Is an ERP the right tech for a growing ecommerce business?

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This edition was written by Simon Curd, Chief Product Officer at Linnworks.

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?

Let's find out👇

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.

An ERP 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.

Essentially, it's a very large computer system, enabling businesses to manage their entire business in one place.

How does a retailer use an ERP?

An ERP 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.

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.

But while the idea of having one system to run your entire business is attractive, 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. They tend to be better served by making up all the capabilities they need from smaller, more agile systems.

But there is a tipping point in a business's complexity when an ERP starts to make sense.

This is typically once a business starts pushing revenues of $100 million or more that they typically need the functionality of such a heavy-weight system. When a business reaches that scale, the needs of that business change dramatically in terms of reporting. 

The costs and risks of deploying an ERP system 

Implementing any ERP system is a lengthy and costly process and rarely runs smoothly. 

You’re generally looking at multiple years to implement an ERP. 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. Once you've 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. And not all ERP implementations are successful.

According to stats from Gartner, between 55% and 75% of all ERP implementations fail.

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, but 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. 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. 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. In reality, it’s like betting everything on one horse.

So what does a good tech stack look like for a growing ecommerce business?

As a starter, look towards specialist solutions to fit your business requirements.

This process starts with an ecommerce platform like Shopify, BigCommerce, or WooCommerce for their branded experience.

You 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. 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. Along with that, you'll need a marketing automation solution and a CRM. Klaviyo and Gorgias are both great solutions for that.

For accounting and financing, I'd suggest looking at QuickBooks or Xero.

Speak to a commerce ops specialist

If you’re weighing up the pros and cons of implementing an ERP system, it is important to consider alternative options.

There is a best-of-breed commerce ops stack out there with Linnworks right in the center. It is really about putting the right things in your business at the right time to solve your business challenges.

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 - it's a community of industry experts who work together to ensure you reach your goals on time and budget.

To learn more about how Linnworks can help you build a better commerce ops stack, contact us today or request a demo. 

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