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What is an ERP (and does your business need one?)

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Linnworks

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Inventory Management

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People sitting around a table having a meeting about ecommerce software

As your ecommerce business scales to $5 million, $15 million, or $50+ million in annual revenue, the more data you have in the form of customer information, orders, financial reports and other key business information. Though this data can be the key to better understanding customers, streamlining daily processes, and improving the overall customer experience, it’s only effective when it’s managed correctly.

At this time, many ecommerce businesses turn to enterprise resource planning software (ERP) to fill this gap.

The only problem is an ERP can be expensive—both in terms of time and money— to implement and customize to your business. In this article, we take a closer look at what an ERP is and how the benefits and downsides stack up when compared against each other.

What is an ERP?

Enterprise resource planning (ERP) was first introduced in the 1990s as a solution to help coordinate various operations across a business. Traditionally housed within an organization’s data center and installed on an internal server, these solutions have since become increasingly digital. Today, most ERPs are cloud-based to enable a flow of data between all facets of an organization.

ERP software helps ecommerce operators facilitate daily business activities, from inventory management and risk management to price estimation and distribution. ERPs integrate essential backend processes, like accounting, financing, and sale tracking, with powerful customer databases and order-monitoring systems that eliminate data duplication and streamline business functions.

ERPs consolidate multiple processes into a single system via a suite of applications that share a singular database. Each application focuses on a singular business function, such as inventory management or accounting. A mix of artificial intelligence (AI) and machine learning technologies enables the various applications to exchange relevant data to improve interoperability.

Five benefits of ERP

If your ecommerce business is spending hours toggling between multiple applications, the allure of a centralized system can be hard to ignore. Here are five benefits of using centralized ERP software.

1. Total visibility

Many ecommerce business owners have found themselves without stock to fulfil a sale after overselling a product due to inaccurate inventory levels. Or worse, having gone overstocked with inventory without regard to current (negative) sales trends. A major benefit of ERP systems is the ability to achieve total visibility over multiple areas in your business to stop making avoidable and costly mistakes.

ERP software allows ecommerce owners to monitor inventory levels daily - from what’s sitting in the warehouse to what’s in transit from suppliers. With future consignment and current customer orders all in one centralized location, business owners know exactly where inventory levels stand at all times. This knowledge equates to better control over working capital on a much more precise level.

2. Supply chain management

Supply chain management has been an ongoing struggle, as various geo-political issues impose multiple delays and even total production shutdowns. For ecommerce businesses responsible for moving physical inventory, an ERP system, in conjunction with the right order management system, offers advanced demand forecasting and inventory management that results in more on-time deliveries and shorter lead times along with reducing production bottlenecks and improving overall transparency. 

3. Better customer service

At a time when ecommerce businesses rely on positive customer experiences to succeed, operators will be happy to know that ERP software can offer benefits to customers too. ERP systems centralize and streamline customer information, enabling fast access for ecommerce brands that can improve customer service and allow for highly-targeted marketing efforts.

Even more, ERP software for ecommerce businesses enables end-to-end tracking that can allow for faster response times, improved order accuracy, and even better on-time delivery. Rather than maintain customer spreadsheets or rely on a separate customer relationship management (CRM) tool, ERPs allow ecommerce brands to build stronger, more profitable client relationships.

4. Business process improvements

Many ecommerce brands fall victim to teams that work in silos, where inventory management is monitored by one team and supply chain operations are managed by another — and in most cases, these teams don’t exchange information anywhere near as often as they should. A key benefit of ERP software is the ability to achieve total visibility across multiple areas of your organization.

ERPs allow ecommerce teams to access every vital business function across every department from one central location. ERP software enhances teamwide collaboration and helps provide employees and teams with the data they need when they need it. These business process improvements allow for better communication and enhanced interoperability between multiple departments.

ERP software also reduces human errors. Human error can include performing the wrong action or misinterpreting information. When this happens, it’s usually because he or she is doing too many things manually. Other manual issues like rule-based errors  that occur when old rules are still in place that do not follow the current ways in which processes are performed at the company. ERPs reduce the amount of these types of mistakes.

5. Granular reporting

The majority of ecommerce businesses use built-in reporting tools from a retail platform or accounting software that are limited by the number of reporting dimensions. For instance, brands that sell in multiple countries may want to generate reports for the sale of a specific item, in a specific size, in a specific color, and in a specific location. ERP platforms boast nine drill-down requirements to allow for a single source of truth and granular reporting that’s loaded with distinct insights. 

Five challenges when using ERP

Before consolidating all business functions onto one ERP, take a look at five common disadvantages.

1. Potential to oversell

A common misconception about ERPs is that they all operate in real-time. Though certain applications within the ERP may update in real-time, ERPs as a whole do not. ERP software offers a static view of overall operations. Static views contain data from multiple sources and as such, required data inputs must be specified in order to generate a particular real-time view.

In other words, ecommerce operators who want to keep a finger on the pulse of inventory in regards to current product sales or accounts payable in regards to cash flow must retrieve the current data for each source to receive an accurate view. Over the weekend, when employees may not be monitoring the ERP, it’s very easy to oversell because data is in a static view.

2. Risk of revenue loss

On the topic of a static view also comes the discussion of potential revenue loss. Without a real-time view of current inventory levels or lead time on the supply chain, it’s easy to disappoint customers with inaccurate promises for deliveries or insufficient stock levels. A culmination of poor customer experiences and process inefficiencies can cause an ecommerce business to lose sales and reputation.

3. Major time investment

Enterprise resource management takes a lot of time to set up correctly, so the information extracted is of value. ERP solutions offer endless customization, to the point where it can take 6+ months and multiple teams to get an ERP up and running in the first place.

Once an ERP is ready for use, an ecommerce organization must still manually manage everything from the marketplace (or multiple marketplaces) to the ERP. And though ERP reporting offers robust drill-down capabilities, it’s to be expected that it will take several hours for team members to build the appropriate reports for their leadership, especially with data in a static view.

4. Limited expansion without new hires

When ecommerce businesses use an ERP, there must be a team that oversees that wealth of data that’s shared between marketplaces. These individuals are responsible for uploading and downloading spreadsheets with manual errors and creating reports. However, ecommerce brands will not be able to expand to new channels unless they hire more people to oversee the ERP. The more data the ERP holds, the more hands it will take to maintain the software.

5. Cost to maintain

ERP software is a very costly solution, especially for ecommerce businesses that may not be incredibly profitable quite yet. ERPs require an estimated minimum investment of $100,000, most of which is allocated to implementation labor. There’s also a portion of funds that must be allocated to monthly licensing for applications, which are typically priced on a per-user basis.

Not to mention, the costs to maintain ERP software can also be expensive. Particular solutions have designated ERP consultants to address a system problem. Plus, there’s often a waitlist for ERP support, which can cause costly operational slowdowns for ecommerce brands waiting to remedy a key business function or access customer data.

An alternative approach: How Linnworks and an ERP work together

As we alluded to earlier in this post, ERPs do have tremendous upside potential for fast-growing ecommerce businesses. But they can be extremely time-intensive to keep up-to-date. That’s why integrating inventory and order management software like Linnworks can be beneficial in overcoming these challenges.

Some of the benefits include:

  • Supercharging your sales strategy with inventory forecasting
  • Avoiding over or underselling with automated order, inventory, and warehouse management
  • Setting up automated order workflows to save time and improve productivity
  • Gain up-to-date visibility into all key facets of your business
  • Spending less time and money building custom APIs

Find the right ERP software for your ecommerce business

In sum, ERP solutions offer ecommerce brands a range of benefits that can enhance the productivity and profitability of a business. However, they also come with quite a few downsides that could potentially eat into that bonus profit. At the end of the day, ERP solutions are best suited for medium- to large-scale ecommerce businesses that can afford the potential ERP costs. Plus, when you layer a solution like Linnworks on top of your ERP, you can get real-time visibility and reduce the amount of time your team needs to spend on repetitive, manual tasks.

Find out how Linnworks Inventory Management Software can power your ecommerce business

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