Tuesday, March 4, 2008

Enterprise Resource Planning (ERP) Software Advantages and Disadvantages

Enterprise Resource Planning (ERP) Software 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.

Enterprise Resource Planning (ERP) Software 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.
- Small enterprises are often undercapitalized & are also not updated about the latest offerings in the market
- 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 US Dollars to 500,000,000 US Dollars 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.
- 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.
- 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.

Source : Wikipedia


Andrea said...

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I was assuming that ERP system is not having any disadvantage. But I am surprised to know all these problems associated with this software solution. Thanks for helping others by sharing this detail.

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Harsh Raj said...

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Naresh Kumar said...

Microsoft dynamics AX is one of the best enterprise resource planning software to manage internal and external information of the organization. Microsoft Dynamics AX ERP solution is very effective to improve work efficiency and maintaining over all database of the system.

Naresh Kumar said...

Microsoft dynamics AX is one of the best enterprise resource planning software to manage internal and external information of the organization. Microsoft Dynamics AX ERP solution is very effective to improve work efficiency and maintaining over all database of the system.