What are the Benefits of an ERP System and Its Challenges

The term “enterprise resource planning” or “ERP” is commonly used to describe a set of business applications linked together. It gives a business a single set of tools to manage its business processes, providing a “single source of truth” view of the business data for reporting. These integrated applications streamline how the business processes work together.

The Benefits and Challenges of ERP System

Many businesses find that implementing an ERP system improves communication between their business units. This is because they have an integrated view of all aspects of the business.

However, implementing an ERP system can be a daunting process. If you are embarking on that journey, you will face technical, people, and data challenges, and it’s important to know that you can overcome all of these with proper planning and communication.

What are the Benefits of ERP System and Its Challenges

This post shows you why you should consider an ERP system, provides guidance to help you find the ERP system that is right for you, and gives you ideas on how to overcome the challenges that arise during an ERP implementation.

Picking the Right ERP System

Picking an ERP system isn’t a decision to be made lightly. There are hundreds of ERP software packages available. While they all generally integrate business processes, individual systems may differ in their support of specific business processes and in the way they integrate the processes.

When you are researching ERP systems, it is important to begin by narrowing down the list to those that support your business processes. For example, not all ERP systems support Kanban (continuous improvement of the manufacturing process). If your business relies on Kanban, you should start by focusing on identifying ERP systems that support Kanban.

The Benefits of an ERP System

Enterprises can take advantage of several ERP benefits. First, focus on what your business expects to gain from the implementation of the ERP system. Typically, the main reason why businesses implement ERP systems is to increase productivity, improve reporting, and provide a single, integrated security model across business processes.

1. Increase productivity

ERP systems typically improve productivity in several ways:

  • Integrated systems typically improve communication between departments and business processes through data standardization and automated workflow processing.
  • Everyone uses the same source of data, so reporting becomes more consistent, accurate, and timely.
  • The various systems share a common data methodology, so the data is consistent across departments, business units, regions, and countries.

By using integrated systems, organizations have consistent data definitions and access to real-time data. As such, they can shrink inventory, reduce costs, eliminate overhead, and increase profitability.

As you look at ERP systems, keep your business goals in mind and ask yourself whether the core functionality of an ERP system will help you reach your strategic business goals.

2. Enhance Reporting

Many ERP systems include an integrated reporting application. Using this reporting application, customers can quickly gain insight into data that may not have been previously available. As you look at ERP systems, look at the reports that are provided with the software. Then, identify how you would use those reports to replicate or replace your existing reports.

The reports in the new ERP system may include summarization, drill-down, and business intelligence capabilities that weren’t available in your old software.

3. Improve Business Processes

Many businesses view ERP implementation as an opportunity to review and improve core business processes. However, if you have ever been told, “We have always done it that way,” you know that your business processes need improvement.

To get the most out of the new ERP system, make sure your ERP selection and implementation teams include both individuals who are business process experts and those who are open to reviewing and changing those business processes. Then, look for ERP systems that will support and improve your business processes. For example, if inventory management is one of your most resource-intensive business processes, look for ERP software that will enable you to automate those manual business processes.

Challenges of ERP Implementation

There are hundreds of ERP systems on the market with thousands of integrated features. However, finding the one system that best supports your industry, business processes, and business size and the right number of users at the right price may seem daunting.

Begin by identifying the ERP systems that support your industry and business processes. Then, ask others in your industry how the implementation went and what using the system is like. Finally, use the results of your research to narrow the list down to just a few candidates.

1. Consider Technical Considerations

As you review your narrowed-down list of possible ERP systems, there are technical considerations that may prove challenging as well. For example, some ERP systems are only available through a Software-as-a-Service (SaaS) offering, meaning that your application and data are stored on the vendor’s servers. Therefore, if you were planning on hosting the software on-premises, that might rule out those ERP systems.

However, before you cross a potential ERP system off of your list, take a look at each system’s minimum technical requirements (MTR):

  • How many servers and workstations will you need? Can you reuse what you have, or should you buy new?
  • How much data do you have now? How much do you anticipate having in three years?
  • Are your local area and your wide area networks up to the challenge?
  • Will you need a larger Internet connection?
  • What about mobile? Are your devices up to the challenge? What about your wireless service provider?
  • Do you have employees with the right training and knowledge to support the underlying technologies involved?

As you answer these questions, you should look at the cost of hosting the ERP system yourself and the cost of using a SaaS provider. The answer may surprise you!

2. Consider Data Considerations

When you get down to the final few candidates, it’s time to take a hard look at your data and the challenge of importing it into the new ERP system. After all, you will need to bring some or all of your data to provide historical reporting. Ask each vendor the following questions:

  • Are there pre-existing tools available to import your existing data into the selected system?
  • Will there be potential data quality issues if you convert your data? For example, will you be able to compare historical data and new data accurately?
  • Do you need to bring in all your details, or can you bring in summarized historical data? If you summarize data, how will that impact the quality of period-over-period reporting? Did well summarize data impact demand forecasts?
  • Will you need to use a third-party reporting tool, or will the included reports provide you with all the reporting functionality you need?

3. Consider Staffing Issues

As you proceed in your implementation, you will be faced with possibly the greatest challenge: people who don’t like or can’t handle change. While there is a small subset of people who embrace change, most people will resist change. The new system may change an employee’s responsibilities. Your employees may be asked to learn to use systems and processes they don’t understand. They may enter data “the old way” into new systems or try to replicate outdated business processes in the new system.

Employees will be faced with entering, managing, and finding data in new ways. As a result, the business processes they have used for their entire career may be drastically changed. As a result, they may feel like their job is threatened.

The way to overcome these challenges is through communication and involvement. Identify employees who are receptive to change and include them in your planning from the start. Bring in “the old guard” to help you document business processes and get them thinking about things that can be done to improve those processes. Then, when you are setting up and testing the new system, involve them as well. And listen to their feedback: Don’t blindly assume that your plan is right.

4. Consider Business Considerations

After implementation is complete, you may face the challenge of a paradigm shift for the business. Business leaders may expect certain reports with data formatted in a specific way. They may see numbers or results that shock or scare them. For example, suppose inventory reports were always done by the business unit and never integrated. In that case, an executive may see the number and not understand that it represents a company totally and that the business unit detail is only a click away. Many times, people will see the data and immediately respond, “The data is wrong” or “The system is wrong.”

Including key executives in the planning, implementation, and validation of executive-level reports is the key to overcoming these challenges. Those executives will help you instill confidence that the information is accurate. If you can get executive buy-in, it may foster acceptance throughout the company.

Selecting and implementing an ERP system is a challenging proposition. As a result, many businesses struggle to implement a new ERP system. For you to succeed, you will need to focus on preparation and communication.

Preparation will help you get off on the right foot. First, you need to understand your business processes, technical infrastructure, data characteristics, and reporting requirements. Then, with that information in hand, you should be able to select the right ERP system.

Communication will get you through the implementation’s challenges. As you work your way through the implementation, communicating with the key stakeholders will help them understand the benefits they will see when the implementation is complete. Excellent communication will also ease the transition into the new business processes for even your most hesitant end user.

1 thought on “What are the Benefits of an ERP System and Its Challenges”

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    Ranjeet Kumar

    ERP System is no doubt essential for medium to large scale business. Though there are numerous challenges when it comes to implementation of the system. Projects are often delayed as the consultant’s knowledge is not up to the mark. The cost of the software implementation is considerably high due to the delay.

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