What to Expect in an eCommerce ERP
An Introduction to ERP
ERP - Enterprise Resource Planning - refers to one of the most complex, nuanced, and widely applied software categories out there. One of the reasons it can be hard to wrap your head around an ERP system is because the definition varies so widely.
For better or for worse, many tech solutions have been lumped under the ERP umbrella as a by-product of the SAP days, when a proper software category didn’t exist for the myriad of new systems being offered to businesses. Any software that was used to drive workflow automation ended up falling into the ERP category.
What really is ERP? At its core, ERP is software that connects multiple departments and teams with a single source of truth, ideally across an entire enterprise.
Across most industries, giving every team access to centralized information lays the foundation for efficient operations. Take the example of a hospital, where both the Emergency department and Intensive Care unit have the shared goal to provide life-saving care to patients. With these departments operating on different sources of information, patient care can be delayed and negative outcomes arise.
Whether it’s the Healthcare or Consumer Packaged Goods industry, any time organizations are trying to grow efficiently and move quickly, they require a SSOT (single-source-of-truth). This empowers all teams with consistent information from which to make decisions.
The significant growth of eCommerce in recent years has led more and more DTC and wholesale businesses to seek out digital tools to streamline their operations and help them scale. Naturally, the question of, “Is it time for an ERP?” emerges at some point. A lot of brands cringe at the suggestion (perhaps because it comes with some baggage from failed implementations past); most often because there are unclear expectations as to what an ERP should accomplish for them, specifically as a modern merchant.
This guide illustrates the qualities that makes DTC Brands and their operations unique, and outlines what modern merchants should expect from their ERP system.
eCommerce; a new paradigm for ERP
DTC brands are different from the businesses that traditional ERP systems were designed for. So, we should expect that ERP systems will be unique for DTC brands. Let’s look at three distinct driving factors of this differentiation:
One of the biggest differences between modern brands and the companies that traditional ERPs were designed for is their growth itself, which brings unique challenges. Growth is often unexpected, and without the right systems in place to manage it, operators cannot capitalize on massive opportunities.
What many DTC brands often do is start out their scaling journey by bringing on specific, point solutions to help them grow - an inventory management tool, a shipping app, an accounting software, and so on. In fact, many vertical systems have emerged over the years as alternatives to entire ERP systems, which provide a solution to a singular challenge.
The trouble is, that fast-growing brands soon outgrow these individual systems, quickly leading to a gamut of problems:
- Current processes that worked when you had a few hundred orders - be it manually batching and printing shipping labels for orders, to processing orders individually - no longer work when order volumes skyrocket
- It becomes a common occurrence to oversell on stock, as you lacked real-time inventory syncing to external channels
- The likelihood of selling out of stock increases as your system could not warn your team that you were low on stock
- Your current systems and tools are experiencing time outs and slow load times, as they were never meant to handle the scale of order volumes you now face
Unfortunately these growing pains are all too real for scaling brands, leading to an endless game of whac-a-mole for operators as they try to address each one, only to find that another issue has cropped up. Not only is this an exhausting exercise for internal Operations to handle, but there are real consequences to the customer experience.
Suddenly, the brand doesn't have enough inventory to fulfil orders. This causes them to have shipping delays, which drives more customer service requests, which requires additional customer support Reps and more refunds… the list can go on.
There is a real ripple effect that happens as these once-manageable problems compound. Unfortunately the consequences of ignoring them are most acutely felt by the most important stakeholder: the customer.
As a modern brand with a high Customer Acquisition Cost (CAC), the brand’s intent is to drive repeat customers. If customers are experiencing the growing pains of the merchant, that puts retention severely at risk.
In fact, a 2021 study done by McKinsey found that “30 percent of consumers who have a bad experience with a brand don’t return, and that rises to more than 70 percent if consumers have three bad experiences.”
A common alternative to point solutions - when budget allows - is to tackle a larger, enterprise ERP implementation. But when traditional ERP systems, by nature, take a fair bit of time to implement and customize (i.e. several months, or even years to configure), modern brands can quickly outgrow the system before it is even in place.
Digitally Native Superpowers
The second thing that makes modern merchants - like Allbirds, Mejuri, Dollar Shave Club, Glossier, Gymshark - different from traditional ERP users is that they have their own operational superpowers up their sleeves. These unique capabilities need systems specially designed to enable these superpowers. For example…
DTC Brands have an unprecedented level of order to cash
Order to cash - or simply put, the time it takes to fulfil orders and generate profit -is an often underestimated superpower. That is, until you start seeing it in action through the short cadence at which DTC brands release new products. Gone are the days when a new product line was released four times a year on a seasonal basis, today this can be done on even a weekly basis, with revenue being recognized just as quickly.
For modern brands, new products can go from design to online pre-order within 7 days. In that short period, the item is listed on a sales channel, a PO is issued, inventory is received, stock is organized in a warehouse, orders are packaged, and finally packages are shipped. This is what makes the order to cash potential so high.
That said, without clear visibility into transactions and cash flow, merchants risk disrupting the balance between supplier payments, COGS, and their own revenues. The ERP must focus on operations to enable accurate and efficient financial reporting.
DTC Brands handle new meanings of seasonality
Not only do modern merchants have to quickly scale up and down to meet massive consumer demand around events like BFCM (Black Friday Cyber Monday), or secularized holidays like Valentine’s Day, they also support digitally-native forms of product releases such as Drops, Warehouse Sales, and Subscription offerings. These events cause significant fluctuations in order volumes and require well-oiled systems to deliver on expectations.
DTC Brands know no bounds
Modern merchants are not restricted to traditional understandings of markets. Rather than focus on building a brick and mortar network and capturing consumers from local trade areas, they can serve massive, widespread geographies. This is a big advantage especially in their early growth stages, when costly and long-term real estate commitments could make scaling cost-prohibitive.
One of the best examples of this was at the start of the COVID-19 pandemic. Previously, a consumer might have gone to the local mall to buy a new pair of Gap jeans, or pick out a rug at the department store. With their restricted ability to shop in person, consumer demand was driven online where DTC brands like Everlane or Ruggable became an option for their purchase.
The Brand’s North Star
Finally, perhaps what differentiates modern merchants from traditional ERP users most significantly are their underpinning values and operating principles.
No doubt about it, an ERP is a foundational piece of software for an organization because it’s providing that single source of truth. However, the application of that SSOT differs between traditional and modern ERPs.
Traditional ERP systems tend to be driven by a financial point of view. Everything is an accounting transaction. And for many businesses, that makes sense. However, when you start getting into operations-heavy business models (as DTC brands do), it’s not as useful.
Let’s look at Amazon as an example. Having the best customer experience is a key tenet that has long been promoted across the organization. In order to deliver on that, they focused on how to get there through initiatives like 2-day shipping and operational efficiencies, rather than prioritize a clear ROI or specific margin percentages. Amazon’s focus on their North Star is what has allowed them to build an unparalleled customer experience, an iconic brand, and high gross margins.
Modern brands are built on customer experience.
This is everything from their delivery times, the customer service they provide, the ability for swift and easy returns, to the personalization and customizations they can offer.
Today’s modern merchants are a great example of business models that do well when they optimize around operational and customer experience excellence, and as a result, drive strong unit economics.
How can we expect an ERP to address this? Rather than assume its main purpose is to track transactions and create good accounting practices, the ERP must enable operational efficiency. This will in turn impact costs, profitability, growth, and customer satisfaction. Let’s dig deeper…
What to Expect
So what should a fast growing merchant expect from an ERP? Let’s focus on four primary characteristics:
1. Holistic, but not all-inclusive
Your ERP should be purpose built-for a DTC business model. While it should offer your organization a single source of truth and reduce the reliance on humans to be the glue between systems, it won’t cover 100% of your business processes, nor should it.
For example, in industries like manufacturing, an ERP setup would include accounting for depreciation schedules because these companies have massive assets, machines, and so on, for which they need to calculate depreciation. Modern brands rarely have fixed assets, so a depreciation calculator is not a critical capability to have in an ERP. And yet, it might be promoted by a vendor as a capability for accounting users to save time.
Having a plethora of features in your ERP is deceptively unnecessary.
More often than not, a breadth of capabilities means insufficient depth, leaving the critical requirements of a DTC brand unmet.
For example, an ERP that also touts its built-in tooling to handle Customer Support tickets should be a cause for some skepticism. Though the feature may be there, the functionality in reality lacks and adds little to no value for DTC.
2. Features Deliver an Unparalleled Customer Experience
Your ERP should focus on simply the most important parts of DTC operations to make it possible for you to deliver that customer experience excellence. There are three major areas this plays into:
First and foremost, orders should flow into the ERP immediately. As soon as a purchase is made through an external channel, it should be inside your system and processed as an order, right away.
Not only should it be immediate, but your system should be capable of handling the scale at which your business operates, both now and in three years from now. Your business has potential to expand significantly: seeing larger order volumes, adding an increased no. of SKUs, establishing new channels, growing into new markets… There should be no question as to whether or not your technology and it’s infrastructure and performance can easily grow with you.
Any channel you sell on should have a strong integration that enables that immediacy and real-time order management. If this isn’t enabled through your ERP, every other feature is rendered irrelevant, because this is where the customer journey begins.
Having visibility and control of your inventory is the foundation of a great customer experience. DTC brands live and die with inventory, so proper management becomes absolutely essential. Without a good understanding of how much inventory you currently have, and where it is - it becomes impossible to seamlessly get the product into your customers’ hands, let alone delight them beyond their base expectations.
For both order and inventory management, many modern merchants begin with point solutions to accomplish some of these tasks. These point solutions require merchants to purchase additional “middleware” software to pass information between the point solutions. However when it’s time to scale, middleware can quickly get expensive, introduce additional points of failure, and lead to information loss between platforms.
Operating a warehouse, via a 3PL or through your own WMS (warehouse management system) is figuratively - and sometimes quite literally! - where the heavy lifting happens. Time is of the essence, as customers wait for their order to be fulfilled and warehouse staff work to get orders out the door as quickly and accurately as possible.
Your 3PL integrations to your ERP, or in-house WMS, play a pivotal role in delivering on (and surpassing) customer expectations. Let’s take a look at some examples as to why…
Order, Inventory, and Warehouse Management Integrated in Action
Consider a hypothetical store selling T-shirts. A customer calls Customer Service shortly after placing an order and says, “Hey, I ordered the blue shirt but I actually think I’d like the red shirt.” Great responses from Customer Service would sound like:
For businesses where it makes more sense to outsource warehouse management to a 3PL, the ERP must offer full visibility into the status of orders and inventory. Otherwise, in the situation above, the merchant’s Customer Service team is left at the mercy of the 3PL’s representatives, and will need to reach out and await updates from their rep to uncover this information or make changes.
All of these responses were made possible through:
- Real-time status updates being accessible to the team on individual orders e.g. order is “awaiting processing,” “in picking,” “in packing,” “shipped,” etc.
- A tightly integrated system for Customer Service and Warehouse team members to operate out of - be it a native WMS or real-time 3PL integration
- Fulfilment systems that allow brands to match customer expectations for shorter lead time
Believe it or not, your ERP can actually be an elegant piece of software that Operators enjoy using, when it truly empowers your company’s capabilities. Empowerment can include across-the board cost savings, better customer service, reduced shipping times, and the list can go on.
Like many brands, key metrics such as Retention, LTV, Gross Profit, and Conversion Rates are all crucial to success, and modern merchants are no exception. Your ERP should lift performance on all of these metrics, as a result of some key empowerment factors:
If you bring on an ERP, you can expect to consolidate, streamline, and optimize the systems, people, and processes that help you run your business. Expect to replace at least 3 other heavily-used systems, whether those be point solutions through 3rd party vendors, or extensively built in-house spreadsheets and processes that keep your business moving.
Accurate, Intelligent Ops
While your ERP will enable cost reduction from obvious sources (i.e. through consolidating tools, systems, etc.), they also help you to increase revenue and drive down costs for both you and your customer, through smart technology and operations:
- Inventory accuracy will go up, leading to more consistent sales capability
- Time to ship items will go down from increased ops efficiencies such as batch picking and strategic placement of products that sell together often
- Shipping costs will be reduced for you, your suppliers, and customers by automatically shopping for the most competitive rates available
- The number of products being sold will increase, as will average order value, using through assessments like basket analysis
- Returns due to mis-ships will decrease as the ERP validates every item being shipped at the packing station
- Optimizing the warehouse for product placement makes picking more efficient
Many operators take pride in things like their intimate knowledge of where products sit in the warehouse, the fastest way to pack an order, how well they prepare monthly reports, or how a customer service rep might run down into the warehouse on the phone with their customer to adjust an order. While these are signs of operations with integrity and strong business values, this kind of operating style relies on manual processes and tribal knowledge to get the work done. And it certainly doesn’t scale.
But talk of optimized warehouse pathing, new bin and bay organization, or any mention of the word automation - might make some team members a little squeamish. What a good ERP will do is enable humans to spend time on what they can uniquely spend time on - assembling customized orders, personalizing them, communicating with customers online, building relationships with suppliers, etc., while the tasks more prone to error - like doing inventory calculations - can be left to something that can compute fast without error (like a machine).
These optimizations will also help your humans do more, with less, meaning you can scale without exponentially adding headcount.
A faster fulfillment process means greater customer experience. In the age of Amazon, customers are only expecting to receive their orders faster and faster.
And when the order didn’t deliver on the consumer expectation and they want to do a return, how a brand facilitates this exchange can make or break the possibility of their coming back. Your ERP can enable you to still satisfy your customers through seamlessly solving their problem, leaving a good taste in their mouth, and demonstrating to them that you’re worth trying again.
DTC brands are also iconically known for personalization, whether that’s actually selling custom-tailored bridesmaid dresses or simply adding small touches to the packaging details like the name of the person who engraved their jewelry or assembled their order.
Customers love these details; it makes them feel closer to the brand when they see that “Neat, this is a real-life business and Jacquie packed my purchase!” rather than having it be shipped out from a nondescript factory floor.
A flexible ERP with centralized data sources can help merchants achieve this - not all merchants master personalization, but when they do, they drive significant loyalty and create competitive differentiation for the brand.
Channel Agility & Expansion
Your ERP should be virtually limitless when it comes to channel integration. Each modern merchant is different and their growth trajectory may adopt a different set of channels. These could be anything from:
- Mom and Pop shops who will fax or phone in orders
- Influencer marketers getting orders online
- Big-box retailers leveraging EDI
- Marketplaces such as Amazon, eBay, Walmart, and Etsy
- eCommerce platforms such as Shopify, WooCommerce, Magento, etc.
Regardless of how your channel strategy evolves, the ERP should scale with your demand and work seamlessly, however and wherever you’re selling.
If your ERP is providing your team with its SSOT, it can’t be a walled system. It should be possible to access it from anywhere and everywhere (that you enable of course). For example, if your team lives in Slack and Slack is where you need information, do you have a path for getting the information from your ERP to Slack? If your management team needs XYZ reports, can they extract that information? If you need to easily fetch data to send to another system, can you do that?
By offering robust system integrations, your ERP facilitates network effects for your business. A good ERP will enable your truth data to easily connect to other systems, processes, or people who need that critical information.
Companies like Salesforce do this extremely well, with an open API that pushes the SSOT to other platforms and tools, enabling the development of other tools, dashboards, reports, and building partnerships and awareness of your capabilities.
4. A Technology and Implementation Team
Finally, an ERP will require an integrated technology partner to successfully go-live. These partners ideally:
- Don’t require you to also hire third-party consultants
- Shouldn’t require you to change basic operations in order to fit their workflows (although thoughtful best practices should be offered)
- Have an off-the-shelf solution that should work pretty well for you. If you’re trying to customize everything with your technology vendor, it’s an indication that their platform likely wasn’t intended for your workflows
- Can provide a short time-to-first-value period. You should be looking at a matter of weeks, not months to get your implementation off the ground
- Move fast. Ask when they shipped their latest feature update. If they share that their last release was months ago or are done on a bi-annual basis, take note. You’re a fast-moving company and they should ship just as quickly as you do
The Fulfil ERP Approach
Fulfil has created a purpose-built ERP to support high volume, high growth brands. The platform supports the most important facets of DTC operations, spanning production and manufacturing, inventory management, purchasing, order management, warehouse management, and financial management.
The Fulfil platform serves modern merchants who experience one or more of the following challenges:
- Struggle with visibility into their operations (e.g. headcount has grown, teams are on different tools, there is no SSOT)
- Customers have no visibility into inventory, leading to issues for the merchant like overselling, operational problems, and lost opportunities
- Operate a warehouse and can’t get orders out of the door (e.g. picking or packing problems, mis-picks, delays, etc.)
Using Fulfil, merchants can scale while maintaining their customer delight, using a series of apps suited for their teams, including:
Fulfil connects all your sales channels together giving you a single view into every order. Having all of this in one place gives you the ability to support workflows that span across channels, manage inventory more effectively, and add on any sales channel with ease.
Production & Manufacturing
Gain greater visibility into your manufacturing processes to control costs while increasing production efficiency.
Easily manage purchasing tasks with direct payment integrations, automated updates, and streamlined purchase orders at every stage of your order.
Just because your inventory is located in different places doesn’t mean you have to manage it that way. Connect all inventory sources to Fulfil in order to give your business the single source of truth and view into your inventory.
Fulfilling orders shouldn’t get harder as you sell more. Fulfil gives you the ability to keep up with your growing demand so you can get orders out the door and to your customers faster.
Scaling DTC brands have unique problems when it comes to financial reporting. Fulfil was built to support merchants who seek out real-time accounting, rather than waiting until end-of-month for financial data to be accurate, as well as easy segmentation for reporting.