The issue of whether or not to adopt an organization-wide ERP system remains a tricky question for growing businesses—and for good reason. According to Manufacturing Business Technology Magazine, 75 percent of ERP implementation projects end in failure, while 74 percent run over budget.
With outcomes like these, business owners and decision-makers likely find themselves wondering, “Why is ERP so important?” and “Is it worth the risk and cost?”
In this article, our aim is to help your business approach enterprise resource planning assessment from a position of knowledge. To that end, we cover the following sections:
- The advantages of ERP
- The disadvantages of ERP
- ERP cost considerations
- Who uses ERP
- How to decide if your business needs and ERP
First, let’s see what benefits can be gained from ERP adoption.
What are the primary business benefits of ERP software?
Enterprise resource planning has been touted as the framework for superior business management. By connecting core business operations like financial management, supply chain management, customer relationship management, human resources, and more, companies hope to bring greater efficiency to processes and improve business outcomes.
The major benefits of ERP systems fall into three categories: the unification of disparate systems, the automation of manual processes, and enhanced reporting capabilities.
Learn more about how ERPs work here.
1. Single source of truth
By centralizing disparate systems onto a single platform, businesses can break down data silos and improve cross-department collaboration. Without a single source of truth, employees can end up working from different datasets, which can increase errors rates and reduce organizational efficiency.
Connected systems that share data have numerous benefits. For example, when a salesperson closes an order via customer relationship management (CRM) program, like Salesforce, they can create an invoice or estimate and fulfill an order in just a few clicks, all working from the same integrated database.
A single source of truth can also help improve data security. By implementing organization-wide access permission rules and multi-factor authentication to access business applications, organizations can better protect sensitive data. They can also monitor suspicious log-ons and system activity through the security features built-in to most ERP systems. With one system to manage, there are fewer entry points for security breaches.
A single source of business data can also help organizations stay on top of regulatory compliance. For example, most ERP systems adhere to Generally Accepted Accounting Principles (GAAP) and consolidate finance records in one place, making IRS tax compliance much easier.
2. Automation of manual processes
Another major benefit of ERP is the automation of manual processes. With connected business applications sharing real-time data in the background, the need for duplicate data entry is eliminated. Plus, with software solutions taking over the heavy lifting of mundane tasks, the propensity for human error is drastically reduced. ERP systems can streamline formerly time-consuming tasks such as inventory cycle counts, sales order processing, invoicing, customer service notifications, and more.
With repetitive tasks turned over to ERP automation, staff will be free to work on value-generating assignments instead of laborious manual processes.
Enhanced analytics and reporting capabilities are an extension of the first two benefits. By leveraging a unified platform to share data across business applications, most ERP vendors offer functionality to automatically generate business intelligence reports that offer a more complete view of the business.
This may include general reports with relevance across industries such as real-time inventory snapshots, profit and loss analyses, and accurate forecasting. In addition, purpose-built ERP software may include industry-specific reporting capabilities like job costing for construction businesses, gross margin by item by retailers, or markup-based pricing for wholesalers and distributors.
Access to this real-time business information and insights helps power better decision-making and enables staff to act more quickly when time is of the essence.