ERP Selection: Why an ERP is the wrong choice for high-growth brands

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What an ERP system means for a high-growth brand

Every brand we’ve spoken to dreads the day they feel like they need to implement an ERP, because they know it will be the end of their operational flexibility and creativity. Some know this and search for an ERP for small businesses, but even these solutions are usually rigid monoliths built around financial reporting.

Big companies and legacy brands with sluggish operations typically opt for all-in-one solutions as the primary way to keep track of their financials. These legacy brands have deeply established routes to market and mostly monitor operations as means for revenue preservation.  For such companies, choosing an ERP makes a lot of sense. However, for a fast growing brand that is continuously trying out new ideas to reach more customers or expand its footprint, a rigid, cumbersome ERP is a bad idea.

ERP solutions prioritize financial management over any other module. As a result, the surrounding capabilities tend to be inflexible and rigid. In this guide, we will discuss why high-growth brands are moving away from ERP systems, and what alternatives there are in today’s modern and competitive retail landscape.

Today’s modern brand looks something like this: digitally-native, largely direct-to-consumer, experiments with big ideas, and above all, does not follow a traditional way of operating.

Why is this an important distinction?

Modern brands’ growth is fueled by their creative marketing and merchandising ideas. These high-growth brands got to where they are today because of the agility and flexibility in their operations. Many of these brands started as Kickstarter campaigns; many have experimented with a workshop model of pre-order campaigns; maybe they also opened a pop-up shop as a way to extend their booming online presence to customers in-person.

At a certain point, these brands are faced with a number of challenges. They begin to look for an ERP without fully realizing the impact it may have on their non-traditional operations.

Implementing ERP software

ERPs require a great deal of effort–financially and operationally–to implement. They are slow, outdated, and difficult to use. That’s why brands having to hire someone–internally, or externally–to implement and maintain it. Modern brands are typically lean-teamed, and paying someone just to implement and maintain a complex and cumbersome system is not a good use of resources.

The time-frame for implementation is guesswork. Implementation can take as “little” as a year, and up to, well, forever. Many brands halt their operations to take on this task, and the costs certainly pile up.

“From the start, NetSuite was an intimidating process. We couldn’t nail down the costs, the implementation timeline, and the fact that they don’t have a strong commerce module, nor basic customizations readily available.” – Patrick McGinnis, Freefly Apparel

Brands typically find that ERPs–while having a range of modules–also require a great deal of customizations in order to operate as they once did. More often than not, brands find these customizations expensive, slow, and inflexible if anything in their operations were to change in the future. Furthermore, most ERPs are monoliths that force brands to use their proprietary modules for every part of their business, making a migration much more painful and costly.

Not convinced? 75% of all ERP implementations fail. Why? As mentioned previously, ERPs are complex, costly, and slow. And if brands do wind up implementing them and maintaining them successfully, those brands certainly won’t be able to grow as they once did.

ERP selection

There are a variety of different ERPs on the market. When initiating an ERP selection process, brands typically need to purchase additional modules if they need inventory management, or make customizations with the ERP in order to ensure accurate inventory cost and allocation. Commerce-focused ERPs that provide brands with rudimentary modules are not nearly robust enough for today’s modern brand.

“ERPs were something I looked at. I feel like I always got canned responses. It never felt authentic, it never felt like they actually cared about my business.” – Ops Team, Black Claw

While ERP solutions sound like the easiest option, proprietary solutions also mean that these systems offer little to no supported integrations with other industry tools with the exception of major ecommerce software platforms like Shopify and marketplaces like Amazon.

Ever hear the saying “jack of all trades, master of none”? This rings true with ERPs, too.

Because ERPs are finance-first solutions, you won’t wind up with clear visibility into each of your sales channels, and the little to no navigable user experience which doesn’t bode well for modern brands looking to take on their next operational experiment. ERPs have outdated interfaces that make them unintuitive and difficult to use. Lean-teamed, modern brands need a solution that they can learn and train others on with ease.

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What modern brands actually need

In order to survive in commerce, modern brands need scalability, flexibility, and, most importantly, agility in their operations. Brands rise and fall based on their performance, and the most successful brands today approach their operations with an experimental mindset to adapt, grow, and succeed.

ERPs may sound enticing for a brief moment with the convenience of a one-stop-shop solution and its promise of lowered technology overhead costs, improved efficiency, and streamlined organizational workflows. However, be wary that all-in-one solutions come with a huge trade-off when it comes to flexibility and agility that nimble brands like you rely on.

Next, we’ll explore how ERPs stack up against best-in-class operations management platforms regarding features, scalability and agility, and price.

Best-in-class solutions

Best-in-class (or, best-of-breed) solutions take a more holistic approach to your operations. This model encourages brands to create their own tech stack by way of strong integrations with the industry’s leading tools and solutions.

Looking for an example? A brand could decide to use QuickBooks or SageIntacct for accounting, ShipStation for fulfillment, NuOrder for wholesale, and Shopify as their ecommerce platform. To tie all of this together, Stitch Labs is an operations management platform that acts as a centralized hub for each of these sales channels and fulfillment platforms so your brand can maintain visibility into inventory, purchasing, orders, and more.

With Stitch as a central hub of operations–controlling all of these platforms, any other sales channels, inventory, purchasing, and any complex workflow–brands will have the best tools in each of these categories to succeed with.

These solutions provide brands with a more focused approach in everything from pre-order and backorder management, virtual bundle creation, multi-location order-routing, purchase order management, and much more–all going far beyond what any all-in-one solution can offer.

By operating from the best-in-class approach brands can choose their finance module, fulfillment service, and ecommerce solution of their choice, while leveraging these tools for a complete and holistic view of their business.

Scalability and agility

Scalability is measured by more than just the ability to handle high order volumes and SKU counts.

Having an operations management platform supporting your brand’s growth while adapting to your business is what truly helps you succeed and achieve your next benchmark.

No matter what industry the ERP is tailored to–commerce or otherwise–the antiquated design of ERPs slows down the rest of your business and doesn’t allow you to experiment and change when needed. The ability to remain agile in your operations means a quick implementation timeline, ease of user experience, ability to maintain your tech stack without much effort, executing on big ideas, and changing out parts of your tech stack when they no longer suit your brand, without involving an admin.

Single-solution ERPs will attempt to offer additional resources in order to resolve these issues, but wind up costing the brands due to their slow-moving pace resource-heavy implementations.

Examples from high-growth brands

Implementing a 3PL is a major endeavor for any brand. With an ERP, this is a very expensive process that can take up to a year. During the implementation, a lot can get lost. Typically brands find themselves giving hefty discounts to customers because of late or lost orders. The longer the implementation, the bigger the losses.

THINX was able to rapidly test and implement a new 3PL in a matter of weeks with Stitch as their best-of-breed tech stack.

The Brooklinen operations team was tasked by their Founder and CEO to prepare and launch a pop-up store in under 4 weeks.

Yes, this is an aggressive timeline; the team wanted to achieve this so they could capitalize on holiday demand. With the best-of-breed approach, Brooklinen was able to set up their workflows through working with their dedicated customer success representative at Stitch to figure out what makes the most sense. In addition, since Stitch acts as the operational hub for all the technologies Brooklinen uses, they only had to be trained on and operate through Stitch.

Price

ERPs will almost always highlight the lowered technology overhead cost due to only needing one system versus multiple solutions in a tech stack. Be very careful if this is a big factor in your decision-making process.

ERPs are infamous for hidden costs from additional customization costs that cause the total cost of ownership to skyrocket far beyond what you initially budgeted for.

In 2017, a surprising 56% of ERP implementations came in over budget by 25%, and 18% came in over budget by more than 25%.

If that’s not bad enough, 79% of ERP implementation projects missed their projected deadlines, inevitably having a negative ripple effect on the efficiency of the team and sale opportunities.

If you’re still considering ERP solutions, make sure to inquire about the total cost of ownership–including implementation costs, maintenance costs, and cost to build modules to make sure you have a full understanding of the cost.

Valuable Partnerships

As a lean-teamed modern brand, signing on new technology is a big deal. You want to make sure that the investment is worth the value you’re getting.

However powerful the solution is, a tech stack can benefit tremendously from a team of experts that comes along with it to help your brand grow. More often than not, ERPs provide little to no help in designing workflows for your brand to get things done.

At Stitch, we live and breath brands. Our solution is intentionally designed with the operations team in mind and our team of dedicated experts helps our customers grow and redefine what is possible. Our operations experts act as an extension of your team to help your brand succeed in any operational endeavor it wants.

Final thoughts

We have touched on the difference between what is ERP software versus a best-of-breed tech stack.

It’s evident that ERPs are rigid and hinder brands from executing on big ideas while continuing to scale.

What sorts of businesses are ERPs built for, then?

ERPs were originally created as a tool for accounting and finance teams with additional business modules like inventory management, HR, and IT created around it to support their workflows.

As such, the functionality in the surrounding modules are designed mainly to support clean accounting rather than as an operational tool for other teams. And this is why the accounting and financial capabilities in ERPs tend to be more robust and compliant to the needs of the finance teams — but at a high cost to the efficiency and needs of your operations team.

For legacy brands that are publicly traded, having a finance-first, centralized system across their many initiatives and operations to meet the rigorous accounting standards makes sense. But, in recent years, even these businesses are advised to decouple their ecommerce business from their ERP in order to remain nimble.

So, if even legacy brands are decoupling from ERPs for their ecommerce business, why wouldn’t you? Particularly when leading best-in-class solutions like Stitch provide strong retail reporting and financials to meet the needs of your accounting team.

Finally, if you’re a modern brand and you’re still considering following through with the ERP selection process, just remember that it requires the following:

  • Replacing your current tech stack with an entirely new system
  • A large financial, operational, and strategic commitment to this new system
  • Conviction that what you adopt today will work for your operational set-up a year, two, or five years from now
  • An understanding that any customization through APIs and integrations needs to be built and managed internally with little to no support
  • High-degree of confidence that the total cost of ownership is still going to provide you with a positive ROI when counting in implementation costs, customizations, and maintenance costs

 

And, remember to ask yourself this: what are your current pain-points that you are trying to solve? Are you sure this is a problem that only an ERP can solve?

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