Information Technology Reference
In-Depth Information
Disadvantages of ERP Systems
Unfortunately, implementing ERP systems can be difficult and error-prone. Some of the
major disadvantages of ERP systems are the expense and time required for implementation,
the difficulty in implementing the many business process changes that accompany the ERP
system, the problems with integrating the ERP system with other systems, the risks associated
with making a major commitment to a single vendor, and the risk of implementation failure.
Expense and Time in Implementation
Getting the full benefits of ERP takes time and money. Although ERP offers many strategic
advantages by streamlining a company's TPSs, large firms typically need three to five years
and spend tens of millions of dollars to implement a successful ERP system. Waste Man-
agement Inc. sued its ERP vendor to recover more than $100 million in project-related
expenses plus unrealized savings and benefits from a failed ERP software implementation.
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Difficulty Implementing Change
In some cases, a company has to radically change how it operates to conform to the ERP's
work processes—its best practices. These changes can be so drastic to long-time employees
that they retire or quit rather than go through the change. This exodus can leave a firm short
of experienced workers. Sometimes, the best practices simply are not appropriate for the firm
and cause great work disruptions. American LaFrance, a manufacturer of emergency vehicles
and equipment, filed bankruptcy in part due to operational disruptions caused by the in-
stallation of a new ERP system.
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Difficulty Integrating with Other Systems
Most companies have other systems that must be integrated with the ERP system, such as
financial analysis programs, e-commerce operations, and other applications. Many compa-
nies have experienced difficulties making these other systems operate with their ERP system.
Other companies need additional software to create these links.
Risks in Using One Vendor
The high cost to switch to another vendor's ERP system makes it extremely unlikely that a
firm will do so. After a company has adopted an ERP system, the vendor has less incentive
to listen and respond to customer concerns. The high cost to switch also increases risk—in
the event the ERP vendor allows its product to become outdated or goes out of business.
Selecting an ERP system involves not only choosing the best software product but also the
right long-term business partner. It was unsettling for many companies that had implemented
PeopleSoft, J.D. Edwards, or Siebel Systems enterprise software when these firms were ac-
quired by Oracle.
Risk of Implementation Failure
Implementing an ERP system for a large organization is extremely challenging and requires
tremendous amounts of resources, the best IS and businesspeople, and plenty of management
support. Unfortunately, large ERP installations occasionally fail, and problems with an ERP
implementation can require expensive solutions.
The following list provides tips for avoiding many common causes for failed ERP
implementations:
•
Assign a full-time executive to manage the project.
•
Appoint an experienced, independent resource to provide project oversight and to verify
and validate system performance.
•
Allow sufficient time for transition from the old way of doing things to the new system
and new processes.
•
Plan to spend considerable time and money training people; many project managers
recommend that $10,000-$20,000 per employee be budgeted for training of personnel.
•
Define metrics to assess project progress and to identify project-related risks.
•
Keep the scope of the project well defined and contained to essential business processes.
•
Be wary of modifying the ERP software to conform to your firm's business practices.
