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ERP Integration: What It Is And How It Works

erp-integration:-what-it-is-and-how-it-works

Enterprise resource planning (ERP) is the secret to the most successful ecommerce brands. 

ERP refers to the software and systems that connect all business processes: finance, manufacturing, supply chain, sales, procurement, and others. At a basic level, ERP integrates these processes into one system. 

An ERP cannot be used right out of the box. It needs to be integrated with a business’ structures and goals. It brings together data, from financial to logistical and human resources, in support of enterprise-level planning and operations. 

Having a centralized ERP is critical for a large-scale ecommerce enterprise, and the integrations you choose reflect your success. This guide will walk you through the basics of ERP integration and how you can start building your ERP system today.

Table of contents

What is an ERP integration?

An ERP integration refers to connecting your ERP software with other systems like an EDI (electronic data interchange) platform or ecommerce applications. The goal of an ERP integration is to allow for the flow of information between your systems, connecting your software together so it can be used in a holistic view and transformed into actionable decisions for the business. It’s a way of automating business processes and improving productivity across the enterprise. 

Over 53% of businesses believe ERP is one of the priority sectors for investments, according to data collected by G2. ERP integration helps create a single source of truth in your business, which means that relevant information can be shared across departments quickly and easily. 

The most common integration methods include: 

  • Custom integrations, which refers to a business building its own core integration. Programmers can match a software’s API code with the ERP system they want to integrate with. They require technical resources and take time. 
  • Vendor-built or native integrations, which refers to out-of-the-box integrations that allow you to connect specific applications. For example, many tools today connect directly with Shopify. They cover popular use cases and typically don’t have additional subscription costs.
  • Integration Platform as a Service (iPaaS), which is a cloud-based solution that builds and deploys integrations. With iPaaS, organizations can create workflows that connect cloud-based applications and deploy them without installing or managing hardware. 

Ecommerce businesses may use an ERP to automate the order-to-fulfillment process. For example, if you integrate NetSuite with a Shopify store, you could automatically bring orders and customer data from Shopify into NetSuite at checkout. You could also use a connector to push information to a 3PL partner. 

This can help businesses get orders fulfilled faster and increase same-day fulfillment of website orders. Think about the number of labor hours that could save you per month.

Without an ERP integration, the company would have to manually update inventory counts in its ERP system and ecommerce application. As sales volume increases and inventory expands, inefficient and labor-intensive operating processes are hard to scale. 

That’s the beauty of ERP integration. Whether you’re B2B, B2C, or DTC, as your business grows, so does the complexity of your operations. You end up requiring more than disconnected siloed solutions can provide.  

Other ecommerce aspects such as stock management, purchasing and supply chain, CRM, fulfillment, and sales and payment information are also integrated into an ERP. If there is a siloed or fragmented approach, there will be inconsistency within the business. 

Benefits of ERP integration

Imagine your business activities like a running car engine. Being able to look under the hood while it’s running can help you decide whether it’s time for maintenance, or if you have another 1,000 miles until your next oil change. 

ERP integrations help give you an overview of your enterprise and all its running applications. They can help track key performance indicators in real-time, ensure data integrity, and much more. Let’s look at some top benefits of ERP integration. 

Upgraded legacy systems

In today’s competitive business environment, organizations are discovering they have no choice but to add a modern ERP system. A recent report from Panorama Consulting Group revealed that homegrown legacy systems are still prevalent, with 35% of respondents moving away from them in 2020, up from 14% the year prior. 

Software bought years ago may no longer support the company’s business model. An ecommerce brand may go global or need more internal procedures. These reasons can turn a legacy system ineffective.

Legacy systems have struggled to keep up with their competition from a technological standpoint, which has resulted in a high ongoing cost to integrate with newer ERP systems. That cost is usually a hidden one that doesn’t become visible on balance sheets until several years down the road.”

—Joel Sturmfels, CTO of Obodo

If businesses want to gain competitive advantage, they need access to real-time data insights. These insights are important if you want to improve customer experience or optimize your supply chain. 

For example, if you manage inventory through a legacy system, it may not integrate with other systems. This can make it difficult to confirm and schedule orders because there is no way of knowing if there’s enough inventory on hand to order. It can cause supply chain issues since buyers can’t always reorder inventory, and more. 

Modern ERP integrations have advanced capabilities that can provide analytics that help you optimize inventory management and improve customer experience by never running out of stock. Many ERP vendors also make several updates per year, so you’ll consistently upgrade your system and see related business improvements.  

Centralized data

Accenture’s 2020 ERP report found that nearly 40% of chief information officers (CIOs) surveyed do not find it easy to access, analyze, or use enterprise and customer data for better decision-making. 

ERP integrations make it possible to centralize enterprise data and improve communication throughout the business. They help create a central hub where all departments can access real-time data and take advantage of flexible, agile solutions in an ever-changing environment.

Without an ERP system, each department has its own records and databases. Teams can upload data and create reports and share them between different groups. But if there is duplicate data, they need to confirm data integrity, which creates more work and headaches for everyone. Legacy systems often use “gatekeepers” to share information, however, they can quickly become overwhelmed with requests for information. 

Having a lot of data is one thing. But having accurate data and being able to access, analyze and act on it is another. ERP integrations help you build ethically responsible and secure frameworks for managing and using data in your business. 

Automated processes

One study found that 70% of back-office executives are looking for advanced automation in an ERP. These integrations facilitate automated, bi-directional data exchange between your systems and apps, eliminating costly human errors. Automation can be used across numerous touchpoints to streamline business processes. 

The time has come to use ERP to transform innovation across business functions”

—Turning Intelligence Value, Accenture SAP Business Group

The following activities can all be passed between systems to create an intelligent ERP system:

  • Order information
  • Customer data
  • Shipping details
  • Accounting systems
  • Product and price information
  • Inventory counts
  • Purchase orders

ERP helps bridge business and functional silos, but automation helps scale innovation. When combined with technologies such as AI and cloud, ERP offers nearly limitless possibilities for improving business processes. 

Better customer experiences

Great customer experience with personalization has been front and center for some time now. Three-quarters of respondents to Accenture’s ERP survey said they are investing heavily in engaging customers in real-time to enhance customer experience. 

Yet serving a customer’s unique needs on one channel is not enough to sustain competitive advantage. Businesses need to understand and create holistic, omnichannel customer experiences. 

Nearly 38% of UK CIOs agree that ERP improves their ability to meet customer demands, but just 25% agree their ERP enhances omnichannel potential. 

ERP integrations can help businesses acquire a deep understanding of customer preferences and interests. They can then use those insights to create truly personalized interactions across physical and digital environments to improve the customer experience.

The way enterprises use ERP integrations for customer engagement will determine a brand’s success in years to come. Those who leverage ERP systems for intelligent customer engagement will succeed. 

Common ERP integration challenges and risks 

To review, what is the purpose of an ERP system? If you said to automate business processes and make the company more efficient, you are correct. But integrating an ERP with other enterprise systems is not always easy. 

Let’s look at a few common challenges faced when integrating ERP. 

Over budget

Most ERP implementations cost three to four times what was initially budgeted. System modifications to improve usability are the key culprits for overspending 65% of the time

But don’t sweat it: the benefits outweigh the costs. The best ERP partners are key to creating a good ERP system for your organization. They’ll offer a suite of services to cover integrations and implementation, set clear goals, and get the right system in place for your company. 

Despite the challenges and risks associated with ERP, organizations reported the areas where their ERP produced ROI were reduced IT costs (40%), reduced inventory levels (38%), and reduced cycle time (35%). 

Unsecured connections

Your ERP system is home to the most critical business information, including sensitive client data and proprietary intelligence. They must be protected at all costs.

Adding more complexity to your system through ERP integration increases the chances of unsecured connections, which puts your organization at a higher threat level when cyberhackers are targeting ERP software

Complexity

Data collected over the years on ERP implementations states that 50% fail the first time around. Implementations also tend to take 30% longer than anticipated. Failures are often the result of poor communication and planning.  

Businesses often have to overcome:

  • Internal resistance to new systems
  • Software integration issues
  • Poor data quality

People need to get trained to use the systems properly. Internal adoption and enablement is key here. Implementations can fall over post-launch if there’s no internal champion or proper documentation of workflow. They also need to understand why there is a change in their process to stay motivated to learn the system. 

Businesses that have a clear plan for ERP integration and an understanding of their requirements can avoid becoming ERP failure statistics. 

Types of ERP integrations

The type of ERP integration you choose depends on your IT resources and specific business needs. 

Ecommerce

Ecommerce integration involves connecting your ecommerce system (like Shopify) with a cloud-based ERP solution. Together, they help expand your ecommerce store’s functionality and create better shopping experiences for customers.

Data including leads, customers, orders, shipping times, taxes, and customer support are all tracked through an ecommerce ERP integration. The point of the integration is to make data available to everyone in the organization who manages the ecommerce store. 

Benefits include:

  • Accurate, relevant front-end data available across all departments
  • Real-time inventory counts in front end and back end
  • Dynamic, customer-specific pricing options
  • Automated financial audits 

There are a few ways to integrate an ERP with your ecommerce platform:

  1. Use the ecommerce solutions API on your own and customize the system. But you are fully responsible for managing it.
  2. Use a third-party, out-of-the-box solution. If you need any customization, you’ll need to pay for it and rely on another team to get it done. 
  3. Use an ERP system within a native integration to your ecommerce platform. An ERP with native integrations, such as Shopify-NetSuite, is the most flexible option. The ERP company creates a native integration into the ecommerce system. It’s agile enough to meet an organization’s needs and can adapt to market demands. 

Ecommerce brands can also integrate with different platforms to improve efficiency and cost saving, including:

Customer relationship management (CRM)

Every ecommerce company needs a standardized way to manage leads and customers. CRM systems manage customer data like purchases and contact information, which can be used by sales and marketing teams. Businesses use this data to gain better insights into customers and make informed decisions when it comes to interacting with them. 

For example, Salesforce and Netsuite by Oracle, an ERP and CRM integration, pass data between each other, which gives companies a 360-degree customer view. Whether it’s sales, support, marketing, or shopper data, your company will have everything you need in one place. The data can easily be used to create experiences that improve your relationships with customers. 

Business Intelligence

Business intelligence (BI) software is designed to retrieve, analyze, and report data. BI software is important for companies undergoing a digital transformation because it provides visibility into a company’s data. It easily compiles and visualizes data so stakeholders can discover new insights and act on them to enhance their bottom line. 

In some cases, a BI function may be built into your ERP system. But often the functionality is not powerful enough for organizations that receive vast amounts of data daily. 

When a company connects a third-party BI system with an integrated ERP, these insights become easily accessible by any authorized employee. They also get access to advanced reporting that helps a business make the most of every piece of data it receives.  

Human resources

No other department has more back-end tasks than human resources. Between payroll, recruitment, evaluations, and job offers, managing HR data can become overwhelming fast. Mishandling sensitive HR data is both costly and poses a security threat for any business. 

An HR module in your ERP helps manage, digitize, and automate HR department processes. Some benefits include:

  • Secure storage and management of basic employee databases 
  • Simplified payroll and compensation management 
  • Improved time and attendance management 
  • Better employee training and development 

Businesses can also get creative with their ERP HR module. They can send workplace surveys to gauge employee satisfaction levels, configure automated reporting, and easily implement and understand performance reviews across the organization. 

Project management

Like BI software, some ERP systems may include project management solutions. Yet many companies that begin building their ERP systems already use more complex project management software. Seeing the status of projects in your ERP is useful for a few reasons:

  1. You can determine project costs.
  2. You can see project updates and processes. 
  3. You can figure out if project methodologies are working or not.
  4. You can collaborate with HR and payroll departments.

When you create a project management module in your ERP, anyone can see who’s working on what and when it’ll be delivered. Understanding these workflows encourages ownership across departments and can help companies solve small project issues before they become big problems.

How to integrate an ERP with your existing software operations

The term “integration” has a lot of meanings in ecommerce. Any two systems with solid application program interfaces (API) should be able to talk to each other, or be integrated. Often when someone refers to integration, they are referring to a pre-built connector. These connections have different names depending on the host software—for example, Shopify calls them apps. 

An increasingly popular integration strategy is referred to as integration platform as a service (iPaaS). This is a cloud-based approach to integration that enables apps to sync faster and easier. It requires no coding and can connect ERP systems to SaaS products.

Many of these apps, or pre-built connectors, exist on an iPaaS platform. Out of the box they are designed to start an integration with between 50% and 90% of the work done. They often require some tweaking by a developer or integration partner to complete the integration. 

To integrate an ERP with a system using an iPaaS integrator, you’ll need to: 

  1. Configure the API token for your ERP and other systems you plan to integrate. 
  2. Create flows that define interactions between your ERP and other applications. This will cover how the integration will transfer data and how CRUD operations will perform.
  3. Configure pipe connections in the connected systems. 
  4. Set up mapping and modifiers. For example, you can add a New Customer to specific contacts in your CRM. Then sync the label to your email marketing software to kick off a welcome campaign. 
  5. Set up your sync schedule and frequency. If you want real-time synchronization, you’ll need to ensure the ERP system and other applications are automatically sending fresh data between each other. 

Shopify’s integration partners are referred to as “iPaaS partners.” The reason is that many of the pre-built connectors are hosted on the partners’ services or cloud of choice. Most iPaaS offers include maps and transformations to speed up the development of integration flows and business rules for defining interactions.

Shopify integrates with top ERP software, including:

  • NetSuite
  • Acumatic
  • Infor
  • Brightpearl
  • Microsoft

These companies all have an implementation and services team to help guide your ERP integrations with Shopify. They also handle the data flow and have existing customization capabilities once the data is loaded into the ERP. You can explore these direct ERP integrations here.

For example, a Shopify store can install the NetSuite connector and transfer data to NetSuite. Then a NetSuite implementation team or NetSuite certified partner can add customization to the NetSuite implementation. 

ERP system integration best practices

Whether it’s your first ERP integration or your 15th, keep the following best practices in mind.

Have an integration plan in place

Before you look at integrating an ERP, create a plan with your team. Have one person who understands your business goals and internal processes head the project. Work with stakeholders to plan for any obstacles that may come about. 

When planning an ERP integration, map out all the use cases you can think of, and then group them by how often you expect them to occur. Focus on the most common when building and deploying, but also test how well the integration is able to handle edge cases as well.”

—Joel Sturmfels, CTO of Obodo

When creating your plan, think about:

  • Why you want to integrate your store with your ERP system
  • What information you want to send from store to ERP
  • What information you want to send from ERP to store
  • Where the gaps in your inventory data are
  • What other systems like warehouse management or 3PL need to be integrated, and how the integration will work. 

Planning will help implement a smooth integration and reduce the chances of becoming a failure statistic.

Inform employees, partners, and vendors about change

Businesses using older, legacy systems will likely encounter some change and resistance when integrating an ERP. Business processes, roles, and other things central to how a company functions could be affected, so expect some pushback or roadblocks that may come with any organizational change.

Even those organizations using newer, cloud-based ERP systems (e.g., Netsuite) will likely experience some change to their processes and routines. They may discover that processes currently in place need to be adapted to an ecommerce integration and specific workflows. Communication throughout the integration project is key. 

For example:

  • Poorly informing warehousing and logistics staff could lead to confusion when orders start coming into an ERP system from an ecommerce platform if this team was not included in discussions around integration and fulfillment.
  • Customer service could suffer as expectations and new processes (after the integration) are not aligned throughout the entire organization.

Practice good data management

Sound data management is the backbone of ERP integration. Having clean, reliable data that gives strong insight into your business processes and will impact your bottom line. You’ll want to regularly:

  • Cleanse data and normalize formats
  • Validate data to ensure accuracy
  • Review who has access to data and why
  • Eliminate bad or duplicate data

Good data management will reduce delays during the integration process and make the transition smoother. 

How Shopify can help with ERP integration

It’s clear ERP integration is the foundation of a successful ecommerce business. It helps centralize business data, automate processes, and improves collaboration amongst teams. All so your business can provide more value to your customers and grow sales. 

Shopify is partnering with some top global ERPs, such as Microsoft and Netsuite Oracle, that our merchants are heavily using and they will provide native, publicly listed, integrations. These global ERP partners are following the same guidelines as the Plus Certified App Partner program and are working directly with our Developer Success team to provide the best merchant experience possible with these integrations. You can explore these apps here.

ERP integration

What is ERP and how does it work?

Enterprise resource planning (ERP) is a software system that connects all business processes: finance, manufacturing, supply chain, sales, procurement, and others. At a basic level, ERP integrates these processes into one system. 

What are the advantages of ERP integration?

  • Upgraded legacy systems
  • Centralized data
  • Automated processes 
  • Better customer experiences

What are three ERP integration methods?

  • Custom integrations
  • Native integrations
  • Point-to-point integrations

What is the role of ERP in business integration?

The role of ERP is to streamline and integrate processes, operations, and information flows in an enterprise. ERP systems integrate data from across an organization, from labor to materials to money to online stores, and bring it into one unified system. 

This originally appeared on Shopify Plus and is made available here to cast a wider net of discovery.