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Advantages and disadvantages of ERP



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 best to 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.
* 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.
* 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.

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