Considering an ERP Implementation for Your SMB? Here's the Data You NEED to Know
When a small to midsize business (SMB) experiences rapid growth its profit margins might go up, but its back-office operations often go into meltdown.
Spreadsheets get used to plug gaps between systems; mistakes and delays become commonplace, resulting in poor customer feedback; tedious manual workflows take up the time and energy of team members; and a lack of visibility hampers decision making.
This sudden onset of operational complexity has historically been the trigger which prompts retailers to sign up with a traditional enterprise resource planning (ERP) software provider in a bid to streamline workflows, optimize data and improve efficiency.
Introducing a new technology system, such as an ERP, into an organization can be a game-changer, helping to boost productivity, reduce costs, support growth and boost the customer experience.
However, because implementation is so crucial to the overall success of the system, it’s important to first consider exactly how the ERP system will be implemented — because not all implementation approaches are created equal.
The Research is in
New research by Brightpearl has revealed widespread and significant issues linked to ERP implementation.
For instance, in the U.S., nearly four in 10 (38 percent) firms experienced a major challenge when implementing an ERP over the last year, with 63 percent of medium brands (turnover of $10 million to $50 million) and 38 percent of large brands (turnover of $50 million to $100 million) hitting roadblocks.
The study, which involved 500 retailers and took place in April 2022, also confirmed that implementing an ERP takes months, and sometimes even years, to complete.
Nearly 60 percent of respondents completed their implementation in the projected timeline, which is positive, but 36 percent of projects took longer than estimated to go live — with an average 200-day delay.
So has implementing an ERP become a time-consuming, frustrating mistake that causes more problems than it solves?
It’s not quite that simple. Despite ERPs being widely considered dated, slow and inflexible, many merchants still see them as essential — and every year a new influx of growing commerce companies hit the turning point where they sign up for an ERP implementation experience.
And although we’ve known for a while that ERP implementation fails in up to 75 percent of cases, the prevailing popularity of ERPs means they can’t be written off. Instead, we must dig deeper into exactly what’s going wrong — as well as what’s going right — with the implementation of these systems.
What’s Going Wrong?
A "lack of scalability and flexibility," data migration challenges, and major operational disruption are the biggest factors for ERP implementation failure, affecting 25 percent, 23 percent and 21 percent of U.S. retailers.
While issues with ERP tech, which is notoriously complex and rigid, are behind many of the challenges, it’s not just the tech that’s to blame.
In the U.S., for instance, it's (partly) the humans; 15 percent of businesses report a "lack of expert implementation consultants" was responsible for a tricky ERP implementation.
The research has also highlighted the issue of spiraling fees.
Of course, no SMB merchant signs up with a traditional ERP and expects it to be cheap. However, the data suggest many don’t realize the extent to which ERP costs can far exceed any initial quote.
Brightpearl found that, on average, ERP projects cost around a third more than predicted — although the good news is that only 8 percent were significantly overbudget at more than 70 percent of the original scope.
Why are costs soaring? It all comes back to the issues which make it challenging to get set up in the first place. For example, 17 percent of U.S. brands said their ERP is a "poor fit for retail" and 15 percent of U.K. merchants admitted their ERP was inflexible.
It’s true: ERPs were built for the 1990s and, while the retail landscape has changed drastically, their rigid architecture hasn’t evolved at all. This means ERPs typically lack the built-in functionality and integrations modern brands need to succeed. And while adding them isn’t entirely impossible, it does incur extra fees and time, driving up the cost of implementation significantly.
The Post-Implementation Picture
Unfortunately for some retailers, ERP problems continue even after they have overcome the costs and challenges of implementation.
In the U.S., a quarter of retailers (24 percent) have to contend with ongoing data delays in their reporting, and 13 percent say they experience broken workflows.
Overall, the data paints a clear picture: ERPs aren’t the cure all many brands assume they will be. And just because a brand reaches a level of growth where it can get an ERP, it doesn’t mean it should.
By their very design, legacy systems have a complex, rigid architecture which makes it expensive and costly to implement — and nearly impossible to quickly adopt new tools and apps (including platforms like Shopify and BigCommerce). Even for the brands that get over an expensive, months-long implementation, further issues (e.g., slow processing, annoying glitches) often follow.
Some brands might be perfectly able to live with this. However, modern brands that want the freedom to grow in any direction they choose will need to pick a different path, and the considerations are clear. They’ll need to prioritize tech partners with built-in flexibility, clear retail expertise, and a track record of successful implementation with similar brands of size, scope and sector.
Mark Hook is the vice president of global brand, communications and PR at Brightpearl, a retail operating system (ROS) for retailers and wholesalers with a clear mission to automate operational complexity so merchants can spend their time and money growing fearlessly.
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