Merchants juggling multiple selling channels have enough challenges these days — the last thing they need is to manage multiple software packages. That’s why many marketers now want one solution to manage an entire enterprise, or an ERP system.
ERP — enterprise resource planning — software integrates all facets of a business into a single computer system that serves independent departments’ needs. So ERP will help a company manage manufacturing, sales, marketing, merchandise planning, inventory control, fulfillment and replenishment, customer service, finance, and human resources, among other aspects of a business.
Not so long ago, ERP was out of reach for most multichannel merchants. Traditional ERP vendors, with roots typically in manufacturing or distribution, targeted only major players — companies with sales of more than $300 million. Also, most ERP systems didn’t meet the specific needs of direct merchants.
But that’s changing as more software suppliers decide they want to get into the multichannel market. Not only are many existing ERP providers with packages once geared to larger businesses now going after smaller-sized companies, they’re also broadening their products’ functionality to include Web, retail, and to some extent direct marketing channels.
What’s more, several niche software vendors already serving the multichannel retail industry have expanded their offerings to be more ERP-like, though some still lack certain modules such as manufacturing, HR, financials, and payroll.
These factors have helped expand ERP options on the market, but with more choice oftens comes more confusion when selecting a system.
OLD ERP SUPPLIERS OR NEW ERP PROVIDERS?
Traditional ERP vendors face several obstacles in trying to tap the multichannel business market. Potential merchant customers are often concerned about the ERP vendors’ lack of industry expertise and the level of service and attention they will receive after implementation. These clients do not want to be small fish in a big ERP pond.
Considerations of scale, cost, and the time required for implementation have also made some merchants wary of ERP vendors. For instance, the installation time for major systems can be a minimum of 12 to 18 months or longer from contract signing to go-live.
Merchants have good reason to be concerned about installations, as companies often fail to realize the level of discipline required to implement and use an ERP application successfully. For example, two recent installations of ERPs in the food industry went so rough that the businesses missed major selling seasons and product sales were months behind schedule.
But more ERP vendors are stepping up their game and offering their own alternative solutions to smaller businesses. In doing so they’re turning up the heat on multichannel niche vendors that have long targeted niche merchants.
As a result, multichannel retail vendors have been expanding their product lines to suit larger and more complex businesses. For instance, Escalate Retail, the result of the August 2006 merger of Ecometry Corp. and GERS Retail, is one such supplier. Ecometry, which in 2005 acquired e-commerce and customer intelligence solutions provider Blue Martini, provided functionality for e-commerce and smaller retail locations. The addition of GERS Retail’s expertise in planning, merchandising, analytics, and supplier collaboration solutions for general retail allows Escalate Retail to compete with larger ERP providers with best-in-class features.
In another example of conventional catalog/direct software providers joining forces, Datavantage last year acquired CommercialWare. Parent company Micros-Retail aims to bring together the two products retail and direct applications.
Still, many systems designed for multichannel merchants lack modules that would make them true ERPs. For instance, companies that need manufacturing, accounts payable, general ledger, HR, or payroll modules — provided by most ERP vendors — will need an integrated third-party solution if they go with a multichannel niche vendor. Many of these components are not part of enterprise solution, and the niche vendors have no immediate plans to develop or acquire these modules.
At the same time, the data and analytics that these niche vendors provide for e-commerce, retail, and direct channels usually exceeds the level that most ERP systems can provide. Multichannel niche vendors would also argue that their products’ scalability and functionality fits with fewer customizations for larger customers than ERP systems. They’d probably also say that their success rates with project costs and timelines are better than those for some ERP vendors.
Any merchant seeking an enterprise solution must understand its business requirements, including the data and analytics required to support those needs. It’s also important to review your current system to see how well the ERP application will handle direct-oriented data and analysis.
In terms of merchandising and inventory control, merchants must answer several questions before going with an ERP. Here are five of them:
What are your company’s management reporting and merchandise analyses needs? Are these catalog- and Internet-oriented functions, which may include contribution to net profit, square-inch analysis, and category analysis, available from the ERP vendor?
Is there assortment planning by catalog/drop and Internet?
Does the system have the appropriate direct-oriented data for catalog planning-demand, backorders, sales, square-inch measurements for space use, and costs by category, class, product, SKU, page/picture, price range? Or will you need a data warehouse?
Is there percent-complete forecasting by category and product/SKU for in-season forecasting?
What end-of-promotion and seasonal analysis is there, and is it direct-oriented?
As far as general analysis and reporting, there are hundreds of reports available in legacy and commercial order management systems in the direct industry. How well are these accommodated in the ERP system? Multichannel merchants also have specific needs with regard to their call centers and distribution facilities. (see “Back-end checklist” on page 54).
There’s a lot to consider when shopping for any type of software; ERP systems can be particularly challenging. In general, niche or best-of-breed solutions fit more complex environments, while ERP solutions better fit broad but less complex environments.
It goes without saying that you need to perform thorough due diligence to understand which vendor solution will best suit your needs. And when shopping for an ERP system, keep in mind that there may not be a single solution that fits all aspects of your business’s needs.
Let’s take a look at a few solutions on the market.
Along with their parent company, Micros-Retail, Datavantage and CommercialWare are taking a unified approach to fully integrate the application suites of both companies: CWSerenade, cross-channel and direct; Xstore, JAVA-based, open standard, database-agnostic; Enterprise JAVA merchandising, Web-based merchandise management solution with product planning, purchasing, and distribution; Relate Retail, with CRM functionality for marketing and loyalty clubs; and XBR Analytics. Implementation will involve a pre-planned set of parameters that will allow the user company to install an integrated set of applications more efficiently than best-of-breed applications have been installed in the past. The company expects to have its first user live this summer; all of the related business will soon adopt the Micros-Retail name.
Escalate Retail aims to keep developing specialized applications with a focus on direct businesses, e-commerce, retail management, and point-of-sale that can be implemented either as stand-alone applications or fully integrated. Its service-oriented-architecture (SOA) will allow Escalate Retail to develop functionality, such as payment processing, shipping, pricing, and promotions, that can be used by any or all of Escalate’s suite of products. The aim is not to be a broad-based ERP application, but to be a best-in-class application for multichannel businesses with direct (Ecometry), retail (GERS), and e-commerce (Blue Martini) channels. But multichannel retailers seeking a single system should understand that some functionality, such as financials, will still require a third-party application for AP and GL when they deploy the Escalate Retail Commerce Suite.
Junction Solutions has built its suite based on Microsoft Dynamics AX — a widely installed warehouse management system. Think of the functionality in three levels: Microsoft develops and enhances the dynamics level of distribution software, Junction Solutions develops and maintains a second level of functionality for the direct and retail marketplace, while the third level covers customized company application functionality. One objective is to cater to companies that need customized business functionality. The total application suite includes call center and e-commerce.
Junction Solutions in January acquired e-commerce software provider ThePage.com and POS software provider ISS Retail, which has applications installed in large retailers such as Target, Dillards, and Best Buy. It also offers a warehouse management system, and distribution, logistics, and business intelligence, and it’s adding retail planning and merchandising this year. Junction is investing heavily in service-oriented architecture. The platform is .NET.
SAP, the world’s largest business software company, offers an ERP Retail solution that incorporates e-commerce with its customer relationship management (CRM) solution that allows users to analyze sales by channel. For direct marketers who also use catalogs, the SAP system lacks the list segmentation, source coding, catalog, drop, merchandise, square-inch, and contribution to profit functions required to analyze the success of mailings and promotions.
Some multichannel retailers, including a few with catalogs, use SAP, but they are also using specific, direct-to-customer software to set up, manage, and fulfill customer orders, and analyze catalog promotions.
SAP also has an integration product, NetWeaver, with many different types of functionality, including the ability to link disparate systems. This would be one way to integrate sales from another channel, such as catalog, and have this data flow into the SAP Retail solution for merchandise analysis.
But SAP Retail does not address a key catalog measurement: demand. As SAP and other ERP systems continue to evolve, to be true multichannel solutions they will need to adapt their software to include the functionality needed by those multichannel retailers with catalogs.
Another ERP software offering from SAP, Business One, is specifically geared to small- to mid-sized companies. With SAP’s September 2005 acquisition of Triversity POS software and its integration to Business One (which also includes an e-commerce module), a smaller company has a real solution to explore.
But again, if your company has a catalog, there is no specific functionality for this channel. Since SAP’s Business One integration with Triversity is relatively new, it will be interesting to see how its catalog functionality develops as new clients embrace this software.
Whether to try and combine best-of-breed niche software solutions or to employ an enterprise solution is a long-standing debate. For now, it seems industry definitions in the multichannel arena are blurring, as some specialty software suppliers try to expand their traditionally deep functionality to broader areas, while ERP vendors are deepening their broader offerings.
It will always be easier to match specific or unique requirements with a niche solution, but the integration of several such packages presents difficulties. Some ERP providers are trying to ease the burden with middleware development; others now acknowledge the requirement for niche software and are facilitating integration with their solutions.
Remember that vendors are constantly developing new options, so keep an open mind. You’ll also want to ensure that the ERP is flexible enough to meet future requirements, so have a detailed five-year plan to minimize future surprises.
The good news is — assuming that newer versions of ERP systems are affordable — this increased competition will give companies more product choices.
Curt Barry is president of F. Curtis Barry & Co., a Richmond, VA-based consultancy specializing in contact center, fulfillment, inventory management, and direct systems.
|A tale of two ERP experiences|
It’s always easier to let another company do the legwork and learn from their mistakes. At F. Curtis Barry & Co., we’ve seen and heard about many systems implementations. While we can’t reveal the identities of the companies, we can tell you how two merchants went about selecting an enterprise resource planning system.
A large after-market direct seller of auto parts looked at several ERPs but finally selected one of the leading direct-to-customer systems. Why? The ERP system would have required significant and expensive (estimated costs exceeded $2 million) modifications to do the basics of marketing (capture, validation, and analysis of source coding), inventory percent-complete forecasting, drop-ship vendor network to dozens of vendors, profitability, and other management reporting, and to interface to the company’s Internet shopping site.
A gifts and book retailer with 150 stores, a major catalog and Website implemented Oracle’s ERP. The implementation took 24 months — three times the estimated man-hours for implementation. On the upside the system has one of the most powerful database functionalities in the market — a significant advantage. Oracle is a good launching pad for other applications and provides decent accounting; order management and visibility is okay; overall it has broad functionality. Oracle’s genesis in manufacturing shows in its detailed functionality in certain areas.
But the ERP is lackluster in some multichannel areas of functionality (call center, credit card, backorders, and inventory channelization). The WMS is really a locater system, which makes it a weak link for multichannel fulfillment. There are different user interface processes (Web and fixed), possibly due to multiple systems being put together under one umbrella; basic reports are numerous but generic. Overall the functional gap was greater than expected in some areas, requiring additional fixes to meet the retailer’s needs.
It’s a major proposition to find, install, and work with an enterprise resource planning (ERP system). Multichannel merchants that operate call centers and provide direct-to-consumer fulfillment have unique system requirements. Before you settle on an ERP system, make sure it has the back-end functions you need. Here’s a list of options:
- Ability to note and follow up on customer inquiry calls and complaints
- Backorder tracking and FTC analysis
- Interface of telephone system to order management system for computer telephone integration (CTI), for instance, screen pop ups of customer accounts
- Pre-paid liability tracking for mail order customers (payment for orders received vs. outstanding back orders)
- Real-time inventory management
- Multiple methods within operating procedures such as picking
- Virtual and/or physical inventory separation by channel
- Complete use of barcode technology throughout the warehouse
- Support for both pick/pack for direct and store replenishment for retail channel processes
- Interfaces to automated warehouse processes such as pick/put-to-light, carousels, print and apply, etc.
- Ability to capture and report productivity measures by individual, department or function, and warehouse
- Support for multiple warehouse facilities
- International shipping capabilities
- Cross-dock capabilities for store distribution and backorder processing
- Rate-shopping process to minimize freight costs
- Full-functional inbound and outbound freight management