Custom ERP: Pros & Cons, Costs, and 6 Essential Phases to Build One

A custom ERP empowers your business to go beyond the off-the-shelf software capabilities. When your operations need more than what standard solutions can provide, a custom ERP allows you to design and build exactly what you need.

But is it worth the investment? In this post, we'll explore what a custom ERP is, weigh its pros and cons, and walk you through the six key phases to build one from scratch.

What is Custom ERP?

A custom ERP system is built around your business’s unique needs, giving you complete control over every module, feature, and function. It’s like crafting a solution tailored specifically for you that fits your workflows, tackles your challenges head-on, and supports your future growth. 

These signals show you that it might be time to consider a custom ERP:

• You have specialised business processes: If your workflows are unique or too complex for off-the-shelf software to handle, you might need a solution built just for you. For example, a pharmaceutical manufacturer with strict compliance needs and detailed batch tracking might require a custom ERP to handle its complex workflows.
• Your current ERP isn't cutting it: If your ready-made ERP keeps running into limitations or workarounds, it may be time to explore a system built specifically for your needs.
• Integration headaches: Do you think your existing systems don't work well together? Or are you dealing with multiple software platforms that don't integrate well? Custom ERP can bring everything under one roof.

Here’s how a custom ERP stacks up against an off-the-shelf solution:

• Custom ERP: Offers a personalised fit for your business, giving you full control over functionality and the ability to meet your specific needs. But, it requires a significant investment in time, money, and expertise.
• Off-the-shelf ERP: A pre-built solution that is quick to deploy and often more affordable upfront. However, it may come with limited flexibility and require you to adapt your processes to fit the software, rather than the other way around.

Related post: Composable ERP - Definition, Key Features, & 5 Steps to Implement a Strategy

6 Essential Phases to Build Your Custom ERP Solution From Scratch

Building a custom ERP system is a journey, and like any big project, it needs careful planning and execution. Breaking it down into six clear phases, you can move forward with confidence and ensure every step leads to success.

Phase 1. Requirement gathering and planning

This is where your custom ERP journey begins - just like building a house, you need to start with a solid foundation. Here’s how to approach this critical phase:

• Business needs assessment: Start by taking a close look at your current operations. What's working well? Where do inefficiencies crop up? For example, is your sales team overwhelmed with manual data entry, or is your supply chain hindered by outdated processes? This is your chance to identify these pain points. 
• Stakeholder insights: Engage people from every department - sales, HR, finance, operations, etc. They work with the systems daily and can offer invaluable feedback on what’s slowing them down or causing frustration. Their input helps ensure your custom ERP addresses real, practical needs.
• Workflow analysis: Dig deep into how things actually work. Map out the workflows and identify areas where automation could make a big difference. For example, a custom approval system for purchase orders might speed things up significantly.
• Customisation scope: Now that you know what’s needed, define which areas need customisation. Do you need an entirely custom CRM module? Or is it just a tweak in inventory management? Clarifying this scope will keep the project focused and prevent scope creep.
• Requirement specification: It’s important to define functional workflows, needed integrations, and infrastructure (cloud or on-premises). Prioritise compliance and built-in security to align the ERP with your business needs

Phase 2. ERP architecture and system design

A well-thought-out architecture ensures your custom ERP will be flexible enough to grow with your business and adaptable to future needs.

• Modular design: Instead of building a monolithic system where all the parts are tightly connected and difficult to change, modular design allows you to break the system into smaller, independent components. Each ERP module - such as CRM, finance, supply chain, HR, or inventory - functions as a standalone unit but interacts seamlessly with the others.
• Database design: In a custom ERP, the database schema is designed specifically around your company's data flow. For example, a manufacturing business might require a complex BOM (Bill of Materials) structure, while a healthcare provider would prioritise patient records, compliance, and billing data. Plus, the design should be optimised for speed and efficiency, especially if you're handling high volumes of transactions or complex reporting.
• UI design: A clean, intuitive interface is crucial. Different users will interact with the system - managers, staff, or even customers - so each should have a user-friendly experience. If users can navigate easily, they're more likely to embrace and use the system effectively.

Phase 3. Customisation and development

In this phase, your ERP takes shape, turning plans into real, functional software. The development team will custom-build each module and integrate it with your existing systems.

Module development and customisation

Each business function (e.g., finance, supply chain, HR) gets a dedicated, custom-built or modified module, aligning precisely with your processes. For example, an inventory system can include automated reorder points, or measure units, tailored to daily team needs, offering a more targeted solution than generic software.

System integrations

Your new ERP must work alongside existing tools (e.g., CRM, e-commerce, accounting software). Custom APIs and connectors bridge the gap between your ERP and these systems. Proper integration prevents duplicate data entry and ensures real-time updates across platforms.

Phase 4. Data migration and testing

Did you know? More than 80% of data migration projects go over budget and take longer than planned. This highlights how important it is to focus on this phase, ensuring your new ERP system is ready for real-world use.

• Data cleansing: Before migrating, clean and standardise your data. Remove duplicates, correct errors, and format everything consistently to avoid issues later on. 
• Pilot migration: Run a small-scale migration to test how well the data transfers. This minimises risks and ensures that any issues are caught before the full migration. 
• Functional testing: Test the individual modules to verify they work as intended. Each function needs to perform flawlessly.
• Integration testing: Ensure that all the system components communicate smoothly. This checks that your ERP integrates well with any existing tools or systems, preventing data silos or compatibility issues.
• User Acceptance Testing (UAT): Involve actual users in testing the system in a real-world scenario. This step confirms that the ERP meets user expectations and supports daily tasks effectively.

Phase 5. Deployment and training

Rather than deploying the new system organisation-wide all at once, a phased rollout allows for identifying and addressing any issues in a controlled environment. This minimises disruption and ensures a smoother transition across the organisation.

Besides, tailored training programs for different roles are essential. For instance, managers might need training on reporting features, while frontline staff may focus on data entry. Providing clear documentation and easy-to-follow guides also helps users learn quickly and effectively.

Phase 6. Post-launch support and optimisation

After your custom ERP is live, the work isn't over. Regular maintenance and ongoing fine-tuning will be essential.

• Continuous monitoring: Keep an eye on how the system performs. Set up alerts to track system performance and user activity. Monitoring for bugs or inefficiencies will help you address issues before they snowball.
• Issue resolution: Have a dedicated support team ready to address any concerns quickly. This team should be able to troubleshoot problems and provide timely solutions.
• Custom feature expansion: As your business grows, so should your ERP. Need new features? Want to add another module? This is where your custom ERP shines - it's flexible and can evolve with your business.

Pros and Cons of Custom ERP

A custom ERP can be tailored to fit your unique business needs, making it an attractive option. However, it also comes with potential drawbacks. Let's explore the pros and cons of implementing a custom ERP system to help you make the best decision.

How Much Does a Custom ERP Development Cost?

The cost of developing a custom ERP system can vary significantly based on various factors, making it essential to understand what influences the overall pricing. 

Scope of customisation

• Basic vs. complex features: A custom ERP that includes only essential features (e.g., inventory management and basic reporting) will cost less than one that requires advanced functionalities (e.g., AI-driven insights, or customised workflow automation.)
• Custom modules: Each additional module requires extra development time and effort. A higher number of modules or more complex functionalities increase costs.

Technology stack

• Cloud vs. on-premises: Cloud-based solutions generally have lower upfront costs due to reduced hardware requirements but may incur higher ongoing operational expenses. On-premises solutions involve higher initial investments in hardware, software licenses, and IT staff for maintenance.
• Advanced technologies: Incorporating cutting-edge technologies such as machine learning, AI, or big data analytics can add complexity and increase costs significantly.

Third-party integrations

• Integration with existing systems: The complexity of integrating with existing systems (e.g., CRM, accounting software, e-commerce platforms) affects the cost. Developing custom APIs or middleware to facilitate these integrations can add substantial expenses.
• Vendor licensing fees: Some third-party solutions may require additional licensing fees, which should be factored into the overall budget.

Development time and team size

• Project duration: Longer development timelines generally lead to higher costs. The more time spent on the project, the more resources are required.
• Team composition: A larger team with specialised roles (developers, project managers, QA testers, etc.) will drive up the expense.

To minimise costs and maximise efficiency during custom ERP development, partnering with experienced ERP consultants is essential. Their expertise can help clarify your unique requirements, avoid costly mistakes, and ensure everything runs smoothly from the start.

Custom ERP - Frequently Asked Questions

1. Can I create my own ERP?

Yes, you can create your custom ERP system. With a clear understanding of your business needs, a well-defined project plan, and a skilled development team, building a custom ERP tailored to your specific processes and requirements is feasible. 

2. How much does a custom ERP system cost?

The cost of a custom ERP system can vary widely based on several factors, such as the complexity of your requirements, the scope of customisation, the technology stack used, etc. Additional costs may arise from post-launch support, training, and ongoing maintenance.

3. What are the benefits of custom ERP?

A custom ERP system brings a lot of benefits. It’s tailored to fit your specific workflows and scalable to support business growth. It also ensures compliance and robust security by adhering to industry standards, while enhancing user experience and satisfaction through role-based design for better adoption.

Reference:

• Oracle. Put Your Data First or Your Migration Will Come Last.