If there is one IT tool that the management of any company is aware of, and that feels absolutely essential, it's the ERP.
For sure, no CEO would ever challenge its IT team on the possibility of dropping the existing ERP.
And yet...
For retail companies specifically, which are already using Shopify or are considering migrating to it, the question of keeping the existing ERP can legitimately arise.
This article aims to review the opportunity of using Shopify as an ERP. Given that everything is always moving fast at Shopify, and that the coming months will bring their share of new features...
What is an ERP?
The acronym ERP stands for Enterprise Resource Planning.
An ERP is software that allows to centralize and integrate business processes and data, while automating information flows.
An ERP typically offers the following functionalities:
- Finance and Accounting, to manage general accounting, accounts receivable and payable, cash flow, and budgets.
- Inventory and Logistics, to manage product master data, inventory, supplies, forecasts and warehouses.
- Sales, to manage B2C and B2B orders, quotes, and invoicing.
- Production, to manage production planning, capacity management, and supply chain.
- Human Resources, to manage payroll, scheduling, recruitment, and training.
- Analysis and Reporting, to obtain dashboards, indicators, and recommendations.
A bit of history about ERPs...
In the 1960s and 70s, large manufacturing companies acquired large computers (entire rooms!) to help manage their factories: quantities of materials to order, optimal delivery dates based on sales forecasts, and compositions (nomenclatures) of products to be manufactured.
Production capacity planning functionalities have been gradually added, with scenario simulations and calculations of financial impacts.
ERP systems (as we still know them today...) started prevailing in the 1990s, driven in particular by the deployment of PCs in businesses and the democratization of personal computing.
And the iconic ERP solution, a true global benchmark for now 30 years, is SAP. Beyond the solution functionalities, SAP's teams successfully imposed their solution by targeting CEOs, even before CIOs, with a mindset close to "if you don't have SAP, you've failed at being a successful CEO."
This worked so well (kudos to them!) that from the early 2000s, SAP (almost) became the default choice for medium and large companies, forcing CIOs wanting to switch to another solution to justify themselves (at length) to their CEOs.
Following SAP's lead, numerous ERP systems gradually rushed into this market, some targeting specific industries with dedicated vertical functionalities.
An outdated design...
What characterizes almost all ERP systems, and it's very shocking these days, is the absence of a real ergonomic UX/UI vision: the screens are chatty, not very user-friendly, and do not inspire. Remnants of an era when professional computing was a "serious" business, and when anything serious had to be ugly and complicated...
And this isn't just a joke, because this has ultimately been the ERPs business model for the last 30 years: design a solution that is difficult to use, sell it at a high price, and then control an ecosystem of greedy integrators!
Therefore, the upskilling of internal teams on ERPs has always been slow, maintaining their autonomy has always been difficult, and the reliance on external experts has always been high...
In a way, ERPs represent an old-fashioned computing industry with an outdated mindset.
Can we say an ERP is expensive?
Spoiler alert: yes.
Between the cost of the software solution (whether on-premise or in the cloud) and the integration and monitoring fees, an ERP can be (very) expensive for a company.
Especially since, by continuing to make senior management believe that an ERP was unavoidable, it has become like a mandatory expense, meaning an expense that cannot be significantly reduced, which exists and will always exist, and that's that, nothing to discuss...
How many companies, which otherwise control all their expenses down to the last euro, find themselves forced to pay exorbitant bills for the use of their ERP, without any room for negotiation?
Do companies still need an ERP?
Spoiler alert: not necessarily.
For many years now, the functional scope of ERPs is covered by various types of solutions, which are cheaper, more modern, more user-friendly, and above all, with plummeting maintenance costs.
And for the last three years (ChatGPT was only launched in November 2022...), artificial intelligence has entered our professional lives, notably with the ability to manage certain repetitive tasks, including those still performed manually by some ERP users...
There is also the fundamental evolution of technical architectures that we have been experiencing for many years now, and which is crystallizing around databases: what is at the heart of modern enterprise IT are now products, clients and orders databases. Not a catch-all software solution...
But old habits die hard, and ERP vendors have been manipulating CEOs mindset for 30 years, so it still seems shocking to many senior managers to think that they could completely do without an ERP system.
And especially retail companies?
Spoiler alert: yes.
For retail companies, which don't have in-house production capacity, the added value of their ERP is now close to zero, compared to the functional depth and value proposition of the new generation of solutions.
Driven by the need to reinvent themselves, the movement to dump ERPs is underway in retail companies, especially for those already in the Shopify ecosystem!
We're seeing companies with revenues of 5, 10, 15 million euros, or even more, simply abandoning their ERPs in favor of a technical architecture built around Shopify and a few carefully curated apps.
And this is obviously just the beginning...
So Shopify can act as an ERP?
Spoiler alert: yes, by adding a few apps.
From the very beginning of the project in 2004, Shopify's founder, Tobi Lütke, laid the foundations for his ambition: make commerce as simple as possible.
In fact, where an ERP complicates management, Shopify simplifies business.
While maintaining incredibly fluid usability, Shopify now handles online sales, in-store sales and wholesale orders equally well, with a platform built around products, clients and orders databases.
And simple doesn't mean rigid, but quite the opposite: with extensive customization options (particularly thanks to metafields allowing easy addition of specific fields) and automation (especially with Shopify Flow, which even allows the inclusion of external data in custom workflows), Shopify is far more flexible and agile than any ERP!
Add the Apps ecosystem (did you know that the Shopify App Store was launched in 2009, directly inspired by Apple's App Store launched just a year earlier?), with their seamless integration (meaning: no maintenance fees!) into the Shopify platform, making it easy to add any specific feature needed for a business.
Finally, there's the AI assistant Sidekick, launched in 2024, which supports users in their daily use of the solution, both by providing advice and by performing actions autonomously.
So yes, Shopify is intended to replace ERPs in many retail businesses.
What is native and what is not in Shopify?
If we revisit the list of ERP features presented at the beginning of this article, we can list what is native in Shopify (and specifically in Shopify Plus), what can be done with an App (to benefit from advanced features), and what remains the domain of a third-party business solution (outside the Shopify ecosystem):
- Finance and Accounting:
- General Ledger: Third-party business solution
- Customer Accounts: Native
- Supplier Accounts: Native or App
- Treasury: Third-party business solution
- Budgets: Third-party business solution
- Inventory Management and Logistics:
- Product Repository: Native
- Inventory: Native
- Procurement: Native or App
- Demand Forecasting: App
- Warehouses: Native or App
- Sales:
- B2C Orders: Native
- B2B Orders: Native
- Quotes: Native or App
- Invoicing: Native or App
- Production:
- Production Planning: Third-Party Business Solution
- Capacity Management: Third-Party Business Solution
- Supply Chain Management: Business Solution Third-party
- Human Resources:
- Payroll Management: Third-party business solution
- Scheduling Management: App, third-party business solution
- Recruitment Management: Third-party business solution
- Training Management: Third-party business solution
- Analysis and Reporting:
- Dashboards: Native
- Key Performance Indicators: Native
- Recommendations: Native
What would it look like for a small fashion brand?
For the IT needs of a fashion brand, with let's say €10 million of revenue, Shopify can obviously be the technological foundation.
Whether for sales in physical stores, online, or to wholesale clients, everything can be managed in Shopify.
Key partners, such as marketing platforms or logistics providers, will connect directly to Shopify through custom Apps they have developed and will maintain.
At a minimum, two public Apps will need to be added: an App for managing invoicing (some also offer data export in FEC format to accounting software) and an App for managing suppliers and purchase orders (Shopify has native functionalities, but probably too basic).
On the other hand, Shopify It will not directly address accounting management, nor production IT (factory management), nor Human Resources issues (there are, for example, Apps compatible with Shopify POS for managing sales teams, but this probably remains marginal to the overall need).
Keep it simple
One of the keys to using Shopify effectively is the 80/20 rule: Being content with 80% of an ideal needs (which are often too ideal and therefore unrealistic...) to only spend 20% of the theoretical resources and budgets.
This mindset allows for major savings compared to the budgets imposed by ERP systems, and in particular, let's remember, the costs of consulting fees for the implementation and maintenance of these platforms.
Because, as you now understand, the world of ERP systems has made complexity its business model, to justify costs that are no longer acceptable today.
Two topics to look at
We cannot finish this article without mentioning two specific topics that must be addressed when considering abandoning an ERP in favor of Shopify.
First, the change management burden on teams should not be underestimated. If the company decides to focus on Shopify and its ecosystem, the impact will be significant on internal teams, accustomed to a much less agile IT environment: some employees may need training on the new tools, while others will likely need to be reassigned due to the substantial reduction in the complexity of their daily work.
The other question to ask, and one that requires a clear-headed answer, is whether to accept concentrating a significant portion of your IT architecture around Shopify and its ecosystem. This is probably a non-issue, especially given the dynamism of the Shopify ecosystem, which constantly introduces new solutions and allows for regular reassessment of the cost and scope of certain features. However, this could worry some executive management, and the topic will therefore need to be addressed.
To learn more about how Shopify could replace your ERP, feel free to contact us.
