps for ERP software selection

ERP selection and implementation processes are not for the faint of heart. Choosing the right Enterprise Resource Planning system can be complicated, and often there is a lot at stake. You want to make the best possible choice for your business. But there are ways to make it easier on yourself and your team. There are many factors to consider, below are some of the top factors recommended for anyone thinking about a new ERP.

  1. Define why you are doing the project.
  2. Determine who will be involved.
  3. Find an ERP partner who you trust.

Read Next: Top 10 ERP Selection Criteria

Wondering how to select an ERP system? Check out our list of top 10 ERP selection criteria to consider as you begin an ERP implementation project.

Read the Top 10

(Video) Advantages and Disadvantages of ERP Enterprise Resource Planning Definition Urdu Hindi easy words

FAQs

What is the benefits of ERP? ›

An ERP system allows you to collect, store, and analyze data across your operations in one centralized location, providing a single source of truth and the visibility to act more strategically. That centralized data enables a business to access real-time information and generate more useful reports.

What is a disadvantage of an enterprise resource planning ERP system? ›

ERP Disadvantage #1: Slow Software Implementation

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.

What is ERP and what are it's benefits to a business organization? ›

Enterprise resource planning, or ERP, is the process of gathering and managing business data from various departments using dedicated software. ERP software provides organizations with an integrated, often real-time, view of their core business processes, easily accessible through one centralized system.

What is ERP explain the features and benefits of ERP? ›

ERP provides the ability to automate repeatable business tasks, such as payroll, order processing, invoicing, reporting and more. Automation minimizes the time spent on manual data entry, reduces errors and lets employees focus on more value-added tasks.

What do you mean by ERP? ›

Enterprise resource planning (ERP) refers to a type of software that organizations use to manage day-to-day business activities such as accounting, procurement, project management, risk management and compliance, and supply chain operations.

What is a disadvantage of an ERP system quizlet? ›

What are some disadvantages of ERP? Very complex and many companies cannot adjust to it.

What are the advantages and disadvantages of business? ›

At the same time, consider the advantages as well as the disadvantages of owning your own company.
  • Advantage: Financial Rewards. ...
  • Advantage: Lifestyle Independence. ...
  • Advantage: Personal Satisfaction and Growth. ...
  • Disadvantage: Financial Risk. ...
  • Disadvantage: Stress and Health Issues. ...
  • Disadvantage: Time Commitment. ...
  • Try a Side Hustle.

What are the specific advantages and disadvantages of cloud computing for Enterprise Resource Planning ERP )? ›

At a glance
ProsCons
You receive round-the-clock support.There is less room for personalization.
Your vendor is often able to offer a higher level of security.Highly complex operations may not suit a cloud-based ERP system.
It is easy to scale up or down to suit the needs of your business.Unwanted upgrades may occur.
2 more rows

Which are the three types of ERP? ›

There are three main types of ERP systems that function with different deployment model options. The most common types of ERP systems include cloud ERP, on-premise ERP, and hybrid ERP.

What is ERP and its types? ›

Enterprise Resource Planning (ERP) refers to a business process management software that optimizes the processes of an organization by providing a system of integrated and centralized applications that help manage and automate a wide range of business operations including accounting, human resources, sales and ...

What are the major features of ERP? ›

The following is a list of the essential ERP features most commonly found in an ERP software system:
  • Integration. ...
  • Automation. ...
  • Data Analysis. ...
  • Reporting. ...
  • Customer Relationship Management. ...
  • Accounting. ...
  • Tracking and Visibility. ...
  • Human Resource Management.
5 days ago

What is an example of ERP? ›

An example of Oracle ERP Cloud. This flexible tool can be configured to meet a range of needs and can be used by any businesses, regardless of their size, industry, or geography. Their core verticals include financial services, healthcare, higher education, manufacturing, and retail.

How do ERP systems work? ›

An enterprise resource planning system generally uses a centralized database for various business processes to reduce manual labor and simplify existing business workflows. An ERP typically contains dashboards where users can review real-time data from across the business to measure productivity and profitability.

What is the key word in ERP? ›

ERP refers to a centralized information technology (IT) system that connects all of the departments and functions of an organization. Therefore, the keyword in enterprise resource system is ''enterprise,'' since the system coordinates the activities for the entire organization at every level.

Where is ERP used? ›

ERP is commonly used by companies working within the supply chain to help keep track of all the moving parts of manufacturing and distribution. However, ERP can be utilized by a number of different industries including those in healthcare, nonprofit groups, construction and hospitality.

What are 6 fundamental ERP requirements? ›

What are the 6 Main ERP Components?
  • Human Resources. Managing your employees should always be priority number one. ...
  • Customer Relationship Management. ...
  • Business Intelligence. ...
  • Supply Chain Management. ...
  • Inventory Management System. ...
  • Financial Management.
28 Mar 2018

Who are primary users of ERP system? ›

The primary industries' users of the ERP system are: Accounting. Finance. Logistics.

Which of the following is not an advantages of ERP? ›

Which of the following is NOT an advantage of an ERP system? d. simplicity and reduced costs (ERP systems are quite complex and costly; they do not offer the advantages of simplicity and reduced costs.)

What are advantages of ERP system quizlet? ›

An ERP provides an integrated, enterprise-wide, single view of the organization's data and financial situation. Storing all corporate information in a single database breaks down barriers between departments and streamlines the flow of information.

Which of the following is an advantage of ERP quizlet? ›

Which of the following is an advantage of ERP? It creates commonality of databases. Which of the following statements is NOT true about MRP? MRP is an independent demand technique used in a production environment.

What is advantage and disadvantages? ›

As nouns, the difference between disadvantage and advantage is that disadvantage is a weakness or undesirable characteristic; a con while the advantage is any condition, circumstance, opportunity, or means, particularly favorable to success, or any desired end.

What are the disadvantages of business plan? ›

What Are the Cons of a Business Plan?
  • A business plan can turn out to be inaccurate. ...
  • Too much time can be spent on analysis. ...
  • There is often a lack of accountability. ...
  • A great business plan requires great implementation practices. ...
  • It restricts the freedom you once had. ...
  • It creates an environment of false certainty.
25 Mar 2016

What are the disadvantages of company? ›

The company form of organisation suffers from the following drawbacks:
  • Difficulty of Formation: ADVERTISEMENTS: ...
  • Separation of Ownership and Management: ...
  • Evils of Factory System: ...
  • Speculation in Shares: ...
  • Fraudulent Management: ...
  • Lack of Secrecy: ...
  • Delay in Decision-making: ...
  • Concentration of Economic Power:

What are the advantages of cloud-based ERP systems there are more than one answer? ›

If you're switching over from an on-premise ERP, you'll find several hidden economic benefits of cloud-based ERPs including: More instant scalability. Lower direct and indirect costs of infrastructure. Savings from not having to run and maintain the servers.

What is a disadvantage of a cloud-based enterprise system? ›

Disadvantages of Cloud-Based ERP Systems

The main drawback of cloud-based solutions is that the provider can access your data. Many companies have lots of sensitive data, and accessing it requires a high level of clearance. This is a reason why many defense and aerospace vendors choose on-premise solutions.

What is implementation of ERP? ›

What Is an ERP Implementation? An ERP system integrates many functions across the business, such as financial management, human resources, sales and manufacturing, to deliver benefits such as increased productivity and efficiency. ERP implementation describes the process of planning, configuring and deploying an ERP.

What is the largest benefit of a successfully implemented ERP system? ›

What is the largest benefit of a successfully implemented ERP system? Efficiency.

What is risk management in ERP? ›

Risk management is often thought of as the avoidance of negative outcomes, but it's clear that for an ERP implementation to be described as a success there must also be positive outcomes. Good project management should focus on business benefits realisation as well as delivering the project's goals and objectives.

What are the 6 main benefits of ERP? ›

The 6 biggest benefits you'll get from an ERP system
  1. A better view of your business process. ...
  2. Improved cooperation. ...
  3. Enhanced inventory control. ...
  4. Greater customer service. ...
  5. Stronger security and regulatory compliance. ...
  6. Scalability benefits.
5 Sept 2019

What is a disadvantage of an ERP system quizlet? ›

What are some disadvantages of ERP? Very complex and many companies cannot adjust to it.

Which of the following is a disadvantage of enterprise IT systems? ›

The correct answer is option C. Its implementation requires a large commitment of time and people. The use of the Enterprise Resource Planning System (ERP) is beneficial in having an effective and efficient business process.

What is the disadvantage before implementing ERP? ›

Before the implementation of the ERP system, all the information is stored in a different database. This information may be duplicated and there is a high risk that the information may not be the latest version. Hence, decision made based on this information may not be accurate.

What are the main characteristics of ERP system? ›

4 key features of ERP systems
  • Enterprise-wide integration. Business processes are integrated end to end across departments and business units. ...
  • Real-time (or near real-time) operations. ...
  • A common database. ...
  • Consistent look and feel.
28 Apr 2020

Which of the following is not an advantages of ERP? ›

Which of the following is NOT an advantage of an ERP system? d. simplicity and reduced costs (ERP systems are quite complex and costly; they do not offer the advantages of simplicity and reduced costs.)

What are advantages of ERP system quizlet? ›

An ERP provides an integrated, enterprise-wide, single view of the organization's data and financial situation. Storing all corporate information in a single database breaks down barriers between departments and streamlines the flow of information.

Which of the following is an example of ERP? ›

Tier 1 ERP software examples include vendors such as SAP with its array of ERP systems, Oracle applications such as E-Business Suite, and the Microsoft Dynamics AX system. Tier 2 is more crowded with ERP vendors and solutions.

What are the four major applications of ERP? ›

ERP Applications
  • CRM.
  • POS.
  • SALES.
  • PROJECT.
  • TIMESHEET.
  • HELPDESK.

What are the advantages and disadvantages of business? ›

At the same time, consider the advantages as well as the disadvantages of owning your own company.
  • Advantage: Financial Rewards. ...
  • Advantage: Lifestyle Independence. ...
  • Advantage: Personal Satisfaction and Growth. ...
  • Disadvantage: Financial Risk. ...
  • Disadvantage: Stress and Health Issues. ...
  • Disadvantage: Time Commitment. ...
  • Try a Side Hustle.

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