If your business is at a turning point, you might be wondering:
Are the benefits of ERP worth the switch?
Maybe you’ve started to notice the company is growing and products are selling…
…so the current systems you use are starting to lag behind, slowing down productivity.
So now it’s time to determine whether to leap to ERP software.
It’s a big decision that can lead to either supercharged growth or disastrous consequences.
Read on to learn more about the advantages and disadvantages of ERP.
What Is an ERP System?
Enterprise Resource Planning (ERP) is a specific type of software that combines the main business functions into one system.
These functions may include operational activities such as inventory management, accounting, human resources, or e-commerce.
Integrating an ERP system means you are switching your business management processes to something else entirely.
As you can imagine, this integration will take up company time, money, and resources to fully implement.
The 10 Game-Changing Benefits of ERP Systems
1. Unify Disjointed Systems in a Business
Before smartphones, going on a road trip wasn’t as easy as it is now.
You couldn’t put an address into Google Maps and drive off. You had to print directions from Mapquest or even buy an Atlas.
You’d have to wait for the radio to play your favorite song or bring a walkman with you.
Wondering how much this trip will cost you? Don’t forget to bring a calculator.
Good thing we don’t need to deal with that anymore. We now have maps, the radio, and a calculator all on one handy palm-sized device.
Just like our phones, the benefits of ERP include combining separate entities all into one.
Some advantages of ERP software include:
- Easier access to information
- Improved efficiency
- Fewer communication breakdowns
2. Transform Outdated Legacy Systems
Maybe, in the beginning, Excel successfully managed your inventory. But now the manufacturing team and available products have grown, yet you’re still using Excel.
Or maybe HR manually inputs employees’ hours from a system not connected to payroll — wasting hours of your day.
You get “used to” your current manual processes and just do it the way it has always been done.
The issue is once you get used to it, it’s easy to get complacent.
ERP software updates these old systems so it’s no longer so manually driven.
3. Enhance Operational Productivity
Most ERP vendors advertise efficiency.
In fact, out of businesses that incorporated ERP software, 95% of respondents improved some or all of their business processes.
That’s pretty major.
The reason?
Because you’re not wasting time having to learn multiple systems or opening two different programs to check something. ERP also improves cash flow, resulting in more money.
Everyone likes getting their money quicker.
4. Scales With Your Business
Switching to an ERP system isn’t easy. After all, over 60% of ERP integrations fail.
So why do companies continue to take the risk?
It is because decision-makers have a growth mindset:
They know how well ERP systems scale with a growing business.
Simply put, most ERP software offers modules specific to your business needs and the ability to add functions as the company grows.
This flexibility is advantageous regardless of whether you have 2,000 or 20,000 employees.
You don’t need to frequently accommodate ever-changing business needs. If implemented correctly, the benefits of ERP software can’t be understated.
5. Make Informed Decisions With Less Human Error
Technology and trends are constantly changing — it’s bad news if your company can’t keep up.
Since business decisions must be made quickly (and accurately), you need access to the most up-to-date data and analytics.
If you find yourself wasting hours or days manually creating reports, then it might be an indicator to switch to an ERP system.
Plus, manually inputting data into a report can’t be done mistake-free, 100% of the time.
We ARE all human.
But since ERP software pulls the data automatically, it greatly reduces the chances of errors.
It would be devastating to create a costly business decision based on inaccurate data.
6. Ensure Security and Regulatory Compliance
Maintaining data security is of utmost importance to companies.
If there is a data breach, you’re not only dealing with the aftermath’s logistical nightmare, but also the betrayed trust of customers and clients.
With the nature of business functions, ERP systems contain large amounts of sensitive data. That sensitive data shouldn’t get stored in a spreadsheet in someone’s unlocked folder.
Benefits of ERP software in managing security include:
- Data backups and encryption
- Access is granted depending on the job function
- Continual audits for access necessity
- Transparency in tracking products
7. Advanced Management of Supply Chain and Inventory
Supply chain issues often result in a costly halt to business operations.
Maybe the manufacturer is short-staffed or the last piece of equipment you need is backlogged. Or you simply have too many buyers (nice) but didn’t project enough for it.
A major advantage of ERP is the variety of modules and tools that standardize keeping track of all the moving parts of the supply chain.
Since ERP systems can also be set up specifically to automate inventory management and projection, it reduces the time-consuming need to do these manually.
8. Reduce Miscommunications Between Departments
Imagine you’re getting ready to present last quarter’s sales numbers.
But there’s an issue.
You find out that this important quarterly report is attached to an email sent to someone who is currently on vacation. And the person who made the report no longer works at the company.
Although unlikely (who doesn’t CC everyone?) it doesn’t negate the fact that situations like this are possible.
These scenarios are the exact situation that ERP software helps to avoid.
There is a reason why one of the top benefits of ERP software includes increased collaboration (reduced process time and centralized data are the others).
Seemingly small communication breakdowns can lead to tension that creates large-scale employee dissatisfaction.
9. Larger ROI and Happier Customers
No customer wants to feel like just another number.
As a business, you want to make the barrier to entry easy so you can turn potential customers into lifelong fans.
To accomplish this, companies often use ERP software as a CRM (Customer Relationship Management) tool.
In fact, according to Nucleus Research, incorporating a CRM provides companies with an average ROI of $8.71 per dollar spent.
CRM allows businesses to automate marketing and sales, follow the customer through their buying cycle, and provide personalized offers.
Plus, ERP systems offer solutions that contribute to the customer experience regardless of behind-the-scenes disruptions.
It is a powerful tool for any growing business.
10. Put Repetitive Functions on Autopilot
Manual processes are slow and cumbersome.
The only thing worse than manually doing something is having to do it twice. it. Every. Single. Time.
Automation is one of the biggest advantages of ERP specifically because it helps efficiency.
If one employee needs data manually inputted by another, then productivity is wasted for everyone.
Most ERP solutions automate and create real-time data, negating the necessity of manually transferring data.
The 6 Main Disadvantages of ERPs
1. You’ll Pay (Literally) If You Don’t Know What You Want
Two companies can use the same ERP software for completely different reasons.
It’s like car shopping: all cars get you from point A to B but the ride differs depending on taste.
After all, you don’t purchase a new car without a few preferences in mind. Similarly, you wouldn’t get ERP software without knowing how it helps your business.
Going in without a plan all but guarantees an implementation failure.
Too many companies think that an ERP will fix all their system issues.
But time and effort are required to ensure the ERP software fits your needs.
This might mean scheduling multiple meetings with departments so everyone is clear. This may require back and forth and discussion with multiple sales reps.
But going through and doing your due diligence on this will make the ERP integration much smoother.
2. ERP Implementation Is Notorious for Going Over Budget
Compared to the other disadvantages of ERP, price is a huge consideration.
The sticker price of ERP is already expensive but most companies aren’t fully prepared for just how expensive integration truly is.
No matter how thorough you budget for ERP integration, it is common to go over that budget.
Be prepared because you do NOT want to be one of the companies that spent millions of dollars on a failed integration.
3. Expect to Plan Around the ERP Software
If you are thinking about switching to an ERP, I wouldn’t get too attached to your current system.
Too many businesses try to force ERP features to fit with the current system instead of the other way around.
In other words, implementation will be easier for everyone if you assess the good parts of your current system and determine if it’s able to integrate with the ERP.
Although it may sound counter-intuitive, ERP is designed with efficiency in mind. The software knows what it does well and already has a proven method in how it helps your business.
4. Implementation Takes Longer Than You Think
ERP implementation is not known for being quick and painless.
Actually quite the opposite.
A major disadvantage presents in the beginning: getting a company’s new ERP up and running.
The issue with slow implementation is how it affects doing required daily tasks.
Systems might frequently need updating or have downtime, causing frustration for the employee who has an upcoming product deadline.
As a company, you’ll need to be prepared that this frustration may drag on for months.
5. Requires Managers to Buy-in
Integrating ERP software ends up being a total revamp to your current system.
This is not something an IT person should decide on for the whole company.
To do this successfully, all departments must be willing to participate.
Changing processes requires upper management to instigate the change. They are the ones who share insight with the employees that the growing pains will ultimately be beneficial.
If not everyone is on board, it can lead to increased turnover out of frustration.
6. Still Requires Human Interpretation
Many businesses add ERP software to have all their data in one system to make it easier to make future decisions based on the data.
Not a bad idea, right?
The issue is that the data is there but it still requires a human to interpret it.
You must ensure the quality of the data doesn’t become lax, otherwise poor decisions might be made that negatively hurt the future of the business.
And this would not be the ERP system’s fault.
How to Decide if an ERP System Is Right for Your Business
There are a few major areas you’ll need clear answers on before switching:
- Business need: What specific functions will the ERP software accomplish? Is your industry a common area that uses ERP?
- Budget: Do you have the resources available for a long implementation process? Do you have the money available to account for going over the initial budget? Are you willing to go over budget?
- Company size: Is the company growing or do you have a manageable number of employees? Will a smaller, simpler upgrade work instead?
- Employee willingness: Are current employees willing to change their current processes and adjust to new ones? Or will they try to work their manual processes in, therefore reducing ROI?
- Integrating team: Do you have a consultant, firm, or in-house team to assist with integration? Who will provide ongoing support during updates or errors?
Do You Find the Benefits of ERP Worth It?
After weighing the pros and cons of ERP, you should have a better understanding of whether ERP software is right for you.
So, is it time for your company to switch?
If yes, congratulations! Make sure you get fully prepared by reading our ERP implementation guide before getting started.
If not, that’s reasonable too. There’s no need to rush the process.
You can implement ERP when you’re ready.