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.

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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.

Case studies: Different Approaches
Here are four examples of what large direct marketers are doing. We were asked to keep their names and the systems anonymous.

Large after-market direct seller of auto parts
The company looked at several ERPs but finally selected one of the leading direct-to-customer systems because of the large and expensive number of modifications that the ERP would have required (estimated costs over $2 million) in order to do the basics of marketing (capture, validation and analysis of source coding), inventory percent complete forecasting, drop-ship vendor network to dozens of vendors, profitability, and other management reporting, and to interface to the company’s Internet shopping site.

Gift & book retailer with 150 stores and major catalog and eCommerce site
The company has implemented Oracle’s Retail Suite. The implementation took 24 months—three times the estimated man-hours for implementation.

Pros: It has one of the most powerful database functionalities in the market—a significant advantage. Oracle is a good launching pad for other applications and provides good accounting; order management and its inventory visibility is OK; overall it has broad functionality. The genesis of Oracle is in manufacturing and shows in its detailed functionality in certain areas.

Cons: System is weak in some multichannel areas of functionality (call center credit card, backorders, multichannel inventory channelization). The WMS is really a locater system, which makes it a weak link for multichannel fulfillment. There are different user interface processes (Web and fixed), possibly due to multiple systems being put together under one umbrella. Basic reports are numerous but very generic. The functional gap was greater than expected in some areas, requiring additional modifications to meet business needs.

Major retailer with fast-growing eCommerce site and major catalog
This company is in the process of replacing its legacy call center and customer service applications with an ERP and CRM application.  The retailer intends to take a best-of-breed approach, interfacing to its commercial WMS and direct merchandise planning and forecasting systems. For the stores the company will continue to use a commercial retail system.  This is an expensive multi-year implementation.

Major direct marketer and retailer of gifts with hundreds of stores
The business is installing an ERP for most of its functional applications, but has chosen to keep its full-function commercial WMS and some other legacy applications.  The ERP’s warehousing system did not give as much inventory control in the distribution center as the WMS.

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.

ERP Requirements Checklist by Function
It’s a major proposition to find, install, and work with an ERP system. Below are guidelines to consider as you go through the process of making a choice.

1. The discipline required to utilize an ERP is significant. The integration and dependency of the process on accurate and timely input and maintenance of data is critical. Bad data in the ERP environment can be disastrous to the entire organization.

2.  Are all modifications part of future releases, or are you going to be supporting a customized system?

1. ERP e-commerce software has been better suited in the past for B2B, and not specifically B2C.

2. The use of an ERP e-commerce module as an independent software package is not recommended. Such a module works best in conjunction with use of an entire ERP system.

3. Some ERP vendors are purchasing niche e-commerce solutions and integrating them to their package.

4. Some are beginning to offer on-demand or software-as-a-service types of e-commerce services.

5. Some larger ERP solutions are reaching down into the medium and small markets to attempt to provide solutions

Direct Marketing
1. Does the ERP have a direct orientation for the data—multiple channels, promotion codes, source coding and reporting, catalog drops, circulation, validation of products, and source codes by offer, etc.?

2. Review your current system to see how well the ERP will accomplish direct-oriented data and analysis.

Merchandising and Inventory Control
1. What are the management reporting and merchandise analyses that your business uses or needs?  Are these catalog- and Internet-oriented functions available from the ERP vendor?

2. Is there assortment planning by catalog/drop and Internet? 

3. Does the system have the appropriate direct-oriented data for catalog planning—demand, backorders, sales, square-inch measurements for space use, and costs by category, class, product, SKU, page/picture, price range?  Or will you need a data warehouse?

4. Is there percent complete forecasting by category and product for in-season forecasting?

5 What end-of-promotion and seasonal analysis is there, and is it direct-oriented?

Call Center
1. Ability to note and follow up on customer inquiry and complaints

2. Backorder tracking and FTC analysis

3.Interface of telephone system to order management system for CTI (screen pop ups of customer accounts)

4.Pre-paid liability tracking for mail order customers (payment for orders received versus outstanding back orders)

Fulfillment—key issues to evaluate with ERP WMS functionality
1.Real-time inventory management

2. Multiple choices in operating procedures such as picking

3. Virtual and/or physical inventory separation by channel

4. Complete use of bar code technology throughout the warehouse

5. Supports both pick/pack for direct and store replenishment for retail channel processes

6. Provides interfaces to various warehouse automation opportunities

7. Captures and reports productivity measures by individual, department or function, and warehouse

8. Supports multiple warehouse facilities

9. Provides for international shipping capabilities

10. Provides both min–max and demand replenishment processes for pick slots

11. Cross-dock capabilities for store distribution and backorder processing

12. Utilizes rate shopping process to minimize freight costs

13. Full-functional inbound and outbound freight management

1.  There are hundreds of reports available in legacy and commercial order management systems in the direct industry.  How well are these accommodated in the ERP system?

Enterprise solutions

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.

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. [see comparison paragraph at end of Sidebar 3]

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.

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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.

Junction Solutions
Junction Solutions has built its suite based on Microsoft Dynamics AX (a widely installed ERP System).  For illustration purposes, think of the functionality in three levels. Microsoft develops and enhances the dynamics level of distribution software.

Junction Solutions develops and maintains a second level of functionality for the direct and retail marketplace.  The third level is for customized company application functionality.  Clearly, one of the objectives is to cater to  companies that need customized business functionality.  The total application suite includes call center, e-commerce, POS, and store operations (Junction Solutions has acquired ISS, which has retail POS applications installed in large retailers such as Target, Dillards and Best Buy), a warehouse management system, and distribution, logistics, and business intelligence.  Retail planning and merchandising are being added this year.  Junction is investing heavily in service-oriented architecture. The platform is .NET.  

As with Datavantage/CommercialWare (see article) the influx of capital from its parent company is helping to strengthen the product offering. Junction Solutions seems to have a potential early leg up based on its true ERP product offering for larger businesses. Ultimately, with such a young product offering and customer base, time will prove who is on the right track.

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:

  1. Make sure you do all of the homework required.
  2. Keep in mind that the “Devil is in the details”
  3. More options are rapidly being developed, so keep an open mind.
  4. Strong training and discipline are required for successful implementation.
  5. Insure that the ERP is flexible enough to meet future, as-yet-unknown requirements
  6. Have a well–thought-out five-year plan to minimize future surprises

The battle rages on but the options are changing.




Bob Betke is a vice president of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm for catalog, e-commerce, and retail businesses. We offer clients expertise in business process and order management systems, inventory management systems, warehouse management systems; warehousing and distribution; contact center services; inventory management and forecasting solutions; and strategic, financial, and operational planning for all business channels.