Assessing ERP software: improvements in ERP packages reduce trade-offs between integration and functionality and tip the scales in favor of scope and visibility

Frontline Solutions, August, 2004 by Brian Albright

When Ted Weinrich began serving as MIS manager at Larson Manufacturing Co. five years ago, the company was running a small enterprise resource planning (ERP) package that was not keeping up with the company's growth.

"It was filled with holes," Weinrich says. "There was no automation in place. We needed an integrated solution, and some system discipline."

Larson, based in Brookings, S.D., and the largest manufacturer of storm doors and windows in the U.S., not only needed software to help run its business, it also had to help manage its supply chain across three manufacturing locations, a mix of owned and leased distribution centers, and a private truck fleet that delivered to its retail customers.

Instead of working with a traditional supply chain execution or planning software vendor, Weinrich found the solution to his company's needs in PeopleSoft Enterprise.

"We wanted to get something integrated to manage the whole supply chain, instead of our managing all the integration touch points," Weinrich says.

Larson is not alone. ERP vendors are a bigger and bigger part of the supply chain management landscape. In the past, companies that specialized in supply chain planning, warehouse management and other applications were considered superior to the ERP-based marginal applications offered as part of enormous software suites.

But the supply chain modules of these enterprise software packages have gotten better, to the point that products from SAP, Oracle, and PeopleSoft now rank high in the supply chain software market, both in terms of market share and functionality. Midmarket enterprise software vendors, such as Ross Systems, Syspro, Epicor, QAD, and others, have also become one-stop shops for their customers' software needs. Microsoft has even brought new options to the low end of the market through its own recently acquired application software offerings.

But there are still trade-offs. Whereas enterprise software vendors offer a greater degree of integration with back- office applications, they can't be all things to all people. The more complex or industry specific the distribution center, the less compatible a warehouse management system from an ERP vendor might seem.

Strength in Integration

This pull between integrated and point solutions is even reflected within the customer's infrastructure, where management is hoping to simply marry the IT infrastructure with an integrated solution at the same time that operations managers are lobbying for point solutions with greater functionality.

"The C-level loves ERP-based supply chain management," says Steve Banker, service director for supply chain management at ARC. "The lower you go, the more people want best-of-breed solutions."

Most companies already have a pretty good idea of their preferences before the selection process even begins, says Jonathan Colehower, vice president of supply chain management at Oracle. "In reality, once you start asking them questions, most customers really do have an inkling of where they want to go on the basis of senior directives," he says.

Banker points out, however, that what ERP vendors may lack in discrete functions, they make up for in scope, visibility, and a holistic view of the supply chain.

"A best-of-breed node application doesn't always mean you've got a best-of-breed supply chain management system," Banker says. "You need a process that crosses a number of applications."

From that point of view, ERP vendors have a lot to offer by tying supply chain applications into such processes as financials, order management, promotions management, and master data management.

"The CIO's view of resisting any kind of bolt-on is a pervasive opinion that will allow SAP and Oracle to win contracts with only 60% to 75% of the capabilities," says Greg Aimi, director of supply chain research at AMR.

Even as the supply chain management market has shrunk with the economic downturn, ERP vendors' share of the pie has increased, in part because the software vendors have focused on improving their supply chain execution products--warehouse management, transportation management, etc.

The big losers so far have been supply chain planning vendors, such as i2 Technologies and Manugis-tics. ERP vendors have co-opted some of the high-level planning functionality, and execution applications are seen as better tools to reduce costs and improve service. According to AMR, the execution side of supply chain management grew 4% last year, whereas the planning segment shrank 10%.

SAP has put a strong emphasis on its 23 vertical industry business units. The company has developed functionality in its supply chain modules to cater to certain segments (supporting Kanban for automotive customers, for example). According to Johann Thalbauer, vice president of product management for supply chain at SAP, the company's focus has moved from just supporting the extended supply chain to enhancing what he calls sense and respond capabilities. "We're bringing supply chain planning and execution together for timely decision making," he says.