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All fixed set patterns are incapable of adaptability or pliability. The truth is outside of all fixed patterns.
Bruce Lee
Bruce Lee isn't talking about retail technology, but breaking rigid frameworks is everybody's business.
This McKinsey study highlights the critical role of technology in retail, showing that firms who invest in software delivered 3X the returns to shareholders compared to their non-digital peers over the past five years. This highlights an important lever for retailers to remain competitive.
Traditionally, Enterprise Resource Planning (ERP) systems have centralized essential processes like inventory, finance, and retail operations. Yet, mid-size retailers face unique hurdles, such as the pressure to modernize and meet shifting consumer expectations.
This raises a question: Can these retailers bypass ERP systems and still achieve effective retail transformation?
We'll explore this question through a scenario-based approach, examining the challenges and solutions businesses face at various stages of their retail transformation journey.
An ERP system is deemed legacy when it has been in use for over a decade. Another clear indicator of a legacy ERP is the difficulty of customization, UI improvements, and the ability to work with modern software.
Consider a large retail enterprise that implemented its ERP system a decade ago. At the time, this system was state-of-the-art and offered a centralized platform to manage operations across hundreds of stores.
Fast-forward ten years, and the industry structure has shifted dramatically. The once cutting-edge ERP system now shows signs of age. It is struggling to keep pace with modern demands like omnichannel retailing, real-time data analytics, and personalized customer experiences.
The primary challenges here are twofold: dated technology and changing business needs. While functional, the existing retail ERP is not optimized for today's digital retail environment and lacks integration with newer technologies.
Additionally, the cost of maintaining and updating this legacy system continues to rise, which consumes valuable resources that could be better allocated elsewhere.
Moreover, the rigid structure of the legacy ERP makes it difficult to adapt to new business models. As a result, retailers are often forced to work around the system’s limitations, which leads to fragmented processes and siloed data.
Here's what a business that has a legacy ERP for retail can do to transform its operations and keep up with the digital age:
Unfortunately, overhauling the existing ERP system will need significant time and financial investment. It also needs high-cost technical talent that may not be widely available. This path needs careful evaluation to determine whether the benefits of revamping and building on your existing ERP will give you a more flexible system that justifies the costs and disruption of a major upgrade.
Another option is to explore modular, best-of-breed solutions that address specific pain points without the need for a full-scale ERP replacement. For example, integrating advanced analytics platforms and modern customer relationship management systems may make sense if they have the ability to integrate and share data with the legacy ERP. This is a more cost-effective approach.
Finally, there’s the possibility of transitioning to a hybrid model. In a hybrid model, the core ERP system remains in place for fundamental operations. However, newer, cloud-based solutions handle all the customer-facing and dynamic aspects of the business.
In short, for a scenario like this, it is unlikely to completely bypass ERP transformation due to the entrenched role it plays in core business operations. However, rather than a full-scale ERP replacement, the enterprise could consider a hybrid approach.
In this scenario, a large retail enterprise has just completed the rollout of a brand-new ERP system. After months of planning, implementation, and training, the system is finally live.
While the implementation of a new ERP system is a significant milestone, reality often falls short of expectations. One of the main challenges is the assumption that a newly deployed ERP will address all current and future IT needs.
However, this assumption is misguided. The retail environment changes constantly, and the new ERP, however shiny and new, will have gaps that must be addressed.
Nike’s ERP implementation in the early 2000s is a well-known case. The company faced issues with supply chain management and inventory control, which caused a $100 million loss in sales and a 20% drop in stock prices.
It is an excellent example of how even top-tier companies with newly implemented ERPs can encounter significant issues if the ERP system does not fully align with business needs (and they rarely will, over extended periods of time).
Instead of resting on the laurels of a new ERP implementation, the enterprise should adopt a proactive approach to identify and fill automation gaps across all theur functions. One option is to augment the ERP system with specialized tools that focus on specific areas like customer engagement, retail operations, franchise management, procurement, predictive analytics, and supply chain optimization.
Retail businesses can also utilize cloud-based SaaS that integrate with ERP systems to avoid being constrained by the ERP’s limitations.
If your business falls into the second scenario, a complete bypass isn’t feasible. However, you can selectively bypass certain functions and supplement the ERP with proven software.
Let's consider a third scenario: a retail business has rapidly expanded, opening its 20th store, yet it has not implemented an ERP system.
So far, the business has relied on basic software and manual processes to manage operations, which worked during its initial growth stages. However, as the company scales, the lack of a centralized system is becoming a huge bottleneck.
The main challenge here is managing the complexity of a multi-store operation without solid IT infrastructure. Spreadsheets can only go so far before the impact of delays and leakages outweigh the need for IT investment. With expansion, the business faces increased pressure to organize inventory management, manage supply chains, and deliver consistent customer experiences across all locations.
Relying on disparate systems and manual processes is leading to inefficiencies, data silos, and potential errors that could impact profitability and customer satisfaction.
Given the enterprise’s growth trajectory, the traditional approach would be to implement an ERP system. However, the high costs, long deployment times, and the risk of disruption are major deterrents. Instead, the business can consider a ground-up IT stack evolution. It would eliminate the need to deploy an all-inclusive ERP system that tends to be more expensive and complex.
Businesses must adopt a modular approach to their ground-up IT. Pick and deploy retail-specific software to solve the needs of core functions like Procurement, supply chain, inventory management, retail point-of-sale systems, and CRMs. Ensure that the software you pick are available in a subscription model (SaaS) to eliminate massive IT CapEx. The software must be built to integrate and connect with other software via open APIs.
Can businesses that fall under scenario 3 bypass ERP for retail transformation? The resounding answer is yes.
There are a ton of modular retail software and lightweight retail ERPs designed for mid-sized retailers. It is possible to select and deploy specialized tools that are built to manage the complexities of a multi-store operation.
Overall, bypassing ERP for retail transformation is not a one-size-fits-all solution. For businesses with legacy ERPs, it’s often best to adopt a hybrid approach to address gaps without a complete overhaul.
For companies with newly implemented ERPs, proactive identification and bridging of gaps with additional tools can meet evolving needs. Lastly, for those operating without an ERP, it's best to explore modular retail software that can manage growth without the complexity of traditional ERP systems.
Hubler's retail operations software suite makes managing your retail business operations smoother and more effective. It helps you organize business workflows and make smart, data-driven decisions without needing to implement or customize an ERP.
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