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Sunday, July 31, 2011

Limitations of ERP

Success depends on the skill and experience of the workforce, including training about how to make the system work correctly. Many companies cut costs by cutting training budgets. Privately owned small enterprises are often undercapitalized, meaning their ERP system is often operated by personnel with inadequate education in ERP in general, such as APICS foundations, and in the particular ERP vendor package being used.


  • Personnel turnover; companies can employ new managers lacking education in the company's ERP system, proposing changes in business practices that are out of synchronization with the best utilization of the company's selected ERP.
  • Customization of the ERP software is limited. Some customization may involve changing of the ERP software structure which is usually not allowed.
  • Re-engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage.
  • ERP systems can be very expensive to install often ranging from 30,000 to 500,000,000 for multinational companies.
  • ERP vendors can charge sums of money for annual license renewal that is unrelated to the size of the company using the ERP or its profitability.
  • Technical support personnel often give replies to callers that are inappropriate for the caller's corporate structure. Computer security concerns arise, for example when telling a non-programmer how to change a database on the fly, at a company that requires an audit trail of changes so as to meet some regulatory standards.
  • ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business process of some companies—this is cited as one of the main causes of their failure.
  • Systems can be difficult to use.
  • Systems are too restrictive and do not allow much flexibility in implementation and usage.
  • The system can suffer from the "weakest link" problem—an inefficiency in one department or at one of the partners may affect other participants.
  • Many of the integrated links need high accuracy in other applications to work effectively. A company can achieve minimum standards, then over time "dirty data" will reduce the reliability of some applications.
  • Once a system is established, switching costs are very high for any one of the partners (reducing flexibility and strategic control at the corporate level).
  • The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale.
  • Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software.
  • There are frequent compatibility problems with the various legacy systems of the partners.
  • The system may be over-engineered relative to the actual needs of the customer.

238 comments:

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