ERP vendors ride the supply wagon

In the early 1980s the minicomputer makers were seen as theiel points out that there is more to re-engineering the supply chain than buying in complex software. industry’s great survivors, continually reinventing themselves even as market changes threatened to kill their traditional business. Now most of them have disappeared, and the survivor’s crown is undoubtedly taken by the ERP vendors, who are proving more adept than any other sector at altering their strategies and jumping on new bandwagons to stay in – usually very healthy – profit.

For anyone who is not sure what ERP is, it used to be called business applications, until its suppliers realised that there’s nothing like a good acronym to get profile in the IT world. So the financial, manufacturing, distribution and personnel packages that the software houses offered became CIM (computer integrated manufacturing), ERMS (efficient response manufacturing systems), ERP (enterprise resource planning), and most recently SCMS (supply chain management systems).

All exist to keep the basic functions of a business running but their market has become increasingly cut throat. The main vendors – the likes of SAP, Baan, Peoplesoft and the management consultancies that keep them alive – have turned to integration and ever larger and more complex systems to compete. They are constantly looking for a new module to add to their gigantic systems, and in 1999 the software strategy to be seen with is certainly supply chain management.

Of course, manufacturers have been talking about improving supply chain management for years, by using better communications with their suppliers, distributors and customers to ensure the right goods get from raw materials to the right consumer as quickly and cheaply as possible. And the likes of Baan are in a good position to help, since their software covers most aspects of that chain, and they tend to work closely with the consultancies, which in turn are re-engineering their clients’ businesses to improve the chain.

But now the software houses have gone into overdrive, driven by the threat of recession and the fear that their customers will put off major implementations as they focus on the millennium and Euro conversion projects. So the software houses are desperately trying to convince their customers that without a clean, efficient supply chain, they might as well not bother fixing the date and currency changes at all.

There are problems with this though. One is that re-engineering the supply chain is not primarily about new software but involves a complete rethink of the business. It entails a cultural shift, a rewrite of manufacturing and delivery schedules, new methods of communicating and sharing information with partners, and so on. All this cannot be achieved overnight and any business that believes buying a complex piece of software will take the place of months or years of planning and adapting will be bitterly disappointed.

Second, the software houses are torn between their big ticket products, which can help achieve a corporate re-engineering but at the cost of years of implementation, and the rising demand from medium-sized businesses for quick and dirty solutions that can be started up on a small Unix server in a couple of weeks. Both groups may be keen to improve their supply chains, but the former are increasingly disillusioned with long implementation times, while the latter do not have the spending power for such complex software.

Caught in the middle, and pining wistfully for the days when massive, expensive mainframe applications were the only option, the ERP suppliers are preaching integration – a mix and match approach where companies buy and clip together modules as required. They have all been on buying sprees recently to offer new functionality, with specialised supply chain companies the top target.

But in turn, this causes problems of moulding a coherent, integrated product set from multifarious packages acquired through different takeovers and partnerships. Analysts have particularly criticised Baan lately for failing to bring order out of the chaos of its rash of new products – and some users are starting to think fondly of SAP with its big bang approach, with each module closely tied to the other and most development done in house.

And the whole point of a good supply chain is integration. If users cannot get their software working easily together, what hope for their partners and customers?

Supply chain management is a fine phrase, but the ERP vendors will have to work harder on integration, and focus on the business impact of a new approach to distribution, before they manage to create a genuine new market from all the hype they are generating.