The following is a summary of the presentation made by Darren Myher, VP Operations and Development at Blue Link ERP, during this year’s Dx3 show. A complete recording can be found via the link at the bottom of this post.
ERP is an acronym for Enterprise Resource Planning, but what does that really mean? Essentially ERP is the software designed to manage your business. ERP is a back-end system comprised of accounting and inventory management functionality, designed to keep track of inventory, manage orders, ship product, process your receivables and payables as well as manage many other aspects of your business. So why is ERP important, and why should you care? As an eCommerce company, why don’t you just set-up a Shopify site and be on your way? ERP matters because once a product is sold on your website, you also have to think about what is going to happen to that order. How is that order going to get to your customer, and what sort of processes will that involve? When it comes to managing an eCommerce site, there are several things to consider.
The first major consideration is around data. How do you get product information up to your website? How do you get your product catalogue populated in the first place? This is where having a proper system in place with inventory management comes into play. You want a system that can act as a hub for all your data. The most ideal situation is one where you can create a SKU once, and have that information populate to your website.
The second consideration is around order flow. When someone places an order online, how will that information get into your system? There are a couple of different methods for achieving this, and the best one for your business will depend on your company size, order volume, available resources and growth projections.
The third consideration is around order completion. Once an order is picked and packed, how does it get to the customer? Automated processes within ERP systems allow you to integrate with freight carriers in order to get the product shipped and then send tracking information back to your customer online.
Lastly, what happens if a customer wants to change their order? Do you have to log into multiple systems? How do you handle payment processing if the costs change? The more orders you have the more exceptions you will experience, and this is where automation makes a big difference in reducing the amount of errors and time spent managing these exceptions.
Once you consider all the processes around managing an eCommerce site, the big question becomes; how many people do you need to manage these processes? Is that number going to grow as your company grows? How can you manage these costs?
eCommerce Workflow Options
Starting with data, there are several options for when it comes to managing the flow of information associated with selling product online.
The first method is through manual processes. This usually entails an email getting sent to your inbox every time an order is placed online, and involves multiple people entering information into multiple systems to process that order. Email messages have to be manually keyed into another system in order to process that order and allocate inventory, or you could be picking orders from the email itself. Although this model may be fine in the beginning, it is not scalable as your order volume increases and does not give you the visibility into what your inventory levels are at any given time, which can lead to stock issues.
The second method is designed as a batch process in which you export one or more files, and write an import routine to share information between systems. In its simplest form, this involves downloading a spreadsheet of orders from your eCommerce site and then importing those into your back-end introductory system. This is a common example of how companies initially manage orders coming in through Amazon. The issue with this approach though is that it is only a one way pull of information – how do you send shipping information back to Amazon? You could type this information into a spreadsheet to then batch upload to Amazon, but this is a very manual process that can result in a high number of keying errors. Although this model is slightly more scalable than manual processes, it is still very person intensive which increases the risk for error and requires a lot of resources to manage.
The third method involves the use of Web extensions, where web applications are managing your inventory and sales. However these web tools are not designed to be true ERP systems and do not provide the same amount of integration and automation as ERP.
ERP with Automation
The ideal solution is one that automates the flow of information between multiple systems and processes, for a streamlined approach. This involves ERP software that automatically pulls orders from your website, processes those orders, sends information to the warehouse and freight carriers for picking, packing and shipping of the product, and then updates the information online for the customer. This option is best for growing companies that want to reduce the amount of human interaction needed to manage their processes. True ERP solutions allow you to integrate into multiple warehouses for order fulfillment, send shipping information to originating site which completes the order and notifies the customer, and process payments once an order has been complete – all from within the same system. Information flows between your online orders and ERP, and your ERP and warehouse, and then back-up to your website. It requires a minimum number of person hours which in turn reduces the amount of keying errors and resources needed.
Picture Sources: http://wallpapercave.com/us-map-wallpaper, https://commons.wikimedia.org/wiki/File:Canada_flag_map.svg Amazon (n.d.). [Amazon Logo]. Retrieved from http://phx.corporate-ir.net/phoenix.zhtml?p=irol-mediahome&c=176060 . Shopify (n.d.). [Shopify Logo]. Retrieved from http://bootstrappingecommerce.com/50-of-the-best-shopify-resources/ Magento (n.d.). [Magento Logo]. Retrieved from http://abtach.com/technology/magento/
Implementing proper ERP software as part of your eCommerce business, provides various opportunities for automation. It is important to note that integration does not mean automation, and certain processes between integrated systems may still involve manual work. Automation plays an important part in the following processes:
- Data flows in which “onesie” and “twosie” orders are automatically consolidated into one pick slip for more efficient picking.
- Automated processes that look at different warehouses set up within your ERP and then intelligently pick which warehouse to ship from based on the location of the order and/or stock availability.
- Mobile picking from an electronic device which improves accuracy by allowing you to scan items as you pick them. Handheld devices automatically notify users if the wrong item has been picked, identifying any issues at the source of error for faster and more accurate picking.
- Product layout in which the system automatically generates a pick list based on bin and shelf locations of items to be picked, which reduces time spent walking the warehouse.
- Integration with freight carriers so that information from the ERP is sent to the shipping system and labels are automatically generated for shipping. Tracking information is then sent back to the ERP and then to your website for the customer to see.
- Payment processing automation that pre-authorizes a payment, which allows you to secure the funds before picking an order, and then automatically processes a charge against that pre-authorization when the order is shipped. This process gives you confidence that the payment will go through when you ship the product. It also eliminates the need to credit a customer’s account if you’re not able to ship the whole order, instead only charging for what has actually been shipped.
- Automated allocation of inventory received into the warehouse to an open sales order based on pre-determined criteria.
If your software is not managing these automated workflows, than it means that you have people manually doing so, and people make mistakes. The ultimate question becomes, how much do these manual processes cost me right now and how does that compare to purchasing software to automate them? Initially when you have a small number of orders, manual processes might be the best approach, but eventually it will become time to scale this model. This comparison involves the simple calculation of how much time it takes to perform any one task as part of the order fulfillment process, multiplied by the number of orders. The result is the number of hours required to keep up with demand, which in turn provides you with an idea of how many people you need to manage these orders. The knee jerk reaction when order volume increases is to throw more people into the equation, but there are other costs associated with hiring to keep in mind, such as; benefits, training, equipment, skills transferability and turnover. If you can reduce the headcount required by automating certain processes, that will factor into your decision to upgrade your systems.
So why does automation makes sense?
- Fewer errors
- Less human interaction
- Reduces the rate at which you need to hire new staff
- Simplified on-boarding process for new staff (less complexities)
- More satisfied customers
- Better compliance with partners like Amazon
Every business will have different silos of information – from your website, to ERP, to etailers who sell through brick and mortar stores and so make use of point of sale software. The idea then is to have this information all live in one central hub – ERP. One place for information to be managed with full two-way integration between the other systems for streamlined, automated workflows.