Can your eCommerce business afford to not have a ERP system?

Enterprise Resource Planning (ERP) can be simplified to the core functions of managing an infinite number of multiple-complex scenarios, having precise multi-tasking skills whilst exhibiting the most detailed time management, all at the same time. You would agree, that if it was a person holding these credentials, then they would be a game changer in the organisation and worth a lot of money.

If you were to try and imagine an ERP system in an alternative context, then imagine that you were holding a birthday party for around 30 people and you decided to hire an external venue and provide food and drinks for the guests.  Planning of an event like this requires you to immediately perform interrelated decisions that involve volume (quantity) and timing of materials.   By estimating how many people are likely to attend, how much food and drinks will be needed, minus the amount of current food & drink (stock) that you already have, the proportion of frozen food and when exactly the frozen food needs to come out. Estimation of any food that needs to be cooked from a recipe and the calculation of multiplying by 30 to meet the demand and the timing of when to shop.  When the invitations need to be prepared and sent out for RSVP’s, the availability of suitable venues and not to mention all the communication from the potential guests that have any questions.

In business, especially e-commerce, the ERP system is the latest and most significant development that has been built on the predating philosophy of the Materials Requirement Planning (MRP) system.  The MRP system was originally devised in the mid-1960s to support the British Nuclear power efforts and subsequently developed further to match the integrated socio-technical system that Toyota car production had developed.  The general concept around MRP was the use of calculating the product information or ‘component structure’ with the demand information to precisely form a ‘Master Production Schedule’ that was the basis of controlling and planning the perfect execution of materials arriving at the very point of manufacture, with built-in consequence factors, that saw avoiding delays in production and benefitted cashflow as stock was only called upon, on precise demand.  In the 1970s the MRP system witnessed a radically overhaul that changed the basic planning and control mathematics of MRP with a turbo injected boost of ‘computer power’ as the ERP system became part of the early game changers that kicked starting the digital revolution.

Figure 1: The Holistic view of an organisational ERP system.

Through development, the ERP system is now widely acknowledged as a sophisticated tool that integrates all departments and all functions within a whole organisation into one single computer system that can serve all departments and all personnel.  By housing all departments into a single network of communication allows transparency across the whole spectrum, as figure 1 shows the from sales and marketing, multiple warehousing, inventory control, supply chain management, manufacturing, human resources, accounts, finance and strategic reporting with all levels of management control that meets the needs for every department without duplication of information.

An unlikely benefit of allowing the transparency of an integrated system and database manipulation is the immediate reflection of any consequences of decisions that are taken in one part of the organisation that will always be shown in the planning and control system of another part of the business.  This is recognised with multiple warehousing and stock control that may be on different continents or the accounts position of a customer before dispatching of goods and the transparency of a CRM system that can traverse across the world to ensure that information is accurate and up to date as all information is updated in real time by those who use it.  However, the real clever abilities are the streamlining of processes that reduces errors and saves money with the wider integration with other ERP systems of supply chains that can work in collaboration to organise an effective stock movement, logistics and purchasing ordering efficiencies all of which save time and money and reduce mistakes. This, of course, will only ever be truly effective when more and more businesses accept the benefits of ERP and trust the collaboration.

By its very nature, an ERP system directly addresses organisational fragmentation and therefore the process of integration can take a period of time to achieve as it is a difficult system to meet the needs and expectations of cross organisational boundaries,  that have to ensure the correct functionality of the overall business. Furthermore with the concept of moving everybody into a single integrated system that operates within a single database will invariably create resistance to change, which management will need to manage carefully by articulating a clear business vision, outlining achievable goals and timeframes, build a positive user acceptance through comprehensive training and clear communication.  Concluding in a requirement for owner/managers to not only understand the amazing benefits an ERP system can bring to a business but equally to understand the levels of complexities that are also associated with the implementation and that a full and comprehensive consultation is required before embarking on an ERP project.


Clay Cowie is an eCommerce specialist at business management consultancy S.M.A.R.T Turnaround Ltd. He often writes blogs on topics designed to help businesses thrive and grow online.

Operational Costs

Cost saving in your eCommerce business using the 5 Performance Objectives

There’s more to running a successful eCommerce business than just selling products online. Get your back-end operations wrong and you could be losing money unnecessarily.

There are really only two options when it comes to growing an eCommerce business – increase revenue and/or decrease the operating costs. Managers often focus too heavily on cutting costs to increase profits. They fail to see that severe cuts to operating costs can often hinder productivity and may actually reduce profit.  An alternative way to reduce costs is to review the business using the five performance objectives of quality, speed, dependability, flexibility and cost. This method can be applied to any business that considers operational management as a core priority within their business. It allows management to highlight areas of poor performance and identify opportunities to reduce costs.

This is especially true in eCommerce where profit margins are tight and unnecessary costs can make or break a business. To thrive online, try applying these five performance objectives to reduce costs logically without a reduction in productivity.

  • Quality – Look at ways to improve the quality of your processes to improve customer satisfaction and drive down costs. One thing you can do is to make each warehouse packer responsible for the quality of their own packing in order to reduce the number of mis-packs. This would save substantially on the operational costs of returns and re-packing.
  • Speed – When selling online speed is of utmost importance especially when competing against the retail giants who have this down to a fine art. Make sure your products can be ordered, processed and delivered with as little friction and overhead as possible to keep a cap on costs. This could be addressed by negotiating ‘just in time’ delivery of goods with suppliers to reduce inventory value and storage costs, thereby improving cashflow and the pressure on finances.
  • Dependability – Dependability is vital for the success of an eCommerce store. Customers need to know they will receive their order when the store says it will arrive. Miss the delivery date too often and you will see customer satisfaction and sales dwindle. One way to save costs through improved dependability is to tighten the warning controls on the dispatch system to alert management if the expected number of parcels are not sent out by the end of the day. This will reduce the number of parcels that incur an extra charge when they need to be upgraded to express deliveries the following day.
  • Flexibility – There are significant service improvements and cost savings to be made by introducing flexibility into your business. The ability to change and adapt to market forces, competition and demand from customers can help you win in the eCommerce game. This can be anything from the ability to easily introduce new products, to flexibility in delivery schedules. One way to tackle operational costs is to adopt a flexible working scheme so that busy periods can be covered without reliance on overtime.
  • Cost – This is perhaps the simplest of the five performance objectives and an amalgamation of the previous four. Look at the cost of suppliers, the cost of warehousing, the cost of staff and the cost of deliveries to see if there are any savings to be made in the management of your business. An efficient ecommerce team should constantly look at new partnerships and ways of working to minimise base costs and maximise profits.

Case Study Analysis

To illustrate the potential savings to be made by adopting the five performance objectives, we’ll look at the hypothetical case of This is an online retailer that sells approximately five million items per year, which are typically sold individually.  They purchase their products from a selection of suppliers all around the UK, receive goods into their warehouse for storage until they pick orders that contain the widgets and dispatch them through a distribution company. Despite the business posting modest profits each year, the management now wishes to turn its attention to reducing its operating costs.  Following a brainstorming exercise, a few changes were made which resulted in a reduction in costs.

  • Making each warehouse packer responsible for their own packing quality reduced mis-packs from 0.5% – to zero (or very close), thus saving £4 per item in re-packing costs. With five million parcels a year, this quality improvement prevented 25,000 re-packs and realised the company £100,000 in cost savings.
  • Tightening the warning controls on the end of day dispatch system eliminated the 1% of parcels which required express delivery at an extra cost of £3 per item. This meant 50,000 parcels were sent out on time, saving £150,000 saving per year thanks to improved dependability.
  • Negotiating ‘just in time’ delivery of goods with suppliers significantly reduced overheads. As well as a £2,000,000 reduction in stock, this speed improvement netted additional savings of £200,000 in storage fees charged at 10% of inventory value.
  • By adopting a flexible working scheme that meets demand in busy periods in exchange for hours off in the low periods, the company made further savings. Despite making an extra payment of £100,000 per year to compensate workers for less work in low periods, the company eliminated an overtime bill of £300,000, making a net gain of £200,000 per year through workforce flexibility.

Conclusion of savings to be made

By viewing the hypothetical scenario of an eCommerce business through the paradigm of the five performance objectives, we have demonstrated a total cost saving to the business of £650,000 and an additional inventory stock reduction of £2,000,000.

The beauty of all of these actions above is that they are sensible, logical and significant operating savings that also maintain the ability for the business to continue to increase sales revenues and therefore profitability.

Put the five performance objectives into practice to see how your eCommerce business can combat costs to continue to succeed and grow online.

If you would like to see if there are any ‘performance  objective’ cost savings that can be made in your business to increase profitability then don’t hesitate to contact Clay Cowie from  S.M.A.R.T Turnaround team on 01752 68 38 68 or email