Running a business today means you have to manage multiple moving parts and react to the changes in real-time.
Not only do you have to handle the many variables throughout the supply chain but you also need to have full visibility into how market demand and consumer behaviors affect product planning and development so you can stay relevant and competitive in the marketplace.
In order to increase accuracy and efficiency, you need a unified platform for business process management. The use of an enterprise resource planning (ERP) system is the key to improving business performance for many organizations.
At first glance, the many functions performed by an ERP system is very similar to those of an eCommerce platform. However, it doesn't mean an eCommerce software should be used to replace an ERP platform and here's why:
The Differences Between an Enterprise Resource Planning (ERP) System and an eCommerce Platform
While an ERP system may seem very similar to an eCommerce platform, they actually work quite differently and are designed to serve different purposes.
An eCommerce platform covers customer-facing processes such as sales, marketing, delivery, and customer service. It handles the buying and selling of goods (e.g., business-to-business, business-to-consumer, consumer-to-consumer or consumer-to-business,) with features that are designed to support sales strategies and focus on increasing revenues.
Meanwhile, an ERP system not only incorporates eCommerce functions but also covers internal processes such as procurement, supply chain management, warehousing, inventory management, product development, customer relationships management (CRM), finance, accounting, and human resources.
An ERP system is a business process management tool that integrates various applications for managing business operations and automating back-office functions. It helps streamline complex internal processes with the aim of improving efficiency and productivity while reducing cost.
Why eCommerce Platform Isn't a Substitute For an ERP Solution
While many eCommerce platforms are very robust and offer features that can manage the various aspects of running an online store, you shouldn't use it to replace an ERP system. This is particularly true for B2B merchants that need to handle complex procurement and purchasing processes.
ERP solutions offer some key functions that aren't covered by eCommerce platforms. Here's why an eCommerce software shouldn't be used in the place of an ERP system:
Transparency and Visibility
An ERP system manages the supply chain, fulfillment, finances, and more. It allows you to collect data and provides reporting on every facet of the business, including payments, delivery status, inventory, supplier relationships, and customer details.
It offers detailed analytics that integrate all the various aspects involved in key business processes so management can gain real-time business intelligence to aid data-driven decision-making.
On the other hand, reporting on eCommerce platforms are limited to sales and marketing analytics and doesn't offer visibility into how the data integrates with other business functions.
ERP systems enable users to manage workflow across the entire supply chain, coordinating various internal departments and external vendors involved in the process. In particular, the ability to automate manual and repetitive tasks can vastly improve efficiency.
The transparency allows you to analyze processes so you can standardize and automate various workflows. This can help increase efficiency, ensure coherent procedures, eliminate bottlenecks, reduce overhead, lower administrative cost, incorporate industry best practices, enforce compliance, and minimize errors.
While many eCommerce platforms enable automation, they simply don't cover as many business functions within the supply chain or back-office processes to allow for seamless integration across the entire organization.
Many of today's ERP systems follow a modular structure so you can mix and match applications that are most relevant to your organization without paying for capabilities that you don't need. You can put together a system that works for your company while managing all the needed functions on a unified platform.
Since eCommerce software applications don't cover the features required for supply chain management or back-office processes, you'll won't be able to build a single customized system that can address all the business requirements.
An ERP system ties together many business functions -- from procurement and vendor management to warehousing and fulfillment -- and provides a centralized location on which various business units can exchange information, share business intelligence, and track cross-disciplinary initiatives.
Such cross-departmental collaboration is essential in today's competitive business environment since breaking down internal silos is the key to improving efficiency and delivering seamless customer experience.
An eCommerce platform, which only focuses on the customer-facing aspects of a business, isn't designed to integrate the various workflows required to facilitate collaboration across all the backend functions.
In order to respond to today's fast-changing market trends, you need to have full insights into customer behaviors and integrate the data with the supply chain management and procurement processes so you can get the right products to the right place and at the right time.
An ERP system helps facilitate the product planning process, allowing product development and procurement teams to tap into real-time insights provided by sales and marketing so they can accurately anticipate customer demands.
On the other hand, eCommerce platforms aren't designed for enhancing information sharing and collaboration between marketing, product development, and procurement. It's more challenging to utilize the data to ensure timely response to market trends.
Unified IT Management
For many organizations, having to manage multiple systems and platforms can put a strain on IT budget and resources. A centralized ERP platform integrates most, if not all, of key business functions so you can streamline IT processes and save on cost.
In addition, users only need to interface with one system rather than numerous individual applications. An ERP platform allows you to cut down on onboarding and training time while improving productivity as employees don't have to switch software or re-key information from one system to another.
eCommerce platforms provide only sales, marketing, and customer service functions so you'll have to invest in additional software applications to handle other business functions. The integration may require more IT resources while having to switch from one platform to another can impact productivity and accuracy.
Click-and-Mortar Inventory Management
An ERP system integrates stock information from your eCommerce platform with POS systems to enable real-time inventory management, so you don't sell anything that's out of stock on your eCommerce website.
Not only will you be able to meet customer expectations and improve shopping experience but you can also better manage your inventory. You can even program the system to automatically reorder items so you can replenish your stock in a timely manner and not lose out on sales.
On the other hand, eCommerce platforms only handle online sales. While some have apps and plug-ins to add POS integration and offline stock tracking capabilities, they don't offer visibility across the entire supply chain to facilitate inventory management.
Omnichannel Customer Experience
Today's consumers demand a seamless omnichannel customer experience. Not only do you have to cover all the digital channels but you also need to make sure that offline experiences, such as retail and call centers, are integrated into your strategy.
An ERP system connects purchases with all other customer activities on a single platform. Since it also incorporates HR functions, you can use the data to evaluate employee performance in relation to customer experience (e.g., customer service reps, call center agents.)
While some eCommerce platforms offer third-party integration with other marketing channels, the process may not be seamless. Errors and interruptions can occur, which could impact the customer experience.
An ERP system has robust backend functions that allow B2B merchants more flexibility when offering customized pricing structures based on volume and other criteria. The system provides insights into the entire supply chain and the associated costs so you can respond to fluctuations and make sure your pricing stays competitive.
Such ability to control pricing is important for retaining customers, improving B2B sales, and maximizing profits -- especially if you're handling high purchase volumes or in a low-margin industry.
Although many eCommerce platforms designed for B2B transactions allow you to offer price levels associated with customer groups, there are often limitations that prevent you from providing pricing specific to each individual account.
An ERP system integrates your back-office functions (e.g., accounting and finances) and your customers' systems, allowing you to provide a convenient purchasing experience while streamlining your operation and reducing administrative cost.
For example, you can improve retention rates by integrating your fulfillment functions with customers' e-procurement platform. The streamlined process will entice buyers to order more from you more frequently.
In addition, most eCommerce platforms don't support credit limits or net term, which are important payment options for B2B customers who want to lower their financing costs and improve cash flow. In fact, customers are more likely to have a higher average order value when they're offered better financing options.
Reporting and Analytics
In today's data-driven business environment, it's important that key decision makers have access to real-time analytics so they can react to the various market forces in a timely manner.
An ERP system manages activities across all departments so your company can have a unified reporting system for all the processes. Leadership can readily generate reports without unnecessary communication barriers or error-prone spreadsheets and emails. Many ERP platforms also offer built-in reports such as cash flow and income, so they can be generated without any IT assistance.
An eCommerce platform, on the other hand, only has reporting capabilities on sales and marketing. In order to integrate the data with other systems, you'd need IT intervention or have employees manually re-key the information, which is an inefficient and error-prone process.
Many ERP solutions also provide business intelligence services to help users make data-driven decisions based on trends and metrics. Such services can help you better leverage data analytics from the system to augment strategic planning by understanding your operational strength and identifying problem areas.
eCommerce platforms don't offer visibility into the entire organization and its operation nor do they provide business intelligence services. Often times, you have to import the data into other systems -- which could require additional preparation and manipulation before they can become useful.
Data Integrity and Security
Data is the centerpiece of any ERP system, which facilitates the sharing of information across various business functions to enhance collaboration and communication throughout the organization. The process takes place on a single platform to ensure the security and integrity of the data since merging information from multiple sources can cause conflicts, security issues, and inaccuracies.
While you can export data from an eCommerce platform, the process depends on transferring data from one system to another. You may not be able to control part of the process, raising concerns around the security and integrity of the data.
Some may think that only large corporations need ERP systems. Yet, this is no longer true given the complex requirements of today's supply chain management and demand forecasting faced by businesses of any size.
While an eCommerce platform is necessary for staying relevant and competitive in today's business environment, relying on it to work as your ERP system can often lead to inefficiencies and errors.
An ERP system is no doubt a sizable investment. Thankfully, organizations can now utilize software-as-a-service (SaaS) solutions to reap the benefits of ERP without the hefty upfront investment so you can have the best of both worlds.
- eCommerce and ERP platforms work differently are designed to serve different purposes
- ERP systems help more with supply chain, fulfillment, finances and so on
- You can mix and match applications within your ERP platforms which offers a lot of customization
- ERP within the B2B landscape has revolutionized the way business is done and can be applied to any size company