Pro's & Con's of An Enterprise Resource Planning

Advantages

In the absence of an ERP system, a large manufacturer may find itself with many software applications that cannot communicate or interface effectively with one another. Tasks that need to interface with one another may involve:

·         ERP systems connect the necessary software in order for accurate forecasting to be done. This allows inventory levels to be kept at maximum efficiency and the company to be more profitable.

·         Integration among different functional areas to ensure proper communication, productivity and efficiency

·         Design engineering (how to best make the product)

·         Order tracking, from acceptance through fulfillment

·         The revenue cycle, from invoice through cash receipt

·         Managing inter-dependencies of complex processes bill of materials

·         Tracking the three-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 at a granular level.

·         ERP Systems centralize the data in one place. Benefits of this include:

·         Eliminates the problem of synchronizing changes between multiple systems

·         Permits control of business processes that cross functional boundaries

·         Provides top-down view of the enterprise (no "islands of information")

·         Reduces the risk of loss of sensitive data by consolidating multiple permissions and security models into a single structure.

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, for example, might involve a disgruntled employee intentionally modifying prices to below-the-breakeven point in order to attempt to interfere with the company's profit 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.

 

Disadvantages

Problems with ERP systems are mainly due to inadequate investment in ongoing training for the involved IT 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 the ways in which 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 (This has led 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.