What Is ERP And Its Challenges?
Enterprise Resource Planning software can be a lifesaver for your business. Imagine automating all your day-to-day business processes and having a centralized source of data for your company to work with, and you've visualized the goal of ERP.
ERP is one of the most widely adopted systems across business organizations today; they are being implemented to improve business operations, enhance data security and data quality, automate workflows, and improve customer service.
Here we will discuss this powerful software in detail, covering ERP implementation and challenges faced with its implementation; along with the ERP benefits and the risks involved.
What is ERP?
ERP is an acronym that stands for “Enterprise Resource Planning”. It is a type of process management software used by businesses to better manage their operations across the stages of resource planning. The entirety of your organization can benefit from ERP including your company's financials, supply chain management, commerce, reporting, manufacturing, and human resources.
In the past, ERP software was not as “fluid” or “singular” as they are today. ERP software now has the capability to interconnect all your productivity tools and solutions across a single system. They are also incredibly flexible so you can customize them to your unique workflows; in other words. There are different types of ERP as well, including those that can be customized to any business and others that are industry-specific.
The scale, scope, and functionality of ERP systems vary from one organization to the next. In short, ERP software systems are used to reduce your manual labor/manual processes through automation and will amplify your business productivity, accuracy, and efficiency.
That being said, and despite all the advantages of ERP for business, ERP has its challenges. One of the biggest issues faced by organizations include a lack of organizational and executive support, issues managing user expectations and a change in management. We’ll be discussing more of these challenges in detail.
What is ERP Implementation?
A true ERP is used to simplify workflows, bring about automation, and a centralized database for business operations. You can see your workflows in real-time and analyze collected data to measure your productivity and efficiency. The implementation of such software isn’t exactly easy; it will involve planning, phasing, setting objectives, establishing project direction, and deploying your ERP software system.
There are many reasons a company undertakes ERP and that implementation cycle is broken down into 8 phases:
- Selecting Package: Research and select a package that fits your business requirements; consider the flexibility and customizability it can provide to your business, the features they carry; this is one of the most critical steps of ERP implementation.
- Project Planning: Planning your project, choosing resources to invest, allocating team roles and tasks for effective ERP implementation.
- Analysis GAP: Studying the software you use presently and those you plan to use in the future that is in line with your ERP implementation goals and organizational goals.
- Re-engineering: Redesigning core business processes and workflows in your organization so they can work concurrently.
- Training: Training employees to work with the new system in place.
- Testing: Assessing and eradicating errors, bugs, weak links in your ERP system software.
- Application: Implementing your new ERP system while discarding the outdated system.
- Maintenance: Keeping your ERP system up to date at all times and weed out any future errors in operations.
What are the Benefits and Challenges of ERP?
ERP implementation carries its benefits and challenges. Here are some of the key benefits and characteristics of ERP system software:
- Improved Performance: ERP system features boost efficiency and can help you plan projects using calculated resources that will provide you with optimum productivity.
- Flexibility/Scalability: ERP systems can give your organization the flexibility it needs to tackle all types of market changes and adapt, grow and change “in a scalable way” over time.
- Reduced Costs: ERP systems can call for a large investment but this investment is worth it in the long run. With a centralized database and automated workflows, you’ll reduce the costs of training users over several systems tied with the logistical efforts of retrieving information from each department.
- Improved Data Reporting: With a centralized single source of data your ERP system will allow for analytics and data reporting in real-time.
- Improved Collaboration: With ERP systems, your project teams communicate better as you reduce the barriers to open communication and data access.
- Data Security: ERP systems can help improve the accuracy and security of your critical data, they provide intrinsic controls, centralized backups, and extra layers of security to protect your on-premise and cloud-based data.
What are the Challenges of ERP?
What are the challenges of enterprise resource planning? Here are some of the most common challenges faced by organizations that implement ERP systems.
- Selecting the Right Vendor: Choosing the right vendor is one of the critical steps in ERP implementation. Your criteria for ERP vendors should be according to your business requirements, your budget, your timescale, project considerations, scalability, and associated risks. Look for verified testimonials of the vendor you choose before you proceed.
- Integration Process: Most organizations have multiple departments and divisions operative within them, selecting the right ERP system to unify them across a single system can be a hefty process, any errors may lead to a delay in productivity. It takes time to successfully implement an ERP system across all your departments, and the ERP implementation timeline for small companies can vary according to complexity as well.
- Appropriate Training: In order for an ERP system to be successfully implemented, you need to train your employees on the functioning of this new system, some employees may be resistant to this change, and you may even see a dip in productivity. Therefore you need to allocate resources to train your employees and uplift morale while doing so.
- Data Quality Challenge: Shifting your data sources to the new ERP system isn’t easy. Your new unified data may have inaccuracies, inconsistencies, and obsolete information. Cleaning up data and ensuring data quality is a challenge for any organization implementing ERP systems.
- Cost: Some organizations may argue that the costs of implementing ERP outweigh the benefit and are not worth the investment. Moreover, added maintenance costs and data migration also factor in and you may end up going over budget. Data migration alone can represent as much as 10-15% of total project costs according to ERP Focus. Moreover, on-premises ERP software vendors may charge an annual maintenance fee of 15-25% alone. Managing your budget effectively while implementing an ERP system may be a challenge.
- Hardware Requirements: ERP systems will usually demand an upgrade in your internal hardware as their applications require more advanced hardware to run efficiently, a lack of sufficient hardware can lead to damages to your productivity.
What are the Risks of ERP Implementation?
Some of the most common risks associated with ERP implementation include:
- A failure to redesign your core business processes to fit ERP system software
- A lack of executive support for the successful implementation of the ERP system; managers that do not properly oversee project proceedings.
- Insufficient training of current employees
- Inability to find committed employees for project management regarding ERP systems as most can be resistant to new systems.
- A lack of adequate and timely testing of ERP systems.
- Not incorporating the required technical infrastructure that meets the scope of your ERP system.
- Selecting an ERP software that does not fit your business objectives.
Many of the implementation risks of ERP can be overcome with proper planning. This starts with properly researching and vetting the ERP systems you're considering and doing side-by-side comparisons of leading ERP vendors. SAP is a cloud-based ERP leader and a good baseline for your comparisons (like Oracle vs. SAP, ServiceNow vs. SAP, ERP Vs. SAP, and so forth)