Pros and Cons of Using an ERP

The cornerstone of a modern financial practice is easy access to data from sources including general ledger (GL), payroll and accounts payable and receivable. Automating as many financial and operational processes as possible eases audits and minimises human error and fraud.

Depending on the business, you may also want deep inventory, order and supply chain insights and help with procurement, production, distribution and fulfilment.

So how do you get all this real-time insight mojo? ERP.

What is Enterprise Resource Planning (ERP)?

An ERP system is software that gathers, analyses and shares information from different departments in a single database. ERP connects the dots on vital business processes, such as accounting, operations, manufacturing and sales, adding efficiencies through automation and data analysis. Dig deeper into exactly what comprises ERP.

Companies with highly distributed teams may say, “That’s great, but my controller is in Chicago while the head of sales is working the phones from Buffalo. How can they stay in sync?”

The answer is, with cloud-based software.

What is cloud ERP?

Cloud ERP is Software-as-a-Service (SaaS) technology that collects real-time data from critical business processes and makes it available via the Internet. Your controller, finance staff, executives, partners and anyone else your company wishes can get accurate information, on whatever device they’re using, wherever and whenever they’re working.

The difference between traditional on-premises ERP and cloud ERP is that all data, software and systems are hosted online rather than using on-premises hardware in a server room.

Cloud ERP offers frequent systems updates, fewer startup costs, less need for IT intervention and better security, making it ideal for distributed enterprises as well as small and midsize businesses looking to grow.

Why do I need an ERP system?

The business case for ERP is compelling. By breaking down data silos, finance and other business leaders can be better stewards of company resources and empower the business to deliver excellent customer service and gain competitive advantages.

Think about these business benefits:

Eliminate stacks of paper—or their standalone spreadsheet equivalents. Now, procurement orders, timesheets, expense reports, invoices and other data is stored safely in the cloud and accessible from anywhere.

Real-time reports, where finance and business users draw data from multiple sources, yield insights into the activity and health of the organisation as a whole and help identify trends, best practices and areas where there’s room for improvement.

More income, lower overhead. With improved access to information, sales teams can identify leads, access the most up-to-date pricing and availability data and quickly issue contracts with fewer errors. Meanwhile, when using cloud ERP, companies can redirect IT’s efforts away from maintaining servers and performing software updates and toward supporting newly remote employees.

Pros of an ERP System

The world’s most successful companies consider ERP essential technology. In 2020, changes to the business environment are making all-size firms understand why.

Let’s look at six areas that build on those business benefits we discussed.

General: ERP systems provide a big-picture look at financial reality in near real time. Specifically, a modern ERP system:

Consolidates data across departments, identifying key metrics, enhancing decision-making and adding operational efficiencies.
Enables employees to access information from anywhere, especially when implemented in the cloud.
Is expandable with add on modules, so the system can grow to meet changing company needs.
Automates many functions, reducing error and fraud, increasing compliance while freeing up finance teams.
Delivers savings for IT departments versus managing separate, non-integrated technology stacks.

Accounting and finance: ERP systems support accounting and finance professionals by:

Gathering all data relating to company finances.
Automating essential accounting functions, removing human error and reducing the time needed to perform complex financial tasks.
Managing fundamental financial processes, turning general ledger (GL), accounts receivable (AR) and accounts payable (AP) from static sheets into dynamic assets that support business needs.
Improving financial accuracy, reducing month-end close times and automating financial reporting.
Simplifying tax compliance across different countries, states and business units, handling local taxes, cross-border sales and multiple currencies with ease—this is a pending pain point in 2020 for companies with employees newly working in multiple locales.
Addressing advanced accounting challenges, like revenue recognition and management of fixed assets, cash and payments.
Spotting trends that inform business decisions and forecasting, such as profit and loss, revenue, sales and more.

Manufacturing: If there’s one lesson from 2020 for manufacturers, it’s that supply chain visibility is king. ERP systems can also:

Manage end-to-end manufacturing processes, from raw material sourcing to shipping to production and order fulfilment.
With an integrated CRM module, help manufacturers manage customer relationships, sales orders and the lead-to-cash process.
Assist with product data management, procurement of resources, production control, inventory management, quality management and material requirements planning (MRP).

Sales and marketing: Again, with the right modules, ERP systems connect the activities of sales, marketing and customer service teams, producing powerful, personalised customer experiences and enhanced customer relationship management, in addition to:

Providing the sales team with real-time visibility into the customer pipeline, highlighting best practices for winning deals and automating sales processes and compensation management.
Helping marketing teams execute multichannel campaigns, align marketing and sales goals and shorten the sales cycle with more-targeted campaigns.
Supporting customer service teams through detailed customer records, tracking all customer touchpoints, service recommendations and automated follow-up for specific requests. That helps immensely with retention.

Human resources: Expanded ERP systems provide the human resource department with tools and methods to support and retain a company’s greatest asset—its people—by:

Providing a better experience for HR professionals and employees through a centralised system offering two-way communication between leadership and the workforce.
Automating HR processes such as payroll processing for employees or contractors in different cities, states or countries.
Having real time GL postings and access to payroll costs on reports and dashboards.
Manages timesheets and time-off requests in a single system.

Team collaboration: ERP platforms increase communication and collaboration across every facet of an organisation, particularly important when employees aren’t gathering in an office and must perform processes, like monthly closes, remotely. Key functions include the ability to:

Connect employees and information across departments, breaking down information silos and increasing knowledge sharing;
Standardise workflows and business processes across units; and
Provide better project management and workflows for big ventures involving separate teams.

Cons of an ERP System

There are several challenges a company must overcome to get full value from an ERP system.

Cost: A substantial deterrent to ERP is the upfront integration and ongoing subscription and licensing costs associated with the technology.

Depending on company size, purchasing, implementing and maintaining an ERP system can be expensive.
For on-premises systems, companies must also factor in IT support and infrastructure costs, such as server hardware.
The company may need to purchase additional add-on services or software as the organisation evolves and operational needs expand.

Implementation challenges: It takes time, money and resources to get an ERP system up and running, even with a thorough implementation checklist.

Companies must allocate internal employee resources to decide which ERP system to purchase. That can be an in-depth process involving finance, operations, IT and potentially sales, marketing and HR leaders.
For companies with disparate spreadsheets and even piles of paper files, there may be a lengthy data migration process that may require hiring an integration specialist.
Unless you have buy-in from leadership, there may be internal resistance to new processes and technology.

Even if you do decide to purchase ERP, keep these cons in mind. Incomplete data migration and employee resistance in particular will make it challenging to achieve a positive return on investment (ROI).

Choosing an ERP System

Once you decide to make the investment, it’s time to select the right ERP system for your company.. The steps below will help you choose software that fits your business’ needs now and for many years to come.

Consider system requirements: Understand why the company is taking this step. Identify the crucial business drivers, such as enhancing accounting, customer service and manufacturing. Consider industry-specific needs before you begin product selection. Will you need customisation, third-party access or specialised security or compliance?
Prioritise ease of use: Don’t discount the importance of an intuitive user interface. A poor user experience slows down implementation and creates internal resistance. Review case studies and talk to peers about user experience, and demo products before making a short list.
Research vendors: Compare your list of drivers with the functionality and services offered by different ERP vendors. Research should include a technical evaluation of functionality, benefits of on-premises versus cloud, vendor reputation and experience in your industry, ease of data migration and integration with any existing mission-critical software.
Evaluate cost: Compare the three- to five-year total cost of ownership for your short list of potential vendors—maybe one system has higher initial data migration and setup costs, but after it’s up and running it may be less expensive than competitors that do less customisation. Make sure you can afford ongoing maintenance, and understand the length of time to achieve ROI.
Support and training: Don’t underestimate the importance of training in getting full benefits from an ERP system. Be sure the education offered by vendors or their integration partners meets the needs of your organisation in 2020, when employees likely need virtual options. Likewise, make sure your IT team is equipped to support the system. If not, add on the cost of hiring a service provider; this is less of an issue with cloud ERP.
Expandability: Ensure that the solution can grow with your company. Are there CRM, HR and other modules that you may wish to add? What’s the vendor’s roadmap?