Inside the Briefcase
How to select an ERP for your retail enterprise
January 27, 2023 No Commentsby Roman Davydov
According to Statista, the estimated value of global retail sales (both online and offline) exceeded $24 trillion in 2021. As the retail industry grows, so does the competition. The latter prompts retail enterprises to adopt digital technology to gain business advantages and thus stand out.
Retail ERP is an example of one such technology. Integrated into critical retail workflows, ERP softwares helps an enterprise optimize them continuously, increasing the overall operational efficiency and, consequently, competitiveness.
However, implementing an ERP in retail is not an easy task – typically, the adoption is a complex, expensive, and time-consuming procedure that may last for months. According to Software Path, on average, enterprises spend 17 weeks choosing an ERP, not to mention deployment and configuration.
This article covers the main options that a retail enterprise may face while adopting (either purchasing or developing) an ERP. With this information in mind, decision-makers can make the right choice more quickly.
Out-of-the-box vs. custom ERP
Whether to implement a ready-made system or develop software from scratch may be considered the first “road fork” while initiating an ERP project. However, both options have specific strengths and downsides.
Out-of-the-box ERP
Out-of-the-box, turnkey, or mass-market ERP is a prepackaged and standardized software tool delivered by the vendor and purposed to serve generic retail business needs. Today, there are dozens of popular out-of-the-box ERPs on the market – NetSuite, Oracle, and Odoo, to name a few.
While each turnkey solution may have a differentiator (price, feature set, etc.), they all share many similarities. For example, a typical out-of-the-box ERP may be quickly installed right after purchase. Generally, such software solutions provide pre-designed workflows and templates to be integrated into an organization’s operations.
Also, if particular workflows or features should be configured, business users may do it via an ERP’s in-built tools. Therefore, sometimes configuration does not require coding, which makes a turnkey ERP ready to use rather quickly.
In addition, the purchase of out-of-the-box software relieves a retailer of the need to spend resources on maintaining the ERP. After all, upgrades, testing, and cybersecurity are the vendor’s responsibility.
However, off-the-shelf software ERPs also have their downsides. The first and most obvious one emerges from the solution’s purpose to serve the widest audience possible, meaning all the provided features and workflows are standardized. Unfortunately, in many cases, this may significantly complicate the ERP implementation.
For instance, a retailer has an established ERP lifecycle and time-proven work processes that have organically emerged from the organization’s needs. In this case, an adoption may require adapting these workflows to turnkey ERP, which may decrease business performance and require additional staff training.
The above smoothly brings us to the next downside of out-of-the-box ERP software. Even though it has an exact price (either in the form of a subscription or a one-time transaction), the final cost of implementation may become much higher.
As we mentioned, turnkey ERP adoption may imply hidden costs related to staff training. Moreover, if an organization decides to access additional functionality, it may have to pay additional fees to upgrade to a more advanced plan. But, these are not all the factors that may affect the price of off-the-shelf ERP.
Custom ERP
By developing custom ERP, an organization may level these and other disadvantages of out-of-the-box ERP. The thing is that custom development implies creating software from scratch, and here, the entire project is subject to the goals and requirements of a particular retail business. Therefore, the software architecture and functionality are initially tailored to cater to unique retailers’ needs.
On the one hand, this enables organizations to ensure that their ERP software is scalable and that it helps businesses grow even years after being put into operation. For example, a retailer may build software on a microservices architecture. This way, developers may enrich ERP with new functionality (services) anytime on the organization’s demand.
Additionally, custom development allows retailers to estimate all expenses in advance clearly if approached correctly. Given that the organization determines the technology, solution architecture, testing scope, and other development aspects, the project budget may be evident early on.
Of course, it is essential to note that custom development is not a silver bullet, just like implementing a turnkey ERP. Regardless of the business case, a custom enterprise-level ERP typically costs tens and hundreds of thousands of dollars. The entire project may last for several months or even years.
If a retail enterprise is not ready for such challenges or if decision-makers consider the generic ERP functionality enough, implementing a ready-made ERP may be much easier. However, we still recommend decision-makers consult ERP experts before making a final choice.
On-premise vs. cloud-based ERP
Another turning point occurs when a retailer has to choose a hosting type for its future ERP. In particular, decision-makers should determine if it is better to maintain the software on physical servers or host it in the cloud. And again, both options have their pros and cons.
With on-premise hosting, a retailer may have more control over ERP software and its data. This way, employees may access essential documents and files without the Internet, reducing work delays in case of connection issues.
However, on-premise hosting may also be a constraint to business growth. After all, any scale of an on-premise ERP typically implies purchasing expensive equipment. In this regard, the cloud may provide retailers with an advanced level of flexibility. After all, with cloud ERP, a retailer may scale up computing resources on demand, which makes adding new features or users easier.
Horizontal vs. vertical ERP
Another branching point may arise in choosing a horizontal and vertical ERP. Here are several considerations for both these ERP software types.
Typically, horizontal ERP is a comprehensive multifunctional solution that helps manage a full-fledged retail enterprise and various business aspects, from manufacturing to ecommerce and business intelligence. Often, such solutions fulfill the role of a technological basis that connects an array of complex operations and business systems.
However, given their complexity, horizontal ERPs may be too difficult to implement. Therefore, a retailer may consider implementing a vertical ERP as an alternative.
The latter are more narrow and specialized tools focused on supporting a few particular business processes, such as inspection logging and raw material delivery. Therefore, a vertical ERP may be the best option when a retailer aims to access some specialized functionality without spending much time and resources on ERP implementation.
Final thoughts
The retail industry is growing each year, as well as the number of sales, which creates new opportunities for retailers and enables them to proliferate. However, the growth of retail also means that organizations should be prepared for more stiff competition, and this is where ERP technology may come in handy.
ERPs allow enterprises to automate key retail workflows, helping improve operational efficiency and, as a result, business competitiveness. However, the above may only occur if retailers choose the right ERP solution.
Depending on its needs, a retailer may purchase an off-the-shelf ERP or develop it from scratch, adopt a horizontal or a vertical solution, deploy an ERP on the cloud, or maintain it on physical servers. If the choices need to be clarified, retailers should consult ERP experts.
About the Author
Roman Davydov is Ecommerce Technology Observer at Itransition: Software Development Company. With over four years of experience in the IT industry, Roman follows and analyzes digital transformation trends to guide retail businesses in making informed software buying choices when it comes to commerce and store management automation.
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