What Is Enterprise Resource Planning (ERP): Costs, Advantages and Disadvantages

What Is Enterprise Resource Planning (ERP): Costs, Advantages and Disadvantages
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Understanding ERP

To understand ERP, first “view” the departments, and their functions, of a company on a standalone basis. What do you see? Poor communication, delay in fulfilling orders, low quality customer service, and inventory pileups are just a few of the traits that should be your focus before obtaining a full understanding of what is enterprise resource planning.

Need to know how to make the veins of the business work together to harness the company resources? An ERP system can help. As a single software system, ERP binds the computer programs of the various departments with a central database.

ERP makes everyone in the business chain accountable for their actions. Thanks to ERP – any employee of the company, from the clerk that takes the customer order to the CFO that keeps the tab on the financial health of the company, can access up-to-date data from the central database and make strategic decisions.

Can ERP Alone Do the Magic?

The answer is a resounding no. To get the most of ERP, companies have to use better ways to do business. The one word that says it all is, “change.” Whether it’s how a customer service representative feeds in the order data or how the company fulfills the order, changes for more efficient business processes and procedures help unlock the ERP power.

ERP Cost, Time and ROI

With a handle on, “What is enterprise resource planning?” you now need to know what is the cost and time to implement ERP? ERP software is complex and expensive. The average investment costs for ERP is $6.2 million. It can on an average take 23 months to implement ERP. Take also into consideration the time you need to collect the business requirements and for the selection of an ERP system vendor. Both these activities can take at least a year. What about the time for ROI? Expect to leverage the returns in an average of 30 months from the project start date.

Blueprint for ERP Implementation

Carefully plan ERP projects and select vendors with the expertise and credibility for a smoother and faster completion. Needless to say, a technology work of this magnitude demands a large number of people. Consultants and systems integrators are also typically part of the system implementation team. Fight users’ resistance to change by educating them on the merits of the new system and business methods.

ERP Software

ERP software which is at the heart of an ERP system, is a catalyst that can drive business efficiency and competitiveness. Some of the world-leading ERP software includes SAP, Microsoft Dynamics and Oracle.

The single ERP software has modules. Each department like accounting, manufacturing, HR, sales and shipping will have its own program. As the modules are integrated into a single system, any department can tap the information in another, for example, to make better decisions.

ERP Software Categories

The two types of ERP software are:

Packaged: This is ready-to-buy software. Even with the packaged software, its vendor has to tailor it to an extent to make it a good fit with your business processes. Why? Because each company carries out business in a unique way. The packaged ERP software can support only the basic functions. The advantages of ready-to-buy ERP solutions include faster implementation and no or fewer changes to business processes. What are the disadvantages to choosing the packaged version? These range from the complexity of potential customization in the future to the inability to leverage a competitive business edge.

Customized: Such ERP solutions are built from scratch for your business needs. This software will adapt to your business processes rather than the other way around. On the flip side, the cost and time to design, develop, implement and maintain custom ERP is much higher in comparison to using a packaged counterpart.

Software-as-a-Service (SAAS) ERP

Software as a Service (SAAS) ERP is a contemporary, on-demand ERP delivery model via the Web. Through a Web browser, a user accesses an ERP module, which is available on the server of the service provider. What are the advantages of the SAAS route versus a traditional ERP? Some of the advantages are the faster implementation of the modules, zero maintenance costs and instant access to the program updates.

Benefits of ERP

A company can reap the benefits of ERP if it embraces change in its business processes to gain more business efficiency and drive other positive results.

Some of the benefits of ERP are that it can help reduce logistics costs, improve business performance, offer better customer service, reduce inventory costs, increase profits, generate accurate financial reports and improve cash flows.

The ERP system can also be a boon for better communication and superior customer service. Such a system can also reduce errors and eliminate redundancy.

In addition to the common fruits that ERP yields for all business segments, it also gives distinctive advantages specific to industry verticals. For instance, the consumer packaged goods domain can use ERP to allocate resources in a dynamic way to achieve higher service levels.


Wailgum, Thomas. “ERP costs: Three signs companies are wasting less money”, https://www.computerworlduk.com/in-depth/applications/2991/erp-costs-three-signs-companies-are-wasting-less-money/

Jennifer Recktenwald. “More advice on successful ERP implementation”, https://www.techrepublic.com/article/more-advice-on-successful-erp-implementation/1042444

Financial Excellence, https://www.sap.com/services/overview/fin-ex/index.epx

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