As your business scales and becomes more complex, it’s essential to deploy technology to aid connectivity, drive efficiencies, and ensure the smooth operation of the enterprise.
For many large-scale businesses, this means investing in an Enterprise Resource Planning (ERP) system. But is this the right technology for a growing ecommerce business?
We spoke with Simon Curd, Chief Product Officer at Linnworks, a former trailblazer at SAP and a global ecommerce leader at Pearson with more than 20 years of experience in the industry, to discover what an ERP system is and why it might not be the best solution for an ambitious online retailer.
What is an ERP?
An ERP system is a software platform many large-scale enterprises deploy to manage their day-to-day activities and streamline processes across the entire business.
It acts as “the brain of a business” and includes a superset of functionality across the enterprise, including accounting, finance, HR, commerce ops, customer relationship management, and much more.
“An ERP system aims to pull together a complete view of all the resources available to a business, including people and assets,” says Curd. “Essentially, it’s a very large computer system, enabling them to manage their entire business in one place.”
How does a retailer use an ERP?
ERP systems can help retailers make informed decisions, identify market trends, and respond swiftly to changes, ultimately reducing costs and providing a more customer-centric shopping experience.
“An ERP system empowers retailers by integrating key functions like inventory management, order processing, HR, and finance,” says Curd. “This centralized approach offers real-time visibility into stock levels, facilitating accurate demand forecasting and minimizing inventory-related risks.”
Additionally, an ERP can streamline communication between departments, enhancing collaboration and efficiency. In the realms of HR and finance, an ERP system centralizes data, simplifying payroll, employee management, and financial processes.
While the idea of having one system to run your entire business is attractive, Curd warns for many businesses, an ERP system may create more problems than it solves.
When does a retailer need an ERP?
It can be challenging for a retail business to know when an ERP is right for them.
While there are clear advantages for large-scale enterprises to deploy an ERP system, the benefits for smaller businesses are often outweighed by the complexity, cost, and lack of flexibility.
“In my experience, smaller businesses do not need an ERP,” says Curd. “They tend to be better served by making up all the capabilities they need from smaller, more agile systems.”
There is a tipping point in a business’s complexity when an ERP starts to make sense.
“It’s not until a business starts pushing revenues of $100 million or more that they typically need the functionality of such a heavy-weight system,” says Curd. “When a business reaches that scale, the needs of that business change dramatically in terms of reporting.
It’s often the business’s need to manage its financial reporting beyond the scope of a more focused accounting package that pushes it toward deploying an ERP solution. However, deploying an ERP system does not come without its risks.
The high costs and risks of deploying an ERP system
Implementing any ERP system is a lengthy and costly process and, according to Curd, rarely runs smoothly.
“You’re generally looking at multiple years to implement an ERP,” says Curd. “The timescales involved make the process very expensive and open to risk.”
The sheer scale of an ERP system often means that retailers cannot roll out changes to the original implementation strategy with any degree of agility.
“It’s like the old oil tanker analogy,” says Curd. “Once you have started moving in one direction, changing course is very difficult.”
This lack of flexibility creates a problem for many online retailers operating in what is still a rapidly evolving and, at times, volatile industry.
“I’ve seen multiple ERP implementations running way over schedule and budget,” says Curd. “And not all ERP implementations are successful.”
Stats from Gartner suggest that between 55% and 75% of all ERP implementations fail.
While these failures might only impact some areas of the implementation and a business may be able to run with a subset of the ERP’s features, it still represents a considerable investment in time and money. It also requires businesses to retain legacy systems, which can be extremely distracting for the entire company.
Having the right resources in-house to manage the implementation and ongoing maintenance of the system is also a priority.
“Because no two businesses are the same, any ERP will need some level of customization to make it fit the needs of your business,” says Curd. “With that customization comes the need to hire experienced people who understand that technology to keep it running. So that’s an ongoing cost you’ll have to factor in alongside the initial investment and any ongoing subscription and support costs.”
Building an agile ecommerce business
While modern businesses increasingly demand more sophisticated reporting tools to drive their operations, an ERP system’s scale, complexity, and cost may actually hinder an online retailer’s growth.
“ecommerce is a rapidly evolving industry, and you never know what’s going to happen next,” says Curd. “In terms of growth, the worst thing for a retailer would be to move to an ERP too early and then not be able to respond to new business opportunities because they didn’t have the agility in their tech stack to service them.”
Businesses in this predicament often return to the specialist systems they originally used before implementing their ERP. This adds extra layers of complexity and cost and may ultimately corrupt the information managed by the ERP.
Before investing in an ERP, retailers really need to consider all the options available to them.
“It’s way too easy to think that one system to rule them all is going to solve all of your problems,” says Curd. “In reality, it’s like betting everything on one horse.”
What does a good tech stack look like for a growing ecommerce business?
When building out their tech stack, Curd recommends retailers look towards specialist solutions to fit their requirements.
This process starts with an ecommerce platform like Shopify, BigCommerce, or WooCommerce for their branded experience.
“They should also definitely be thinking about a multichannel marketplace strategy to capitalize on all of the traffic generated by some of the world’s most popular online shopping destinations,” says Curd. “That starts with Amazon and eBay, then, if you’re in the US, Walmart and Target.”
The business then needs to look at the tools to manage their listings, sales, and fulfilment needs.
“To manage your sales across your branded sites and marketplace operations, I will absolutely be recommending you put in a best-of-breed commerce solution like Linnworks,” says Curd. “Along with that, you’ll need a marketing automation solution and a CRM. Klaviyo and Gorgias are both great solutions for that.”
Retailers should also look at solutions like QuickBooks or Xero for accounting and finance.
“There is a best-of-breed commerce ops stack out there with Linnworks right in the center,” says Curd. “It is really about putting the right things in your business at the right time to solve your business challenges.”
Access a network of experts
Building your commerce ops tech stack from specialist solutions doesn’t just create a more agile platform to grow your business. It also grants you access to a broader network of industry experts.
“When you’re working with best-of-breed solutions, there’s going to be a network of industry experts out there who can help you manage the business more efficiently and effectively,” says Curd. “They know the industry, the challenges you’re trying to solve, and they’re there to help you understand what good looks like and how others have done it before you.”
That same expertise might not be available to organizations employing a less specialist approach.
“When you implement an ERP, they tend to be less domain-focused and less specialized in your industry,” says Curd. “This means they won’t be able to provide the same level of advice and guidance that a specialist can.”
Speak to a commerce ops specialist
If you are weighing up the pros and cons of implementing an ERP system, it is important to consider alternative options.
Linnworks has helped thousands of retailers scale their businesses by providing expert support and advice to help build out their commerce ops tech stack.
“Our partner network isn’t just a collection of best-of-breed technology solutions,” says Curd. “It’s a community of industry experts who work together to ensure you reach your goals on time and budget.”