Advantages and Shortcomings of ERP Systems

The advantages of ERP systems can be grouped in three categories, responding to the usual three-levels of decision (operative, tactical, and strategic) in an enterprise. From an operative perspective, ERP systems provide a common technological platform unique for the entire corporation allowing the replacement of mainframes and legacy systems. This common platform serves to automate processes that were manually performed in the past as well as to simplify current processes either by an explicit reengineering process or by the implicit adoption of the system 'best practices.' Finally, the common centralized platform allows the access to data that previously were physically or logically dispersed.

The second level of advantages stems from the automation of the processes and the access of data, since the former allows the reduction of the operating times while the latter serves as a better support of business decisions. In a third level, it is easy to see that the reduction of operating times promote the reduction of operating costs, which in turn, serves for a best customer service. Finally, the better support of business decisions implies an improvement on the business strategic decisions.

With respect to the quantification of these advantages, it is not easy for a number of reasons. First, the impact of the ERP system greatly depends on each company, and more specifically, on the current state of their business processes as well as on their level of automation and the information needs already covered by the previous information system. On the other hand, the ERP system has a global effect on the organization, and therefore it is not simple to measure it in each area or business function.

Nevertheless, cases have been reported on substantial simplification of processes, reducing them from 27 to one (Slater, 1998) or reduction of operating times by 85 percent (Blanchard, 1998).

With respect to the limitations of ERP systems, the following may be cited:

• Limited flexibility. Despite the customization capabilities of most of the ERP systems, the problem of flexibility in the adaptation to the specific needs of an enterprise remains unresolved, at least as compared to proprietary software developments.

• High costs. Costs involving the implementation of an ERP system may be divided into the following categories: hardware and communications investments, ERP system purchasing, customization costs, and training. Among these, the higher costs are usually the customization costs, being the most unpredictable as well.

• Replacement and migration. In recent years, ERP vendors have focused primarily in offering functionality at the expense of replaceability and upgradeability (Sprott, 2000). This may be partly solved by the developments on 'component ERP' mentioned in the previous chapter. Nevertheless, this issue remains currently unsolved.