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The decision to upgrade a legacy ERP system vs. replace it

How do you know whether to upgrade your current ERP system to the newest version or implement a new one? Here's what you should consider when making this decision.

For many organizations, an ERP system is the backbone of business functions like accounting and manufacturing. However, companies may soon find their ERP software is no longer meeting their needs.

Some of the most common ERP issues include the following:

  • Limited integration with external systems and vendors. Users having to manually key in orders often results in errors and effort duplication.
  • ERP system performance issues. Performance issues can lead to employee frustration and poor productivity.
  • Not available on mobile devices. Lack of mobile availability can delay operations because employees can't perform functions like inventory on a smartphone or tablet.
  • Lack of vertical industry support. Lack of specific functionality may leave certain organizations unable to work on crucial areas, like food safety and management for the food industry and material requirements planning for manufacturing companies.
  • Lack of scalability. Scalability may be difficult to carry out because of poor application design or flat files use.
  • Lack of support for multiple companies or locations. Inability to support more than one location or company can hamper a growing organization.

Organizations experiencing these problems will likely consider upgrading their ERP software to a new version or replacing their ERP entirely. But upgrading is a costly, time-consuming project, and replacing it is even more so. The decision process must include the right company leaders and may require a third-party consultant.

Here's how business and IT leaders can decide whether to upgrade an ERP system vs. replace it.

Upgrade legacy ERP

Upgrading a legacy ERP is likely a better fit for many companies.

Here are some of the reasons organizations may decide to upgrade their legacy ERP instead of replacing it:

  • The upgrade includes fixes to current software problems or needed add-ons. For example, a new ERP software version may include a warehouse management system add-on that was missing from the old version and is essential to business operations.
  • The upgrade includes a better user experience. Employees who are frustrated with current ERP software may find a new version easier to navigate.
  • Taking an add-on approach will suffice. Upgrading the ERP software and using a robust database engine may address current ERP issues.
  • Old ERP applications are not compatible with a new operating system. Old applications may not work with a new operating system because of an infrastructure upgrade.
  • Replacing an ERP system is too expensive. Software upgrade licenses are generally less expensive than purchasing a completely new system and the accompanying licenses, making an upgrade more economical. An upgrade project scope is also less daunting than a full ERP implementation.
  • The current ERP software works well, but support is ending for that version. Upgrading may be necessary to continue receiving support and avoid problems down the road. Downtime will also likely be shorter with platform support.

Replace legacy ERP software

In some cases, simply upgrading the ERP is not enough and replacing the current ERP system is the only possible solution.

Here are some reasons companies replace their legacy ERP:

  • A new ERP is the only viable solution to an organization's problems.
  • An organization is going through a merger or acquisition and the new parent company already has ERP software.
  • A company has outgrown its current ERP software. A successful company may need tools for warehouse management or marketing for the first time, necessitating a switch.
  • The current ERP does not fulfill industry-specific needs. Healthcare, pharmaceuticals, the service industry, the food industry and others require ERP software that supports their unique requirements. For example, a food company may need an ERP system that includes allergen management; warehouse and inventory management, including expiration date tracking and requiring the first in, first out method; material requirements planning; and food and safety compliance tracking and traceability.

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