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Enterprise Resource Planning (ERP) systems are critical for streamlining operations, standardizing data management, and improving resource utilization. For small and medium-sized enterprises (SMEs), expensive, off-the-shelf ERP solutions often result in poor fit, high costs, and unnecessary complexity. This study argues that SMEs achieve better results by developing custom ERP systems tailored to their specific workflows, scalability needs, and budgets. Using the dynamic capabilities framework, ERP system quality is positioned as a driver of business agility and performance. We propose a five-phase ERP development lifecycle—Requirements Gathering, Solution Design, Process Mapping, System Development, and Deployment—validated through multiple SME case studies. The findings show that custom-built ERP solutions enable faster deployments, lower total costs, and significant improvements in data accuracy, workflow automation, and decision-making. The paper concludes with best practices for SME-oriented ERP development and suggests future research on agile and lightweight ERP architectures.