ERP software can be a great asset to a business, but it’s not perfect. So, what are the advantages and disadvantages of ERP software? And how do you decide if it’s right for your company?
Here, you’ll review:
- The pros and cons of ERP systems.
- What kinds of businesses benefit from an ERP the most.
What is an ERP system?
ERP stands for enterprise resource planning, a type of software that companies use to manage a wide range of business processes such as:
- Accounting and sales.
- Manufacturing.
- Inventory management.
- Human resources.
- Customer relations.
ERP systems can be extremely helpful in organizing and improving communication within a company. However, that’s not to say that there are no disadvantages of ERP software.
Understanding how enterprise resource planning works
Like other similar software applications, such as customer relationship management (CRM) and enterprise performance management (EMP) software, an ERP integrates business functions.
Enterprise resource planning systems provide employees with a single source of truth to base business decisions. With complete visibility of the company, you improve your efficiency and collaborate with minimal friction.
Another main feature of ERPs is automation.
ERP software reduces the need for manual data entry and, in turn, minimizes losses due to human error and oversight. ERP systems automate dozens of internal processes in:
- Purchasing and sales.
- Inventory management.
- Order processing.
- Customer relationship management.
- Accounting.
Finally, with machine learning and artificial intelligence tools, these software solutions provide more accurate forecasting and financial reporting. Plus, an ERP helps you monitor trends based on customer demands to establish your competitive advantage.
All of this is huge for small businesses, which can use ERP software solutions to fuel business growth.
ERP vs. MRP
The main difference between MRP and ERP systems is that the former focuses more on managing the raw materials used in production.
The latter, ERP, is a more extensive system that helps businesses manage nearly every aspect of their daily business operations.
ERPs evolved from MRP systems, which were designed to help the manufacturing industry move away from the slow and error-ridden pencil-and-paper method of taking inventory. There are two types of MRPs:
- MRP I: Short for material requirements planning, this system gives a clear view of inventory requirements and helps manage stock levels, plan production, and forecast raw materials needs.
- MRP II: Stands for material resources planning. MRP II builds on MRP I to add quality management, accounting, demand estimates, etc.
MRP II was the stepping stone for the development of today’s comprehensive ERPs.
ERP vs. EPM
Whereas ERPs exist to optimize operations, enterprise performance management (EPM) systems are designed to maximize management.
EPMs are a financial tool that helps in planning, strategizing, and budgeting resources. EPMs equip businesses with data analytics and forecasting tools to make predictions on profitability and identify opportunities to boost performance.
How do you choose between an ERP and EPM system? Oftentimes, you don’t have to – these software solutions go hand-in-hand to improve business performance and further business development.
ERP vs. CRM
The main difference between ERP software and CRM software is that the former is designed to integrate various business processes to streamline operations, while the latter focuses on managing customer data.
CRMs collect customer information such as interactions, and purchases and store them in a central hub. This hub can be integrated with other modules, meaning that ERPs and CRMs can be implemented together. This allows businesses to monitor the flow from production to sales.
CRMs are also sales tools that you can use to:
- Identify and follow through on leads.
- Make sales projections.
- Provide better customer support.
The advantages and disadvantages of using ERP systems
ERP systems are popular among businesses of all sizes. But what advantages do they offer and how do they fall short?
Let’s take a look at the benefits and disadvantages of ERP systems.
Enterprise resource planning advantages
Below are just a few of the advantages of using ERP systems.
Workflow automation.
By removing the need for manual data entry and automating basic tasks for dozens of modules, ERPs take hours of administrative work out of your employees’ hands and reduce the risk of human error.
This makes it easier for employees to do their jobs and focus on more complex responsibilities.
Eliminates data silos.
ERPs eliminate data silos by centralizing information into a shared hub.
With a single source of truth that is accessible, ERPs assure that the data you have is useful, relevant, and up-to-date.
Boosts communication and coordination.
When teams are in-sync data-wise, they experience less friction and have more time for creativity and collaboration.
And when you can instantly access key information, you can boost customer satisfaction by reducing the amount of time it takes to address concerns and investigate issues.
Improves financial planning.
Many ERP solutions come with data analytics and forecasting tools that help businesses make more informed decisions about their finances.
ERPs can turn real-time data into customized reports, help you pinpoint areas of downward cost pressures, improve cost savings, and identify your team’s level of production efficiency.
Enhances data security.
With all your data in one place, you only have to worry about securing one database. And most software suppliers go to great lengths to secure their clients’ data.
Most ERP software solutions also come with varying levels of access, meaning you can decide who gets to view and edit what kinds of information.
Enterprise resource planning disadvantages
As a relatively new technology, ERPs do have their drawbacks. Here are some of the most common disadvantages of ERP software.
Software implementation takes time.
Successful implementation of an ERP system can take months or even years, especially if you adopt software that has a steep learning curve.
While ERPs are designed to improve efficiency, you have to prepare for hiccups and disruptions during the deployment process.
Migrating data is labor-intensive and time-consuming.
Data migration can take even longer if your current system is outdated or, worse, if you’ve been tracking everything with bare-bones, pen-and-paper methods.
Manually inputting all your data into a new system (in a new format, even) can take away hours of your employees’ precious time.
High upfront and customization costs.
One of the biggest disadvantages of ERP systems is the high upfront cost.
Yes, ERPs are designed to cut down on operational costs, but they can also rack up quite a bill, especially if you opt for a fully-customized system.
Key takeaways: Benefits and disadvantages of ERP
ERP systems can be extremely advantageous for businesses of all sizes. They streamline processes, provide a single source of truth for data, and can help to improve communication across an organization.
However, they are not a silver bullet, and there are some disadvantages of ERP software.
Why not get the best of both worlds? With a solution that offers more than a traditional CRM but is more agile than clunky ERPs.
Method: Your best ERP alternative
If you’re looking for an ERP alternative that is more than a CRM but less than a full-fledged ERP — Method is it.
It offers a high ROI, quick implementation and enhanced flexibility for your niche business processes.
Plus, it integrates deeply with your QuickBooks or Xero account to connect your accounting and customer data.
This allows you to sync customer data, invoices, and payments, as well as create invoices and sales orders on the spot between Method and your accounting tool.
Any changes made sync automatically with your QuickBooks or Xero account, connecting your sales and accounting processes seamlessly.
Beyond this, Method offers workflow automation for:
- Lead and customer relationship management.
- Reporting.
- Estimates and invoices.
- Online portals.
Better yet, you can tailor the solution to do whatever you need it to thanks to its no-code platform.
Skip the disadvantages of ERP and only get the benefits with your free trial of Method:CRM!
ERP system FAQs
How effective are ERP systems?
ERP systems are effective at reducing operational and administrative costs. One study found that ERPs cut down on these costs by 23% and 22% respectively. They also increase on-time deliveries by 24%.
While powerful, there are of course, disadvantages of ERP as well.
What kinds of businesses will benefit from ERP software?
ERP systems were created with manufacturing businesses in mind, so manufacturing enterprises will benefit from them the most. However, other types of businesses can still benefit from using ERPs, as they come with a range of modules to streamline functions such as accounting, manufacturing, sales, customer relations, etc.
How do you know if an ERP system is right for your business?
Your business can benefit from an ERP if you need help integrating disparate systems and your current software isn’t able to handle the scale at which your business is growing or hopes to grow.
See if the best ERP alternative is right for you with a product tour of Method!
Image credit: Tiger Lily via Pexels
