What is an ERP System?

Enterprise Resource Planning (ERP) refers to the software that organizations use to manage day-to-day financial activities within accounting, procurement, project management, risk management and compliance, and supply chain operations. ERP systems help organizations to plan, budget, predict, and report financial information.

Why are ERP Systems Important?

ERP systems provide an organization with a clear picture of its entire finances. It integrates and streamlines these internal departments: finance, manufacturing, human resources, supply chain, services, procurement, and more.

10 Errors in ERP Systems that are Putting Your Organization at Risk

  1. Lack of Compatibility - Modern systems and operating tools oftentimes cannot integrate with outdated legacy systems.
  2. Incomplete and Incorrect ERP Implementation - Implementation of ERP systems is difficult as complex ERP systems are not often implemented correctly across all functions, leading to internal failure. Thus, internal departments cannot take necessary action for certain transactions because of this restricted functionality.
    • For example, the New Distribution Center is unable to accurately record stock movements and cannot take action for debits for supplier returns. This results in the need for audit validation and claims.
  3. Partial ERP Implementation - Along with failure to implement ERP systems correctly, it is common for organizations to only partially implement ERP systems, specifically with legacy components. Because legacy systems are so outdated, it is near impossible for the system to accurately and efficiently communicate with the ERP system.
  4. Lack of Validation - Because of the complexities of cross-system procedures, informal amendments and adjustments are made and do not receive formal validation or approval.
    • Failure to validate or verify transactions causes massive inefficiencies...When a transaction fails to be approved, it sits on hold, does not get followed up on, and eventually is written off. Issues stemming from failure to validate include growing confusion of the approval hierarchy, ERP system format issues, bugs in the ERP system software, and oftentimes vendor dispute. 
  5. Missing Metrics - A lot of times, important metrics are unintentionally left out of the ERP system. This includes the creation, management, and storage of key marketing and financial data. Specifically left out of the ERP are rebate tiers and calculations, accounts receivable (AR), routing guides, and much more.
  6. Restricted Access - ERP systems enable teams to run Access and Excel reports that show results such as margin, promotional performance, shrinkage, etc. However, these valuable reports are only visible to those who created them. So if anyone else on the team needed this information, they would have to request the report from the creator.
  7. Insufficient Investment - Organizations look for ways to cut back but an ERP system is not one. When teams only purchase parts of an ERP system rather than a complete suite, the ERP does not serve its purpose and cannot reach its full potential.
    • Teams who only purchase bits and pieces of an ERP system typically have their internal IT team custom create configurations. The problem is that because your ERP system is now custom to your organization, your team can no longer leverage the ERP provider’s resources or services team. The only people who can fix issues, if they can, are the IT employees who create them. So, what happens if they leave the organization? Does anyone else know the custom coding? Is someone updating the customizations of the system on a regular basis? What about updating the formatting issues between each and every data set?
  8. Lack of Proper Training - You can have the best ERP system in the world but if you do not properly train staff to use it to its fullest potential, you can expect millions of wasted spend, mass internal miscommunication, mishandling of information, and much more.
  9. Misuse of ERP - With lack of proper training comes mishandling and misuse of the entire ERP system. When creating specific reports or analyzing certain metrics, you must use the correct yet complex data in order to receive accurate results and a clear picture.
    • For example, a common mistake is attempting to manipulate a manufacturing ERP “instance” for retail data and calculations. These two departments are completely independent of one another and will result in completely inaccurate numbers. 
  10. Technical Issues - Unexpected technical issues could potentially lead to a disastrous outcome for your organization such as leaked, deleted, or lost crucial information. Whether it be a connection failure, internet outage, disk and/or server failure, data transmission failure, power outages, or delays in transmissions, your ERP system is probably not effectively protected from these.
    • When technical issues impede data from reaching the main central hub, it can result in:
      1. Automated reports generating false results and invoices
      2. Data being transmitted and pushed outside of promotion periods
      3. Data never being received and transmitted at all

How to Avoid ERP System Errors

ERP systems can be intimidating and the complexities of ERP systems should not be overlooked. While there are hundreds of potential problems to your ERP system and hundreds of specific ERP solutions, there are a few preventative measures you can take to avoid the majority of errors…

  1. Invest in ERP team training
    • Ensure buy-in from all departments and teams
  2. Invest in proper ERP implementation
    • To ensure peak efficiency, have a strategy in place with milestones
  3. Assign responsibilities of oversight to a specific role(s) 
  4. Use updated software and decommission legacy systems
  5. Be open to third-party support

At FlexTecs, our work with retailers and organizations all over the world gives us real insight into the financial impact of ERP errors. Through accelerated recovery audits and custom solution development, we work alongside internal teams to identify, remedy, and prevent defects that occur due to disparate systems and disconnected data sources.

Contact a FlexTecs team member
 today to start connecting the dots in your ERP systems.

 
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