The business world has a lot of acronyms and a lot of buzzwords.
Admittedly, it can be tough to keep them all straight.
KPIs, CRM, CAC, churn – you need a dictionary just to follow along.
On our blog, we want to break down and simplify these terms in plain language.
Today, let’s tackle one of those tricky acronyms together – Enterprise Resource Planning (ERP) for eCommerce.
Simply put, ERP is a system that allows businesses to manage and integrate all their business operations from a single source. This means everything from finances, to inventory and customer service can be streamlined via one system.
In this article, we'll start from the beginning and cover the following topics:
How ERP systems work
The benefits of implementing an ERP system
How to know whether or not you should (or shouldn't) invest in ERP software
Let's get started.
What is Enterprise Resource Planning?
Enterprise Resource Planning (ERP) is both a discipline and a type of software that helps businesses manage and integrate their various back-end processes and functions.
This includes things like:
Customer relationship management
Supply chain management
In the context of eCommerce, ERP systems can be used to manage and optimize the various business processes involved in running an online store.
ERP systems can also help with forecasting and planning for future growth, as well as providing insights and analytics to help with decision-making.
Overall, the goal of an ERP system is to provide a single, integrated platform for managing all of a business's operations, including those related to eCommerce. This can help businesses streamline their operations, reduce costs and improve efficiency.
How do ERP systems work?
As you can see, ERP systems handle a lot of internal processes and are often the centerpieces of an eCommerce tech stack.
Here is a general overview of how an ERP system works:
1: Data input and integration:
An ERP system typically involves the input and integration of data from various sources within a business, such as financial transactions, customer information and inventory levels.
This data is often entered into the system manually, although some ERP systems may also be able to import data automatically from other systems or sources.
2: Data processing and storage:
Once the data is entered into the system, it is processed and stored in a central database. This allows the data to be easily accessed and analyzed by various departments and users within the organization.
3: Workflow automation:
An ERP system can also automate various business processes and workflows, such as order processing and invoicing. This can help to streamline operations and reduce the need for manual intervention.
4: Reporting and analytics:
ERP systems often include a range of reporting and analytics tools that allow businesses to track key metrics and make informed decisions. This can include things like financial reports, customer data and inventory levels.
5: Customization and integration:
Many ERP systems are highly customizable and can be tailored to meet the specific needs of a business. They may also be able to integrate with other systems and applications, such as eCommerce platforms or CRM systems.
No two ERP systems are the same, and each comes with its own pros and cons. But all good ERPs share the same goal - to businesses reduce costs, improve efficiency and help you make better-informed decisions.
What are the benefits of using an ERP?
There are many benefits to using an Enterprise Resource Planning (ERP) system, including:
1: Improved efficiency:
An ERP system can automate and streamline various business processes, helping to reduce the need for manual intervention and freeing up time for other tasks.
2: Enhanced visibility and control:
An ERP system provides a central platform for managing all of a business's operations, giving managers and decision-makers a clear view of the organization's performance and enabling them to make informed decisions.
3: Improved accuracy and data integrity:
An ERP system helps to ensure the accuracy and consistency of data by standardizing processes and centralizing data storage. This can help to reduce errors and improve decision-making.
4: Reduced costs:
An ERP system can help businesses to reduce costs by automating processes and eliminating the need for multiple, disconnected systems.
5: Increased scalability:
An ERP system can be easily scaled to meet the changing needs of a business as it grows, making it easier to manage and expand operations.
6: Enhanced customer service:
An ERP system can help businesses to better manage customer data and relationships, enabling them to provide a higher level of customer service and support.
Benefits of using enterprise resource planning for ecommerce
Ecommerce, especially when run by solopreneurs or small teams, gets an unfair rap of being an unsophisticated business model when compared to typical SMBs or B2B businesses (there we go again with the acronyms.)
But that couldn't be further from the truth.
In fact, any business that processes physical goods necessitates several extra layers of complexity that most B2B businesses don't experience.
For example, let's say you own an ecommerce business that sells personal electronics like headphones and smartphone accessories.
As your business expands, you're using several disparate pieces of software to manage your customer data, accounting information, inventory and order fulfillment tasks.
It's not uncommon for ecommerce businesses to use a dozen different software platforms just to keep things running (many of which don't integrate or communicate with each other).
By implementing an ERP system, you can combine all of these processes onto a single platform. This will help to streamline your operations and reduce the need for manual data entry and intervention.
An ERP system could be used to manage your inventory levels, process payments and track customer data.
It could also be integrated with your ecommerce platform to automate tasks like order fulfillment or product updates.
Here are some other specific benefits ecommerce businesses experience when using an ERP:
Enhanced visibility and control of inventory levels
Robust insights into customer data, product performance, and sales trends
Streamlined accounting processes
Reduced manual labor costs
Integrated analytics to identify areas for improvement and increased efficiency
Improved customer service
Disadvantages of using an ERP system
We've already covered a lot of the advantages of ERP implementation, but there are some disadvantages as well.
While ERPs are powerful tools, they may not be right for everyone.
In the following sections, we'll go over some potential downsides to ERP systems, as well as some self-diagnosing questions to help you decide if your business is actually ready to implement one.
Here are some things to look out for:
1: High upfront costs:
Implementing an ERP system can be expensive, particularly if it involves customization or integration with other systems.
An ERP system can be complex to implement and maintain, requiring specialized knowledge and resources.
This level of complexity may be overkill for the current state of your business. Trying to "overscale" your operation will only lead to sunk costs and frustration.
3: Change management:
Changing to an ERP system can be disruptive to business operations and may require significant changes to processes and workflows.
Further, ERPs are only as good as the data you feed into them.
That means you need to have complete buy-in and commitment to the software. This means no more inventory numbers scrawled on the back of a piece of paper and no more incomplete CRM data entry.
At the very least, it will require dedicated training for you and your employees. More than likely, it will mean a radical shift in how you (and your team) are used to working.
4: Data migration:
Migrating data from multiple, disparate systems to an ERP system can be a time-consuming and complex process.
For example, let's say you realize halfway through your ERP implementation that your CRM data is inconsistent and improperly formatted.
Now, before continuing implementation, you need to either sanitize and reformat the data or start from scratch in your ERP.
Whenever you migrate software solutions, there are always unexpected things that pop up. It's important to manage your expectations and make sure you budget plenty of time to handle these.
5. Limited flexibility:
Some ERP systems may not be highly customizable, making it difficult to tailor them to the specific needs of a business.
This can often be mitigated by doing thorough research, asking lots of detailed questions of each vendor before purchasing, and viewing a live demo or a free trial prior to sealing the deal.
Overall, the benefits of an ERP system can be significant, but it is important for businesses to carefully consider the potential disadvantages and ensure that they are prepared to manage the challenges of implementing an ERP system.
How do I know if my business is ready for an ERP?
If you're still struggling to know if an ERP is right for your business, ask yourself the following questions:
Do you have a clear understanding of your business processes and how they are currently being managed? Could you document them if necessary?
Are you finding yourself dealing with inconsistent data across several software platforms?
Are you (or your employees) spending over 10 hours per week on tedious, easily-automated tasks?
Do you have the necessary resources and budget to implement and maintain an ERP system?
Do you have the technical infrastructure in place to support an ERP system, including hardware, software, and connectivity?
Are you willing and able to make the necessary changes to your processes and workflows to support an ERP system?
Do you have the necessary expertise and support in-house to implement and maintain an ERP system, or will you need to hire external consultants?
Are you prepared to commit the time and effort required to properly implement and use an ERP system?
Do you have buy-in from key stakeholders, including management, employees, and customers, for the implementation of an ERP system?
Do you have a clear plan in place for data migration and integration with other systems?
If you answered "yes" to the majority of these questions, you're likely a good candidate for an ERP system.
If not, it doesn't mean your business with never use an ERP. It more than likely just means the timing isn't right.
It's important to revisit these questions on a yearly or quarterly basis to reevaluate if an ERP could help you streamline your business operations.
What features to look for in an ERP system
Alright, now that we've covered:
What an ERP does
Some of the potential challenges of ERP implementation
Some self-diagnosing questions
...let's get into the nitty-gritty.
Let's talk about the specific features you should look out for as you're shopping ERP vendors.
Some of these may be unnecessary depending on the state of your business, but these are features that most ecommerce businesses can benefit from.
1: Order management:
An ERP system should be able to manage orders from start to finish, including processing, fulfillment, and tracking. It should also be able to handle returns and exchanges.
2: Inventory management:
An ERP system should be able to track inventory levels and help with forecasting and replenishment. It should also be able to handle multiple warehouses and locations.
3: Financial management:
An ERP system should be able to handle financial tasks such as invoicing, payment processing and reporting. It should also be able to integrate with other financial systems, such as accounting software.
4: Customer relationship management:
An ERP system should be able to manage customer data and interactions, including tracking customer history and interactions.
5: Supply chain management:
An ERP system should be able to manage the flow of goods and materials, including tracking orders and shipments and coordinating with suppliers.
6: Analytics and reporting:
An ERP system should provide a range of analytics and reporting tools to help businesses track key metrics and make informed decisions.
7: Customization and integration:
An ERP system should be highly customizable and able to integrate with other systems and applications, such as ecommerce platforms and CRM systems.
As you shop around, you'll find that certain ERPs have certain emphases.
For example, some ERPs may prioritize inventory management features, while others may have especially robust CRM capabilities.
No ERP is going to equally prioritize all of these features, so it's up to you to decide what's most important to your business and choose a platform based on that criteria.
FAQs about Enterprise Resource Planning
Still have questions?
Here are some of the most commonly asked questions when it comes to ERP software:
How much does it cost to implement an ERP system?
The cost of implementing an ERP system can vary widely, depending on the size and complexity of your business.
According to a 2022 ERP report, the average cost per user for an ERP project is estimated at $9,000.
As larger businesses typically have more users and additional expenses associated with their setup, mid-to-large-sized companies can expect to pay anywhere from $150k-$750k for full implementation.
How long does an ERP implementation take?
The timeline for ERP implementation will also vary depending on the size and complexity of your business.
On average, an ERP project can take anywhere from three months to two years to fully implement.
Smaller businesses may be able to complete their implementations in a few weeks or months, while larger companies may require multiple stages of deployment over the course of several months or years.
Do I need a dedicated team for an ERP implementation?
Yes, depending on the complexity of your business it is likely that you will need to dedicate some personnel to ensure the successful setup and management of your ERP system.
For smaller businesses with basic needs, a single person with technical skills can often handle the job.
However, larger businesses may need to hire a dedicated team to manage the system and ensure it is properly configured and optimized.
Are ERP systems on-premise or cloud-based?
ERPs exist in both on-premise and cloud-based varieties.
On-premise ERP solutions are installed directly onto a company's own server and require ongoing in-house support. Cloud-based ERPs, on the other hand, are hosted in the cloud and don't require an on-site IT team.
Cloud-based ERPs are typically more cost-effective and easier to manage, while on-premise solutions offer greater control and customization options. Ultimately, the type of solution you choose will depend on the needs of your business.
For example, Microsoft Dynamics is available as an on-premise solution, while Salesforce and Oracle NetSuite provide cloud-based ERP systems.
What is an example of an ERP system?
Some popular examples of industry-standard ERPs include:
SAP Business One
Acumatica Cloud ERP
Each of these solutions offers a unique set of features and benefits
What's the difference between an ERP system and an inventory management system?
An ERP system is focused on helping businesses manage their core processes, such as accounting, customer relationship management (CRM), and supply chain management.
In contrast, an inventory management system focuses solely on managing a business's inventory and tracking the movement of goods.
While these two systems can be used together to create a comprehensive business management solution, they serve different purposes and should be evaluated separately.
Enterprise Resource Planning (ERP) software is an invaluable tool for businesses of any size and offers a wide range of features that can help streamline operations and improve efficiency.
It does this through the automation of core business processes, such as accounting, customer relationship management (CRM), and supply chain management.
However, ERPs are undeniably expensive and require a lot of resources to implement. They also necessitate a high level of buy-in from every department and stakeholder within your business.
So what if you're in that in-between phase where you're not quite ready for an ERP but you're still struggling with ecommerce inventory and order management?
You're a prime candidate for an ecommerce solution like Linnworks.
Linnworks is a cloud-based platform designed to help small and medium businesses manage their ecommerce operations.
It integrates seamlessly with platforms like Shopify, Amazon, eBay and many others, eliminating the need for manual data entry and allowing users to manage all their orders in one place.
We also help you stay organized and informed with powerful analytics, reporting and automation capabilities.
If you're looking for a more cost-effective way to streamline your ecommerce operations, consider Linnworks today.
With minimal setup time and no on-premise infrastructure costs, it's the perfect alternative to an ERP system.