"Corporate psychiatry" was the analogy used at the recent ERP World 98 conference to describe the implementation of enterprise resource planning (ERP) software, which is primarily concerned with making manufacturing more efficient.
But even its proponents admitted the technology has its limitation. David Dobrin of ERP consultancy Benchmarking Partners said he did not think that ERP could yet run a global company. "The reality is that functionality, and penetration, to all levels in a company, are incomplete," he told delegates at the San Diego event.
Nevertheless, it had been the need to develop software to help manage global manufacturing businesses that had resulted in the early adoption of ERP in Europe - and that has had many important side-effects. The most important aspect of an implementation is to allow a rethink of how the company should be run, Dobrin believes.
It is important to say no to some user expectations, Dobrin went on, observing that the benefits are often not appreciated until the system goes down.
Also sounding a cautionary note was Bob Walker, vice president and general manager of Hewlett Packard?s professional services operation, in a keynote speech. He said that ERP is not a fixed destination, so that the mountain climbing metaphors often applied to the software are wrong. He also cautioned that you maintain a data warehouse "to make future business decisions - not to pile up data".
The US has lagged behind Europe in the adoption of ERP, just as Europe lags with electronic commerce. This has led US critics of ERP like Michael Schrage of the MIT Media Lab to suggest that there is over-investment in ERP in Europe and under-investment in the Web, resulting in two incompatible enterprise infrastructures.
Some European commentators point to history for the difference of emphasis. International trade has been fundamental to Europe since the development of the spice trade, whereas it is an add-on rather than a key strategy for many US companies because of the large national market. Such companies are therefore more keen to move cheaply into hitherto uncharted territories via the Web - rather than automating existing global systems using ERP.
Stewart Alsop, an American venture capitalist, looked to more recent history. He estimates that around one-third of what is now called ERP was automated during the mainframe era, another third with client/server computing, and that networked computing is bringing about the completion of the process.
That is creating new movements in the ERP sector. The first tier suppliers are strengthening their essentially back office offerings with organically grown increments, bought-in software and partnerships with developers. They are integrating outward bound Web capabilities and support tools, with some using Lotus Domino front end applications to ERP transactional systems.
A recent trend is the development of middleware to integrate legacy, custom and ERP applications. Software AG says it plans to release an integration package codenamed Amadeus in the first quarter of 1999. Oberon Software of Cambridge, Massachusetts is working to develop its ?Building Blocks? for major ERP vendors, with interfacing via middleware.
Java has also arrived in this market with IBM's San Francisco - a development framework for financial management and warehouse inventory applications, among others
Despite the new trends, the big four players in ERP remain SAP of Germany, Peoplesoft of California, Baan of the Netherlands, and Oracle - with Denver based JD Edwards as a contender. Based on the latest quarter's results, SAP has around four times the revenue of Peoplesoft, around five times the revenue of Baan and of Oracle's ERP applications business, and 16 times the revenue of JD Edwards' One World licences.
All these vendors are growing rapidly. SAP plans to take on another 5,000 employees in 1998; Peoplesoft another 3,000 staff in 1998 in a move to increase its customer support team; and Baan will probably take on 2,000 staff to boost its effort with electronic commerce and supply chain applications. Oracle would not disclose its staffing plans.
SAP sales increased by 59 per cent in the second quarter of 1998 to $1.2 billion compared with the year earlier quarter. Revenue from the Americas is now equal to European revenue, with 80 per cent of sales being outside Germany. In the first half of 1998, product revenue was 65 per cent, consultancy 24 per cent and training 11 per cent of total revenue. Earlier this month, SAP was listed on the New York Stock Exchange.
Peoplesoft's revenues have roughly doubled each year for the last seven years, reaching $815 million in 1997 with 4,450 employees at the end of 1997. Sales have doubled in Europe every year since 1993, from a relatively small base. Peoplesoft does not yet have a front office solution, relying on partners for this, but Mark Lane, marketing manager for Europe, hints that an acquisition in this area is likely.
As for Baan, its revenue grew 46 per cent in its most recent quarter, to $230 million. This would have been 53 per cent, had it not been for adverse currency translations. Baan had 76,000 customer sites worldwide at the end of June, with a significant increase from its May acquisition of Coda, a provider of global accounting systems. European revenues were 53 per cent, with 40 per cent from north America. The company?s core business has been in manufacturing, but this is now expanding into other sectors.
The Dutch company has a close relationship with Microsoft, and persuaded Bill Gates to appear at Baan World in Denver in April. "Baan is a great ally for Microsoft," Gates said, adding that the software house?s knowledge of the enterprise had helped Microsoft create the "the building blocks necessary for a comprehensive digital nervous system?.
At the end of July, Baan announced major changes to its corporate management. Subject to confirmation, Jan Baan, the founder, resigned from the management board to become a member of the supervisory board; Paul Baan left the supervisory board to focus on Vanstar Ventures, a venture capital company; and Tom Tinsley, currently CEO and president, became chairman of the management board. Baan has ?dual headquarters? at Barneveld, Netherlands (previously Putten) and Reston, Virginia.
Oracle's approach to ERP - Oracle Financial Applications, more widely known as ?Financials? - forms part of its applications suite. Oracle's total application and related services business grew 58 per cent in the last financial year to $1.8 billion, and represents around 25 per cent of Oracle's revenue. ERP licence revenue is believed to be around $216 million, and flat at present because of reorganisation and the move from a client/server to a network-centric model for version 11.0. Oracle was an early contender with a Web enabled version of its Application Suite, so any business process supported by Oracle can be run over the Internet.
JD Edwards is evolving from a midrange software provider to an ERP supplier. The company is vigorously working with resellers and partners to extend its ERP business, and expects to double its ERP channel revenue from 20 to 40 per cent. ERP licence revenue was $76 million in the last reported quarter, up 49 per cent on the year earlier quarter.
A second tier of ERP vendors finds it hard to gain on the big four, but the growing marketplace offers niche opportunities. Marcam, which was once the leader for process and discrete manufacturing, split in 1997 and now concentrates on process industries, with the privately owned spin-off Mapics is concerned with discrete manufacturing applications. The Sage Group has made a major investment by buying State of the Art for $263 million. Infinium (formerly Software 2000) has expanded from human resources into financial and management applications.
Hewlett Packard is forming an ERP services group that it says will become operational at the end of September. Paul Chermack, US marketing manager for HP, said in an interview at ERP World: "We see the mid-market space ($250 million to $1.5 billion revenue) as the fastest growing market" for ERP, and added that HP would partner with companies like SAP and Baan with NT solutions.
Decision support has been gaining in importance. Since April, SAP has had Management Cockpit, a product that works with its Business Information Warehouse, and recently unveiled additional capabilities for strategic risk assessment and management planning. Oracle shipped its Business Intelligence System in May. Baan and Peoplesoft are known to be developing decision support applications that can analyse data in ERP systems. And Peoplesoft, through its acquisition of Intrepid Systems, is upgrading Decision Master Analysis, while Baan is expected to announce in October its Decision Support System.
There are opportunities for third party vendors in the decision support sector because of the need for software to be specialised for different kinds of manufacturing.
Two other trends affecting this sector are outsourcing and supply chain planning. ERP operation outsourcing is taking off slowly, but the need is growing quickly as enterprises find that they do not have sufficient inhouse experience after the disbandment of the implementation team. The Meta Group forecasts that the market size will be $8 billion in 2002 from less than $1 billion today, with an envisaged 10 per cent of sites outsourcing. SAP relies on partners to provide outsourcing at present, with HP having signed up more than a 100 sites. ERP outsourcing does not necessarily favour the major players like EDS and CSC, as the requirement is often very specialised.
Supply chain planning (SCP) developed from material requirements planning, originally separate from ERP, although SCP gets much of its data from ERP systems. The current trend is for ERP vendors to develop SCP solutions, often via Extranets that connect manufacturers to suppliers and retailers.
Whereas ERP creates an enterprise-wide transaction linked to a central accounting system, supply chain processing helps enterprises to respond to changes in demand and find better ways of manufacturing and distribution.
ERP implementations tend to take 18 to 48 months (although the trend is going down) with a payback period of two to five years, while SCP often takes around nine months with a payback in the six to 12 months region.
Reconciling what might be termed ERPware and Webware is the next billion dollar consulting/middleware market, Schrage suggests. It is still early days for assessing the impact of a fully functional Web deployment of an ERP suite across the enterprise, but the result could be compelling in terms of improving the key benefits of ERP - shorter times to market, reduced inventory and shortener replenishment cycles.
A consequence of ERP implementation, observed Robert Rodin of Marshall Industries, is that "today, business is not about me versus my competitor. It's about my supply chain versus your supply chain."
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