Logistics Technology: State of ERP/To plug or not to plug
ERPs have made a strong push into the SCM space, which begs the question of whether shippers are better off purchasing their WMS and TMS from their company-wide software provider or a best-of-breed player. Here are some steps to help shippers arrive at the best decision.
By Bridget McCrea, Contributing Editor -- Logistics Management, 7/1/2009
The Enterprise Resource Planning (ERP) community faced its share of challenges in 2008, but is already off to a good start this year. Comprised of vendors that offer company-wide computer software systems used to manage and coordinate all the resources, information, and functions of a business from shared data stores, the sector grew its top-line revenues in 2008 to $35.8 billion, compared to $34.4 billion the year before.
“The first half of the year was relatively strong,” says Jim Shepherd, senior vice president at AMR Research, “with maintenance revenue proving extremely valuable during the height of the economic turmoil.”
As the ERP vendors buy and build deep industry functionality in areas like supply chain management (SCM), Shepherd says their available market continues to expand with the concept of a single vendor, pre-integrated suite of packaged business applications gaining popularity in non-manufacturing markets such as retail, financial services, and the public sector.
“ERP vendors are now the leaders in supply chain management software as well,” says Shepherd. “Through a combination of internal development and acquisition, they've wound up as the revenue leaders in SCM and a number of other markets, including CRM and human resources.”
Shepherd, who estimates that the ERP sector has grown at a rate of 8.1 percent annually over the last 10 years, says vendors continue to move from offering single, internally developed product lines to providing a broad portfolio of products targeted at specific industry and departmental buyers, supply chain professionals included. Oracle and SAP dominate the market among large global companies, while competition for small to midsized customers continues to intensify among vendors like Infor, Epicor, QAD, CDC Software, Microsoft, and Lawson.
The fact that the ERPs have made such a strong push into the SCM space begs the question of whether shippers are better off purchasing their WMS and TMS from their company-wide software provider, or if they would benefit more with a best-of-breed player that specializes in SCM. Over the next few pages, we'll help shippers make that decision, and hear from a shipper who is happy with its decision to have its ERP handle the company's supply chain operations.
Making the comparison
Dwight Klappich doesn't necessarily want 22-inch woofers in his car, nor does he need the most expensive stereo system; but he does want to be able to tune into his favorite station—or, plug in his iPod—and listen while driving. “I really don't need the best,” says Klappich, research vice president at Gartner. “I just need good enough.”
The same concept applies in the SCM space, says Klappich, where “good enough” works for some shippers, but not all. “There's always going to be a market where the level of sophistication and complexity of business process dictates a need for a more robust TMS or WMS, as offered by best-of-breed vendors,” says Klappich. “For everyone else, the ERP options will be suitable.” To figure out which side of the fence your company stands on, Shepherd says to consider whether your current ERP vendor offers a supply chain application that satisfies your firm's requirements. “If the answer is yes,” he says, “then it will be easier and less expensive over the long haul to use your ERP's application, namely because you eliminate the expense associated with integration.”
Take WMS for example. Such systems generally require a large amount of integration with the firm's accounting systems. Purchase a best-of-breed software solution, says Shepherd, and you could find yourself spending an inordinate amount of time and money on making that integration happen. But buy the application being offered by your ERP, he explains, and you can eliminate that expense because the WMS will already be fully integrated with your ERP's accounting system.”
Where best-of-breed SCM players tend to shine is in meeting specialized requirements of specific shippers. Knowing that, Shepherd advises companies to consider whether their ERP vendors offer those specialized functionalities, particularly those that are developed specifically for logistics providers. “ERPs were developed for manufacturers, and were later expanded to address other industries,” says Shepherd. “If the ERP vendor doesn't satisfy those specialized needs, then it will probably make sense to use a third-party product.”
Before making the decision between an ERP-developed SCM application and one offered by a third party, Adrian Gonzalez, director of Boston-based ARC Advisory Group's Logistics Executive Council, says shippers should consider the problem that needs to be solved and the business process that needs to be streamlined via technology. “Talk to your operations and IT people,” says Gonzalez. “Evaluate different providers, and pick the vendor and solution that meets your criteria. In some cases it will be a firm that specializes in SCM solutions, and in other cases the scales may tip toward your ERP provider.”
Powering up
Founded in 1959, Generac Power Systems of Waukesha, Wis., prides itself in being able to respond quickly when a residential, commercial, or industrial customer's power goes out. It was the first company to engineer affordable, home standby generators, and also the first to develop an engine specifically for the rigors of generator use.
Up until three years ago, Generac's shipping strategy centered on sending out product to its powerless customers as the orders came in. Hurricane season, for example, often found the firm scrambling to fill orders from frantic, power-less customers in Florida. “There was almost no transportation planning involved whatsoever,” says Brian Randleman, the company's logistics manager. “We were an execution-type company: if we had a product, we shipped it out.”
That changed in 2006 when Generac began shopping around for a WMS and TMS. Already using an ERP system from Infor, the company “decided that the ERP itself wasn't managing our supply chain requirements,” says Randleman, who developed a list of Generac's business and functional requirements before considering solutions from six different WMS and TMS vendors.
Generac, which was shipping from three plants via LTL and some flatbed carriers, had a few goals in mind for its new supply chain system. For starters, Randleman says the company was looking to participate in a “pool-based” transportation system, which finds different shippers “filling” a trailer as a group, rather than using LTL shipments individually. A new finished goods DC using the WMS would execute this new strategy, and nearly 80 percent of all shipments would originate there now. To participate, Generac required a TMS system that could track its loads from the warehouse to final delivery.
Generac found the answer in the SCM solutions offered by its existing ERP vendor. “Not only did we already have a relationship with Infor, but its WMS and TMS offerings met our supply chain requirements,” says Randleman.
Once the TMS and WMS were in place, Generac had to switch from 47 years of a “ship it as the orders come in” mentality, to a planning-based approach. As a result, the company has been able to reduce its manpower needs in the warehouse and improve its fill rates, inventory control, and customer satisfaction ratings. On-time ship rates are now over 90 percent—up from 35 to 40 percent three years ago. Generac has also moved from a “fill everything as soon as possible” strategy to a more optimized approach. “Just because we get an order today doesn't necessarily mean we have to ship it today,” says Randleman. “Using our supply chain solutions, we can optimize our logistics to achieve the best possible savings while still meeting customer demands.”
In the warehouse, Generac has equipped workers with scanners that allow one person to receive and put away products with a single action. “We can also do inventory cycle counting that we couldn't do before, so we know where the product is at all times,” explains Randleman “We now have all of the functionality that we need to operate our business efficiently, while providing our customers with the best product as quickly as possible.”
What's to come?
As the ERPs make their way through 2009, expect to see their SCM offerings strengthen. “The ERPs continue to make investments and inroads in this space,” says Brad Wyland, senior research analyst at Aberdeen Group in Boston. “The theory being that the ERPs have their customers handcuffed, so they might as well expand outside of their traditional footprints to bring in more business.”
But don't expect the best-of-breed players to stand by and watch the behemoths take over their space.
“ERPs are facing a lot of pressure from the vendors that specialize in the SCM space,” says Wyland. “In fact, the best-of-breeds continue to be easier to integrate than they were in the past, and are more viable that they've ever been.”
The ERP market as a whole will continue to face challenges in 2009, according to Shepherd, who says that the annual growth rate of 8.1 percent will inevitably result in pent-up demand. “Existing implementations will be getting even older, calling into question the need for replacement, and deferred upgrades will need consideration,” says Shepherd.
“Given their strong maintenance bases, and the fact that they have already been through the pain of cutbacks, the current fraternity of ERP vendors will likely be around to benefit.”
| 2007 Revenue Rank | Company | Total Company Application Revenue 2007 ($M) | Enterprise Mgmt. and Other ($M) | Human Capital Mgmt. ($M) | Supply Chain Mgmt. ($M) | Product Lifecycle Mgmt. ($M) | Customer Mgmt. ($M) | Supply Mgmt. ($M) |
| Source: AMR Research, 2008 | ||||||||
| 1 | SAP | 14,033 | 7,612 | 1,842 | 842 | 495 | 2,722 | 520 |
| 2 | Oracle | 7,853 | 3,183 | 1,649 | 656 | 117 | 1,916 | 332 |
| 3 | Sage Group | 2,315 | 1,783 | 301 | 46 | 0 | 185 | 0 |
| 4 | Infor | 2,208 | 1,811 | 110 | 177 | 22 | 66 | 22 |
| 5 | Microsoft | 1,215 | 661 | 109 | 85 | 0 | 360 | 0 |
| 6 | Lawson | 810 | 429 | 146 | 105 | 32 | 0 | 97 |
| 7 | Agresso NV | 505 | 313 | 88 | 53 | 0 | 12 | 40 |
| 8 | Epicor | 430 | 232 | 26 | 120 | 4 | 34 | 13 |
| 9 | Cegid | 362 | 344 | 18 | 0 | 0 | 0 | 0 |
| 10 | IFS | 353 | 145 | 21 | 46 | 78 | 28 | 35 |
| 11 | Exact Software | 328 | 328 | 0 | 0 | 0 | 0 | 0 |
| 12 | Activant | 295 | 93 | 0 | 116 | 0 | 87 | 0 |
| 13 | Deltek Systems | 278 | 211 | 50 | 0 | 0 | 17 | 0 |
| 14 | QAD | 263 | 188 | 0 | 62 | 0 | 13 | 1 |
| 15 | CDC Software | 245 | 122 | 0 | 61 | 0 | 61 | 0 |
| 16 | Glovia | 212 | 165 | 11 | 9 | 0 | 28 | 0 |
| Subtotal | 31,705 | 17,619 | 4,371 | 2,377 | 749 | 5,529 | 1,060 | |
| Other ERP Vendors | 2,664 | 1,026 | 440 | 373 | 8 | 743 | 74 | |
| Total | 34,369 | 18,645 | 4,812 | 2,750 | 756 | 6,272 | 1,134 | |
| Application Segment | Revenue 2007 ($M) | Revenue 2008 ($M) | Revenue 2009 ($M) | Revenue 2010 ($M) | Revenue 2011 ($M) | Revenue 2012 ($M) | Five-Year CAGR |
| Source: AMR Research, 2008 * Formerly Sourcing and Procurement | |||||||
| Core ERP | 19,556 | 20,677 | 22,115 | 23,727 | 26,099 | 28,709 | 8% |
| Human Capital Management | 4,812 | 5,722 | 6,295 | 7,386 | 8,124 | 8,937 | 13% |
| Supply Chain Management | 2,750 | 3,243 | 3,777 | 4,154 | 4,570 | 5,027 | 13% |
| Product Lifecycle Management | 619 | 763 | 839 | 923 | 1016 | 1,117 | 13% |
| Customer Management | 5,499 | 6,485 | 7,554 | 8,447 | 9,292 | 10,221 | 13% |
| Supply Management* | 1,134 | 1,259 | 1,385 | 1,523 | 1,676 | 1,843 | 10% |
| Total | 34,369 | 38,150 | 41,965 | 46,161 | 50,777 | 55,855 | 10% |
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To date, our experience has proven that enterprise ERP provider solutions still lag behind the "best of breed" providers in TMS and WMS. Many of the providers listed in the article have made large TMS and WMS acquisitions and attempted to integrate the acquired companies into their expensive enterprise packages with varied degrees of success. When potential customers lay side by side the features and costs of enterprise systems with "best of breed" WMS and TMS offerings, they are surprised that they do not see the economies of scale and/or rich features promised by the large ERP vendors and the integration issues are still there.
Ari Smith - 2009-30-7 14:38:00 EDT -
I have to disagree with Jim Shepard's assumption that buying a TMS or WMS from an ERP vendor implies integration exists. Having worked on that very issue for some of the ERP vendords listed, I can say from 1st hand experience that is not always the case. The vendor's tell a good story but once you look at the level of integration achieved, many companies will be disappointed by the work remaining to get a completely integrated solution.
Rodney Gifford - 2009-30-7 13:27:00 EDT -
WMS and TMS systems do not integrate with accounting systems from ERPs. If that was true, the integration would be more complex. But in fact, WMS and TMS integrate with ERPs through Inventory, Purchasing, and Order Management modules, which themselves integrate to accounting/finance. WMS and TMS basically integrate the same way that a company would setup their EDI integration, with 850's, 856's, etc. So if you're doing it once with EDI, just point the same feeds to WMS and TMS, no problem.
In my experience, some companies have trouble getting their ERP-based CRM module integrated well with the ERP module, and both are provided by the same ERP vendor.
Marty Johns - 2009-7-7 13:18:00 EDT
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