EP263: Common Issues with ERPs: How They Hamper Ecommerce Teams & What To Do About Them, With Luke Hodgson

In this episode of the Inside Commerce Podcast, hosts James Gerd and Paul Rogers discuss common challenges with ERP systems and their integration into e-commerce setups with guest Luke Hodgson. Hodgson, founder of Commerce Thinking, emphasizes the importance of ERP systems in managing inventory and order processing, especially during peak sales periods. He highlights the need for businesses to forecast peaks accurately, optimize ERP hosting capacity, and use middleware effectively to prevent bottlenecks. Hodgson also discusses the evolving role of technology leaders in scaling e-commerce brands and the potential for new ERP solutions to simplify back-office complexities.

• The episode discusses common issues with Enterprise Resource Planning (ERP) systems and their integration with e-commerce platforms, which often lead to project complexities during e-commerce migrations and re-platforming.
• ERPs can constrain e-commerce capabilities, affecting order processing during peak times and overall business operations.
• Understanding potential issues and asking the right questions about ERP setups is crucial for successful e-commerce strategies.

"ERPs are often a source of project complexity for e-commerce migrations and re-platforming and how the ERP setup can constrain what you can do in e-commerce."

• ERPs can pose significant challenges during e-commerce migrations and re-platforming, impacting operational efficiency and strategic capabilities.

• Luke Hodgson has over a decade of experience in e-commerce and retail, running a consulting practice, Commerce Thinking, which fills the gap where a tech team would typically sit within a brand.
• His team focuses on engineering, change management, product development, and business intelligence, working closely with fast-growing brands.
• Luke has co-founded successful integration platforms, contributing significant expertise in ERP systems.

"Right now I run a consulting practice called Commerce Thinking...we fill the gap brand side where a conventional tech team would sit."

• Commerce Thinking provides specialized expertise to brands, acting as an internal tech team to manage critical change projects, particularly in ERP systems.

• ERPs should be the central system for all transactions related to stock, crucial for understanding inventory levels and sales transactions.
• E-commerce leaders must be engaged with ERP systems as they impact sales strategies, stock management, and order fulfillment processes.
• Proper ERP setup is vital for handling peak sales moments and ensuring customer satisfaction through timely order processing.

"If it's working properly, it should be the single system that everyone relies upon for transactions related to stock."

• A well-functioning ERP system is essential for accurate inventory management and seamless transaction processing, directly influencing e-commerce success.

• Historically, E-commerce Directors had significant input in ERP management, but this has shifted post-COVID with a focus on growth metrics.
• Some brands have scaled rapidly without traditional ERP systems, focusing instead on lean operations and brand development.
• The demand for ERP systems in new businesses has evolved, with some opting for alternative solutions to support growth.

"There's been a new type of E-commerce director or digital director whose KPI is purely like new customer growth or like more kind of, yeah, front office KPIs."

• The role of E-commerce Directors has evolved, with a shift towards growth-focused KPIs, sometimes deprioritizing direct involvement in ERP management.

• The threshold for implementing ERP systems has increased, with brands now able to reach higher turnover levels without an ERP due to alternative solutions.
• Industry education on ERP implementation challenges has improved, leading to more strategic decision-making regarding ERP adoption.
• The marketplace has adapted, offering more options for businesses to scale without traditional ERP systems.

"The time that brands can go without an ERP has expanded significantly because there are just more ways of taking a business to say, 50 mil turnover, 100 mil turnover without an ERP."

• Brands have more options and better knowledge, allowing them to delay ERP implementation while still achieving significant growth.

• Direct-to-Consumer (D2C) brands face increased challenges in customer acquisition costs and achieving substantial growth.
• The complexity of operating solely as a D2C brand has led to a shift towards exploring wholesale and physical retail channels.
• The need for complex systems like ERP (Enterprise Resource Planning) increases as brands diversify their operational channels.

"I think as a consequence of like D2C getting more and more difficult, brands are naturally saying, right, we need to look at wholesale as a channel, we need to look at physical retail as a channel."

• The quote highlights the shift from a pure D2C model to incorporating additional sales channels to manage operational complexities.

• ERP systems are becoming essential for managing the complexities of multiple sales channels.
• Brands are more informed and deliberate in their approach to implementing ERP systems.
• Digital and E-Commerce leaders have a crucial role in specifying requirements and ensuring integration with ERP systems.

"They shouldn't be the person that is accountable for the ERP system in the vast majority of brands, but they do have a really, really critical role to play in specifying their requirements, testing what's being delivered."

• This quote underscores the importance of E-Commerce leaders in the ERP implementation process, emphasizing their role in requirement specification and testing.

• There is speculation about the emergence of a modular, API-first ERP system similar to Shopify's impact on e-commerce.
• Current ERP systems are complex due to the variability and multitude of processes they need to manage.

"If I was a betting man, I think the most likely company to create a Shopify ERP type experience is Shopify."

• This quote suggests that Shopify, with its existing infrastructure, could potentially develop a more accessible ERP system.

• Middleware is increasingly used to reduce complexity between E-Commerce platforms and ERPs.
• There is a shift from pre-built connectors to more flexible middleware solutions that allow for data transformation and system isolation.
• The market for middleware has matured, with different players catering to varying business needs and complexities.

"It's definitely a space which has got a lot of differing needs and there is a place I think for lots of different players in the middleware space."

• The quote reflects the diverse needs in the middleware space and the maturity of the market, indicating room for various solutions.

• There are distinct tiers in the middleware market, from commoditized plug-and-play solutions to enterprise-grade platforms.
• Mature brands lean towards comprehensive integration solutions to avoid the pitfalls of simpler, less flexible options.

"So I think what we're seeing, particularly at that more mature, serious end of the market is brands and the leaders inside of those brands have probably had their fingers burnt enough times with some of the plug and play options that promised the earth and didn't deliver and therefore they're just ready to do it properly."

• This quote highlights the trend of mature brands opting for robust integration solutions after experiencing limitations with simpler middleware options.

• Brands often struggle with forecasting peak sales periods and communicating these forecasts to all relevant parties, leading to operational bottlenecks.
• Key issues include inadequate ERP hosting capabilities and middleware that cannot handle increased data throughput.
• Successful management of peak sales requires optimizing the tech stack, ensuring sufficient concurrency, and focusing resources on critical real-time operations.

"The most common gotcha is brands not forecasting the peaks properly and then sharing the information as well as they can with all of the parties that might be affected by that."

• Forecasting and communication are crucial to managing peak sales periods effectively.

"If the system in the middle does not have the hosting capacity because you perhaps not upgraded it enough, you're going to have problems."

• Adequate hosting capacity in the ERP system is essential to handle peak volumes.

"If you don't have that scalability and that elasticity in your middleware, you'll get to peak volumes and it will just not be flowing the orders through anywhere near quickly enough."

• Middleware scalability and elasticity are vital for maintaining order flow during peak sales.

"What you need to have is the maturity of understanding, okay, what integrations and flows of data do we actually need running in real time through our peak sales period?"

• Prioritizing critical real-time data flows during peak sales can optimize operational efficiency.

• The hiring of senior technical leaders, such as a CTO, depends on the existing team, growth trajectory, and available talent.
• Key responsibilities include ensuring operational functionality, strategic execution, and removing growth barriers.
• The role may vary depending on the presence of other strong technical leaders within the organization.

"It really depends on who's already in the business, what is the growth trajectory of the business and ultimately what talent are you talking to and what is their background like?"

• The decision to hire a senior technical leader is influenced by several contextual factors.

"First responsibility is make sure things work like above everything else, they're there to support the operation, which means making things work securely with like minimal errors or downtime."

• A primary responsibility of a tech leader is to ensure operational reliability and security.

"They've got to align the business on a really clear understood tech strategy. And crucially this has to be in collaboration with other stakeholders."

• Strategic alignment and collaboration with stakeholders are essential duties of a tech leader.

"They've got to be the most proactive problem solver within a business. And that means they've got to identify the problems in the first place, help define them, and then drive the operational efficiency that goes to resolving them."

• Tech leaders must proactively identify and solve problems to enable business growth.

• Businesses often rely on external tech teams temporarily to fulfill specific needs until internal replacements are hired and trained.
• The exit strategy for these tech teams is typically when they have onboarded natural replacements within the company.
• Often, the focus is on hiring a head of systems rather than a CTO unless there's a clear need for a CTO due to a lack of ability or motivation within the existing team.

"More often than not, the business says you guys be our tech team for a period of time until these things are delivered. And one of the things that is delivered is actually hiring."

• Businesses use temporary tech teams to bridge gaps until internal teams are ready, emphasizing the importance of strategic hiring.

"I'm not hiring a ctf. I'm hiring a head of systems and a systems manager or a systems admin and then a systems engineer."

• The focus is on building a robust internal tech structure with roles like head of systems, rather than defaulting to hiring a CTO.

• Identifying potential tech leaders within the organization is crucial for long-term success.
• Consultants help businesses recognize potential tech leaders who can be developed into senior roles.
• Internal candidates often have a deep understanding of the brand and existing relationships, making them ideal for development.

"Half of the battle, from our perspective as consultants, going into the business for a period of time is helping other strategic leaders recognize that."

• Consultants play a key role in identifying and nurturing potential tech leaders within the organization.

"There could be somebody in the team already who just needs that path laid out for them, just needs a bit of support."

• Internal team members may already possess the potential to become tech leaders with the right guidance and support.

• Brands may face challenges due to limited budget implementations that lead to compromises in technology setups.
• Issues often arise from a lack of clear ownership of decisions and commercial negotiations.
• Successful execution requires having the right resources and decision-makers in place.

"People have gone for a limited budget implementation and they've made compromises you alluded to earlier."

• Budget constraints can lead to compromised technology implementations, affecting overall performance.

"The most important thing in all these and all the prototype works on is who owns decisions, like what decisions have to be made and is there a clear owner?"

• Clear ownership and decision-making are critical for successful technology implementations and overcoming challenges.

• Throughput issues in order processing often involve multiple stages and require a detailed breakdown to address.
• Each stage of data processing needs to be modeled and scrutinized to identify bottlenecks.
• Collaboration among all parties involved is essential to isolate and resolve issues effectively.

"What I would be doing is proposing that people break down the problem. So when you talk about throughput of orders from say Shopify to NetSuite, then NetSuite to a warehouse management system, there are multiple stages that throughput relies upon."

• Breaking down the order processing stages helps in identifying specific areas where throughput issues occur.

"You lock or lock them in a room until everyone's got to the answer."

• Collaborative problem-solving is crucial in addressing throughput issues, ensuring all parties are aligned and committed to finding solutions.

• Businesses should focus on identifying internal tech talent and developing them into leaders.
• Clear ownership and decision-making are essential for successful technology implementations.
• Detailed analysis and collaboration are necessary to solve complex throughput issues in order processing.

"That would be the most practical thing people could do is break down every single link in the chain and then scrutinize it with all of the third parties on the same call."

• Practical advice includes breaking down processes and ensuring collaboration to effectively address and resolve issues.