ERP - Pros and Cons


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Here is an argument for and against implementation of an ERP system.

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ERP - Pros and Cons

  1. 1. Build an argument either for or against the adoption of ERP systems. Provide facts and analysis as necessary. Be sure to cite all sources. Enterprise Resource Planning is a tool used to integrate the data and processes of an organization into one single system using many components including hardware, software, a unified database, etc.1 An ERP system streamlines and integrates different functional areas within an organization to ensure proper communication, productivity and efficiency. 2 (Refer Appendix B) However an ERP system need not be always the best solution for the organization and there may be many disadvantages associated with it. To begin with, ERP systems are extremely expensive (Refer Appendix C). There are multiple expenditures involved in an ERP system which includes the software, hardware, training, implementation, licences, maintenance, consulting, etc raising the overall cost of implementing an ERP system. To further add to the woes, it is very difficult to ascertain the ROI of an ERP System. There are no specific tools and techniques available to exactly measure the Return on Investment of an ERP system, hence making it difficult to measure the value addition in monetary terms, by an ERP system. With respect to features and compatibility, ERP systems offer very limited customization and are often too rigid and too difficult to adapt to the specific workflow and business process of some companies. Re- engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage. Furthermore, the “industry standard” process prescribed by the vendor may not be the best practice followed. Some large organizations may have multiple departments with separate, independent resources, missions, chains-of-command, etc, and consolidation into a single enterprise based on the specifications of ERP system may yield limited benefits.2 It is alarming to note the amount of time that is invested to implement an ERP system in the organization. Also, workers have to shun their regular labour and undertake training, which disturbs the regular functioning of the organization. 3 There is a high risk involved with the Security of the data, which is centralized in one place thereby increasing the risk of loss of sensitive information in the event of a security breach.2 Finally, the biggest impediment to successfully implementing an ERP project is the resistance of End Users. Since, the operators are used to using the legacy system they do not accept the new system easily, which could result in failure of the system. Hence, based on the above points articulated it can be stated that implementing an ERP system may not be the best option for the organization. It is important that every organization weighs the benefits and other alternatives carefully before deciding to implement an ERP system.
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  3. 3. Appendix B Streamlining and Integration of various departments in an organization using ERP. Ideally, ERP delivers a single database that contains all data for the software modules, which would include: Manufacturing Engineering, bills of material, scheduling, capacity, workflow management, quality control, cost management, manufacturing process, manufacturing projects, manufacturing flow Supply chain management Order to cash, inventory, order entry, purchasing, product configuration, supply chain planning, supplier scheduling, inspection of goods, claim processing, commission calculation Financials General ledger, cash management, accounts payable, accounts receivable, fixed assets Project management Costing, billing, time and expense, performance units, activity management Human resources Human resources, payroll, training, time and attendance, rostering, benefits Customer relationship management Sales and marketing, commissions, service, customer contact and call center support Source - 3
  4. 4. Appendix C Average cost of ERP Systems. Source - 4