As ecommerce businesses grow, they usually become more complicated, with stock held in multiple warehouses, sales made through multiple channels, and shipments sent from multiple manufacturers.
If you aren’t updating your business processes to keep up with the pace of your business growth, you could quickly find mistakes being made. This could have a terrible impact on your ecommerce brand’s reputation, reversing all the hard work you have put in to grow your business.
This is where an ecommerce ERP comes in.
In this guide, we will go through exactly what an ecommerce ERP is and strategies you can use to implement an ERP to improve your business processes, reduce fulfillment errors, and grow your business.
What Does ERP Mean?
ERP stands for Enterprise Resource Planning. ERP integrates all your business processes and resources in one place, so they can all be managed centrally.
Oracle, one of the largest providers of ERP software in the world, says:
Enterprise resource planning (ERP) refers to a type of SAAS software that organizations use to manage day-to-day business activities such as accounting, procurement, project management, risk management and compliance, and supply chain management operations.
A complete ERP suite also includes enterprise performance management, software that helps plan, budget, predict, and report on an organization’s financial results.Source: Oracle
So ERP SAAS software is a tool that helps integrate all the tools and resources you have in your business. You don’t just find ERPs in ecommerce businesses. The construction industry is the biggest user of ERP software globally. But ERPs for ecommerce businesses need certain features, which is what we are discussing here.
What Is An Ecommerce ERP?
Ecommerce ERP software is designed for the ecommerce industry to connect all ecommerce processes:
- Inventory management systems
- Warehouse management systems
- Customer relationship management systems (CRM)
- Order management systems
- Order tracking systems
An ERP is a way to view and manage all your business processes in one place. It is also a way to make sure all your systems are integrated with each other so that all your systems are kept up to date.
Here is an example of a fairly typical ecommerce journey:
- The customer browses your ecommerce website, storefront, or marketplace listing and places an order.
- When an order is processed, the inventory level will decrease in the warehouse.
- The warehouse system needs to be updated.
- The stock levels on your online store need to be updated.
- A tracking number needs to be issued, and shipping labels need to be printed.
- Warehouse staff must be informed to pick up and pack the order.
- The financial management system needs to be updated to account for the profit.
- The customer’s profile needs to be updated so the marketing team can contact them later.
- The warehouse manager needs to know how many orders the business makes so they can plan how many staff will need to be in the warehouse at key times throughout the year.
An ERP helps all these systems to speak to each other to make sure your business has an accurate global view of what is happening with all the resources of the business.
When I started in ecommerce, an ERP was completely unnecessary, as I would keep all my inventory with Amazon FBA and process any Shopify orders manually. But as the business grew and my needs changed, it became more important to ensure that my systems were streamlined and properly integrated.
What Are The Pros And Cons Of An Ecommerce ERP?
An ERP has the potential to improve nearly all processes in your business by bringing them all centrally into one system.
However, it isn’t as straightforward as implementing an ERP, and then all your business problems are magically fixed. ERPs come with benefits and drawbacks.
Save time and improve productivity
By having all your systems in one place, you can save time for you and your employees as you don’t need to log into different systems. You can see all your reports and data sets and have a bird's eye view of the business through the dashboard.
Another benefit of having all the processes and data you need in one place is you may need fewer staff members to manage each process. You can streamline the processes and reduce manual tasks by automating many tasks.
The two biggest costs for an ecommerce business are usually inventory and operations. An ERP allows you to keep stock levels at the right amount, so you aren’t overstocked or out of stock, both of which can cost you money.
As the ERP is connected to your other systems, your staff, and customers can see accurate stock levels, which will reduce refunds. You will also be able to forecast where inventory should be stored, which could reduce shipping costs and warehouse costs.
As your inventory management system will be linked up with your front-end system and your CRM, you can show accurate stock levels to the customers and target them with items they are interested in. By giving the customers an excellent customer experience, you are more likely to be recommended, and your reputation will grow.
Reduced human error
Humans tend to make mistakes, and with manual processes, there is a big chance that even the most efficient businesses will make mistakes. You can reduce these human errors by incorporating automations and APIs in your ERP to have a more accurate and profitable business.
If your ERP can integrate with a shipping partner such as UPS or FedEx, your customers can choose a shipping option that works best for them. The best ERPs will also automatically create shipping labels for the products, reducing human error and speeding up the process.
ERPs can be expensive, costing between 2-5% of turnover! Make sure the ERP you are investigating is within your budget. Some ERPs for growing businesses have price brackets that get bigger the more you grow. This scalability can be a good option for start-ups running on tight budgets.
ERPs are complicated bits of software, and they have an impact on every part of your business. If your business is big and has many different processes, the implementation can take 6-12 months. This is a long time for most businesses, so you must ensure it fits your overall ecommerce solution strategy.
Whilst most ERP systems are simple to use, there will be a knowledge gap that your staff will have to overcome. The best ERP systems include training as part of the package, which is a big benefit if you have a larger team.
What Are the Key Features of an Ecommerce ERP?
According to a report by Hubspot, a good ERP solution will automate many of the customer-facing functions in your business, such as stock levels and shipping label creation, to make them more efficient and accurate. It will also provide the business owner with reports and insights to help make the business more efficient and save money.
The best ERP systems will also integrate with your HR, accounting, and supply chain functions to help you manage the back-end functions of your business.
Let’s look at some of the most important features when choosing an ERP platform.
The main function of an ERP is to integrate all the systems you use to manage your ecommerce online business. When you start your business, all these processes are easy to manage by themselves using spreadsheets and manual processes and workflows. However, as soon as your business starts to scale, these individual processes become very difficult to manage.
For enterprise-level businesses, which are already at a level where they have multiple fulfillment systems, the integration functions of an ERP become even more important.
Larger businesses often have multiple departments with different functions and KPIs, and an ERP can give you a management-level view of everything that is happening in the business.
For example, suppose your ERP is integrated with your inventory management, finance, and warehousing systems. In that case, you will be able to get useful reports on the profitability of the stock available, which can give you insights into inventory forecasting.
What integrations should an ERP have?
As discussed in the next section, an ERP can either be used out-of-the-box or it can be integrated using the APIs of your current third-party apps. Most ERPs will need to use a mixture of both out-of-the-box functionality and third-party APIs. This is because many ecommerce businesses use other sales platforms, such as Amazon or Etsy, which you obviously can’t replicate in your ERP.
However, suppose you will use the ERP to connect mostly to third-party apps. In that case, it is important that you at least have integrations, or the ability to have integrations, for the following areas:
- Ecommerce platforms: If you are making sales on Amazon, Etsy, or even your own Shopify store, you will need to connect that to your ERP.
- Inventory management: A view of inventory is important for forecasting.
- Warehouse management: This is often linked to your inventory management system.
- Shipping carriers: It is ideal if you can automatically create shipping labels. UPS, FedEx, and Royal Mail (in the UK) all have good integrations with ERPs.
- Third-party logistics (3PL): If your ERP can connect to the software of your 3PL warehouse, then you can manage warehouse and inventory operations centrally from the ERP.
- Accounting and finance: Most ERPs will at least connect to Xero, Quickbooks, and other accounting software solutions.
- Point of sale (POS) and payments: Payment providers such as Stripe, Square, and PayPal offer order processing and payment integrations for most ERPs.
- Order management: If your ERP is connected to your order management system, your customer service team can centrally monitor a customer’s information.
- CRM: As with the customer service team, your marketing department will want to continue to be able to segment the audience for their marketing efforts.
In-built features vs. integrations
Some ERP systems integrate with other software that you already use.
For a small business that has grown its software stack organically from simple software (such as accounting software), it makes sense to choose an ERP that integrates with your existing software.
For enterprise businesses that need everything seamlessly in one place, it makes more sense to choose an ERP that has features such as accounting, CRM, inventory management, etc., all in one place.
Some tools, such as Veeqo, are suitable for growing small businesses. While software such as this is focused on shipping, it has many features for growing businesses that aren’t ready to invest in a full-stack ERP like Sage, Oracle, or SAP.
Tools like this will have a lot of integrations with marketplaces like Amazon and Etsy and ecommerce software like Shopify, making them perfect for growing businesses.
Reporting and analysis
The best ERP tools give business owners and ecommerce managers the ability to run detailed reports. These real-time reports help you to monitor and manage your ecommerce sales, plus they allow you to identify issues, make decisions and improve business processes.
When you are deciding on which ERP you want to use, you should make sure you have a look at the reporting and data analysis functions, as different ecommerce companies have different needs. Each ERP has a slightly different dashboard for the analysis, so you should choose one that works best for you.
One of the best things about reporting with ERP software is they usually use real-time data, allowing managers to make quick decisions.
Product information management (PIM)
Managing the product catalog information centrally is one huge advantage of an ERP. In modern omnichannel ecommerce businesses, sales are often made in shops, on your web store, on marketplaces, and through other sales channels.
For an ecommerce manager, it is crucial to easily control the pricing and product information centrally and update the pricing or product information in different locations.
Centrally controlled product information management also links to the reporting. If you have products in different locations, you need to have the ability to report on the performance of that stock. This is important because if you need to make price changes or send more stock to a particular location, you must understand if your changes are working.
Accounting and finance
Most ERP systems have in-built accounting and finance functionality, allowing you to track the financial health of your business.
The finance team can use the software as their main tool, as it includes functionality such as accounts receivable, accounts payable, general ledger, business invoices, bank balance integrations, and all the forecasting and budget tools that the finance team needs.
This means you don’t need to use third-party tools such as Xero or Quickbooks, which are really good tools for smaller businesses but can become outdated as your business grows.
One of the benefits of ERP tools is that sales can be reconciled immediately, meaning that your business is showing its financial data in real time. This saves a lot of time by avoiding the monthly reconciliation process.
Customer relationship management (CRM)
CRM is one of the most important marketing tools. It tracks every way the customer has interacted with your brand and gives the marketing team important data that they can use to re-target the customer.
The best ERP systems will have the CRM built into the software. This means that the marketing and customer service team can see all the information they need about a customer all in one place. The data can even be segmented so different teams can see different information.
For example, the customer service team might need to see a customer’s previous orders, products they’ve returned, contact details, and shipping information. Whereas the marketing team can see whether the customer likes particular styles of products, has a birthday coming up, or hasn’t purchased in a while.
Whilst more businesses are becoming omnichannel, a good ERP will also be able to show a customer's purchases over different channels.
Viewing this information in one central place makes it easy to segment customers and give them a personalized shopping experience.
As your business grows, tracking inventory movements becomes harder and more complicated. If you have multiple systems you and your team need to access to manage inventory, lots of mistakes will be made. Inventory is probably the largest investment for most ecommerce businesses, so it is important not to make mistakes.
When you have an ERP that has inventory management as a part of the tool, all your team members can have access. This means that all teams can use the information to grow the business.
For example, if you have some stock that is selling slowly, the marketing team can see this information and create a promotion for that item. If a product is out of stock in one location, then your operations team can send more stock to that location. You can see that having centralized inventory management within the ERP is a really powerful tool for growing your business.
Shipping and warehouse management
Your inventory isn’t just managed centrally but also by your warehouse team. When an order is placed, the warehouse team needs to pick up and pack the shipment and send it to the customer.
An ERP system can also link up with your warehouse team so that an order goes straight to the team, and even automatically create a shipping label. Many ERP systems integrate with third-party logistics companies so that shipping labels are generated automatically and paid for, and the shipment is arranged for pick up. This can save a huge amount of time and eliminate potential delivery mistakes.
Many ERP systems are cloud-based and browser-based so that they can be operated from devices such as phones or tablets. This means the warehouse team can use the cloud ERP using their existing devices.
Human resources (HR)
ERP systems with HR systems can help manage salaries, annual leave, time tracking, and many other HR functions. It can also be helpful for the HR team to have access to other reports in the business. For example, if an HR team can access reports about sales, then the team can help with resource planning for busy times such as Q4 or Black Friday.
Supply chain and manufacturing
If your ecommerce business is also the manufacturer of products, then an ERP can track your inventory and raw materials.
This is important for staying organized and knowing where materials are, but it is also important for forecasting and analysis. If you can see when your busy times are, you can use the ERP to help plan your raw materials purchases and track their locations in one place.
If you are shipping products from China, India, or other countries far from your customers, you can track freight shipments in the ERP to understand where all your products and raw materials are. This will help you to stay in stock as much as possible, which is great if you’re managing your warehouses using Just In Time (JIT) inventory management.
Sometimes, you want certain team members to be restricted from seeing parts of the business. For example, as the CEO, you need to see access to all departments.
Still, it doesn’t make sense to allow the warehouse team to have access to the HR records or an email marketing freelancer to see the location of raw materials. Make sure the ERP you choose allows you to set permissions that make sense for your business.
The last feature we are looking at is one of the most important, as automations will save you time and prevent mistakes in your business.
Automations can be created across your front-end and back-office ERP systems to make processes happen without any human interaction. A good back-office example is shipping labels automatically created as soon as an order is processed. Another example is that customer-facing stock levels, warehouse levels, and inventory management system levels are automatically updated for that SKU as soon as an order has been placed.
Automations can also be set up to generate reports, such as monthly finance reports or inventory level reports. These reports can give you really good insights into your business and improve customer experience.
Is Ecommerce ERP Software The Next Step For Your Business?
Ecommerce businesses have a lot of moving parts, and an ERP helps connect all your business systems together so that they can be controlled centrally.
The best ecommerce ERP software will give you a global and real-time view of what is happening in your business. The downside is that installing ERP software can be expensive and time-consuming.
However, if your business is ready, ecommerce ERP software can hugely impact your business and transform the way you work.
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