ERP: The Good, the Bad and the Ugly

Updated: April 29, 2009

Introduction

For many, the mere mention of ERP causes stomachs to churn. ERP is a general term for any software application that integrates all of a company's processes and data into a single unified system. But for all its good intentions, this well-known technology is infamous for carrying a seven-figure price tag and requiring painful multiyear deployments, not to mention scores of high-priced consultants to keep systems up and running.

Fortunately, an ERP implementation doesn't have to spell disaster. In fact, a carefully crafted rollout can offer companies real-time visibility into sales patterns, merchandise availability, cash flow and more. "The number one benefit of ERP is an integrated view of data," said George Goodall, a senior research analyst with Info-Tech Research Group. "When companies start looking at ERP systems, they're after one version of the truth. They don't want business data scattered across a variety of different spreadsheets. Rather, they want to be able to perform tasks, like creating a quarterly budget, more quickly."

Even those companies that have long been relying on ERP to consolidate data will find it worthwhile to re-examine their current system's features and functionality. "Now's the time to kick tires," recommended Goodall, noting that over the past 10 years, ERP has significantly evolved thanks to the introduction of enhanced budgeting, human resources and industry-specific capabilities.

The key to making the most of an ERP system, however, is developing an in-depth understanding of the technology, its benefits and limitations.

Analysis

Modules Defined

While no two ERP solutions are the same, there are some common functionalities among today's offerings. These software modules include:

Manufacturing: Functions include engineering, workflow management, quality control and manufacturing process.

Financial Management: Enables companies to meet financial reporting and tax requirements with one accounting, tax, banking and payments system. Managers can boost financial performance with real-time information on their department's expenses and revenue contributions. This module also helps to improve cash flow, lower costs and increase profitability while maintaining more accurate, timely and transparent financial reporting.

Human Capital Management: Functions include all core HR processes including employee administration, payroll and legal reporting.

Supply Chain Management: Aids in all supply chain processes, from design, planning and procurement to manufacturing and fulfillment.

Project Management: Provides a unified view of all project-related activities so that companies can select the best projects, assign the proper resources, streamline delivery efforts and track profitability.

CRM: Brings data together to enable salespeople and marketing planners to better address customer needs, preferences and buying patterns.

ERP Perks

With big-name vendors such as Microsoft, SAP, Sage and Lawson Software all offering ERP solutions, it's no wonder the technology offers a virtual laundry list of benefits. These include:

  • Improved alignment of corporate strategies and business processes
  • Improved customer service
  • Streamlined supply chain processes
  • Better targeted marketing campaigns
  • The ability to share data across various departments in an organization
  • Enhanced financial tracking and forecasting
  • Reduced costs
  • Enhanced productivity with self-service capabilities
  • The ability to effectively manage projects

What the Future Holds

One of the most talked-about aspects of ERP is its slow-moving shift toward the SaaS (Software as a Service) model. Take, for example, Workday, which offers business services such as HR, payroll and procurement using an on-demand platform. But while SaaS promises to rid ERP of its legacy of costly and time-consuming deployments for once and for all, analysts are cautioning companies. Writes Gartner analyst Denise Ganly in the recent report, "SaaS Impact on ERP": "Because of the complexity of ERP suites, SaaS offerings for administrative and operational functions typically have provided functionality that is confined to one domain, such as sales force automation, or one business process, such as payroll. Thus, ERP SaaS suite offerings are still immature."

Goodall agrees. "ERP is complicated and there's a tremendous amount of experience and best practice knowledge that gets baked into any ERP system," he said. "There have been some real struggles in getting all of that complexity into a SaaS model."

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