ERP Software in the Multichannel World

Multichannel business managers frequently voice the desire to have one system or software package that is capable of managing the entire enterprise, encompassing all functional areas. Enterprise resources planning (ERP) systems have been available for years. Because the multichannel phenomenon–traditional brick-and-mortar businesses reaching into direct marketing, and traditional direct-to-customer companies developing brick-and-mortar stores as well as a Web presence–is so recent, it has in many cases outstripped the ability of software vendors to keep pace.

Having a single computer system control all functional areas in a business and use a common customer, inventory, order, and item database makes perfect sense, and the potential synergy between channels and the ability to maximize the customer experience are clear opportunities. Unfortunately, the search for and implementation of such a solution has frequently proved difficult.

The push to provide an overall multichannel solution has generally manifested itself in two ways. Traditional ERP vendors, whose genesis was in manufacturing, have tried to develop functionality geared to the specific needs of multichannel companies. Existing niche vendors in the direct-to-customer or retail worlds are trying to broaden their offerings to include more functional areas and look more like true ERPs. Both approaches have met with limited success so far. In general, niche or best-of-breed solutions fit more complex environments, while the ERP solutions better fit the very broad but less complex environments.

Size matters

There are many interpretations and definitions of “ERP” floating around. One of the clearest is that an ERP is a business management system that integrates all facets of the business, including planning (merchandise, staff, growth), manufacturing, sales, marketing, inventory control, fulfillment and replenishment, customer service, finance, and human resources. The system attempts to integrate all departments and functions across a company into a single computer system that serves independent departments’ needs.

Many existing ERP packages are geared to larger businesses with multinational or broad business control needs. Many ERP systems have come from the manufacturing world and are now being developed to handle the very different operational requirements of the multichannel retail world. The relatively unique and complex nature of multichannel retail, combined with the large numbers of small and medium-sized multichannel businesses, has helped to create a void between traditional, deeply functional niche systems vendors and the functionality provided by ERP vendors. Finding an ERP solution with deep niche functionality geared to a medium-sized multichannel business can be an enormous challenge. But conversely, finding a niche player with deep functionality that can manage an entire multichannel enterprise is an equally difficult proposition.

Recent ERP market trends

ERP vendors face several obstacles in their effort to address the opportunities seemingly presented by the multichannel business market. The focus of ERP marketing has traditionally been on large companies willing to invest significant funds.

ERP vendors trying to enter mid-tier markets in retailing have been met with resistance from potential customers concerned about the level of service attention they will receive after implementation and about the lack of industry expertise on the part of the ERP vendors. There are many examples of ERP implementations failing–for many reasons. Considerations of scale, cost, and the time required for implementation have led to customer resistance to ERP vendors. Companies commonly fail to realize the level of discipline required to implement and use an ERP successfully. Most ERP installations follow a “Big Bang” approach, since the functionality is usually far reaching and encompasses many functional areas. Another drawback is that the installation time for major systems can be 12 to 18 months or even longer. (For example, two recent installations of ERPs in the food industry were so difficult that the businesses missed major selling seasons and product sales were months behind schedule.)

A good fit for an ERP would be in a far-reaching company with somewhat basic requirements desirous of having a single system to fully integrate all company information and data. Many ERPs are developing features that acknowledge the need for niche software by making it easier to integrate the two.

What about the competition? The sheer pace of recent acquisitions and consolidations in the software industry have made it difficult for niche systems vendors to effectively integrate suites of products into one unified approach with a clearly defined target market. Niche vendors who have deep, specialized functionality are beginning to compete successfully against the larger, more all-encompassing ERPs in the mid-market arena. And a recent trend in the systems market is for multichannel businesses to combine the niche, best-of-breed approach with an overall ERP solution.

Enterprise solutions

SAP

SAP, the world’ largest business software company, has 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 utilize catalog as a sales channel, however, SAP seems to have a disconnect related to specific functionality that is needed for catalogs. The solution lacks the list segmentation, source coding, catalog, drop, merchandise, square inch, contribution to profit functions required to analyze the success of mailing files, house and rented, and catalog promotions.

There are multichannel retailers, including ones that sell through a catalog, that are using SAP but they are also using specific direct-to-customer (DTC) software to set up, manage customer orders, fulfill, 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 application, such as catalog, and have this data flow into the SAP Retail solution for merchandise analysis. However, NetWeaver does not address a key element that catalogers measure, which is demand. As SAP and other ERP systems continue to evolve, in order to be true multichannel solutions they will need to adapt their software to include the functionality that is needed by those multichannel retailers who have a catalog sales channel.

SAP has another ERP software offering, Business One, for small to mid-sized companies. With SAP’s acquisition of Triversity point-of-sale (POS) software and its integration to Business One ,which also includes an e-commerce module, a small to mid-sized company has a real solution to explore. Once again, however, if your company has a catalog sales channel there is no specific functionality to support this sales channel. Since Business One integration with Triversity is relatively new, it will be interesting to see how its catalog functionality progresses as new clients embrace this software.

Datavantage/CommercialWare

These two companies, along with their parent company, MICROS Systems, are taking a unified, integrated approach to bringing together all of their many retail and direct applications. In 2006 CommercialWare, one of the leading direct-to-customer software providers, was acquired by Datavantage. Datavantage is an industry leader in retail and point-of-sale applications. Between these companies the objective is to fully integrate their application suites (CWSerenade, cross-channel and direct; Xstore, JAVA-based, open standard, database-agnostic; Enterprise JAVA Merchandising, Web-based merchandise management solution with merchandise planning, purchasing, and distribution; Relate Retail, with CRM functionality for marketing and loyalty clubs; 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 quickly than best-of-breed applications have been installed in the past. The company expects to have its first user live this summer. In the fall, all of the related companies will adopt the MICROS name.

Escalate

Escalate Retail’s vision is to continue to develop 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. Continued development of service-oriented-architecture (SOA) will allow Escalate Retail to develop functionality, such as payment processing, shipping, pricing and promotions, that can be utilized 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 that wish to enhance their customer relationship and experience. Customers looking for an application that can support all aspects of the business with a single system need to understand that some functionality, such as financials, will still require a third-party application for AP and GL when they deploy the Escalate Retail Ecometry Commerce Suite.

Best of both worlds

A long-standing subject of debate is whether to try and combine best-of-breed niche software solutions or to employ an enterprise solution. At the moment, it appears that a blurring of industry definitions in the multichannel arena is occurring as some best-of-breed vendors try to expand their traditionally deep functionality to broader areas, while ERP vendors are deepening their traditionally broader offerings.

It will always be easier to match specific or unique requirements with a niche solution, but the integration of several of these packages is an issue. Attempts are being made to ease the burden with middleware development. In addition, some ERP vendors are now acknowledging the requirement for niche software and are facilitating integration with their solutions.

The search, selection, and implementation of an ERP for a multichannel company is a complex and difficult task. Since the welfare of a business depends on an effective system to control the business, the risk of making the wrong decision is significant.

We believe that ultimately ERPs will become more commonplace in the direct-to-customer, multichannel industry. The good news is, assuming that newer versions of ERPs are affordable, this increased competition will give companies more system product choices.

Here are a few suggestions for anyone considering the purchase of an ERP solution:

-Make sure you do all of the homework required.

-Keep in mind that the “Devil is in the details”

-More options are rapidly being developed, so keep an open mind.

-Strong training and discipline are required for successful implementation.

-Insure that the ERP is flexible enough to meet future, as-yet-unknown requirements

-Have a well-thought-out five-year plan to minimize future surprises

The battle rages on but the options are changing. To read more of this article, including expanded examples of what was discussed above, we encourage you to visit our blog at: http://www.fcbco-blog.com.