ERP vendors muscle into logistics

ERP vendors are targeting logistics applications for new sources of revenue. But can they compete with best-of-breed providers?

By Robert Spiegel -- Logistics Management, 4/1/2003

When you think of the top software packages for logistics or supply chain management, the first companies that come to mind aren't likely to be SAP, Oracle, or J.D. Edwards. Yet a few years from now, say some experts, these and other stalwarts of enterprise resource planning (ERP) could be among the biggest providers of logistics and supply chain solutions.

With the market for ERP systems saturated, the big vendors are eyeing all aspects of the supply chain market, which they describe as a natural extension of their existing business. In particular, they're aggressively moving into warehouse management systems (WMS) and transportation management systems (TMS). Still, say industry analysts, the ERP vendors lag a few years behind such "best-of-breed" or niche vendors as Manhattan Associates Inc. and EXE Technologies Inc. in warehouse management systems, or Global Technologies Inc. (G-Log) and RedPrairie Corp. in transportation management systems. But they also concede that ERP vendors are quickly catching up—so quickly, in fact, that Forrester Research Inc. of Cambridge, Mass., has predicted that by 2008 most of the supply chain market could belong to SAP, Oracle, IBM, and Microsoft.

ERP Giants Target Logistics

There's no question that the leading ERP vendors have been paying more attention to the supply chain market in the past couple of years. Both SAP AG of Walldorf, Germany, and Oracle Corp., the Redwood City, Calif., database giant, for example, have recently introduced or strengthened logistics products within their supply chain groups.

SAP continues to expand its transportation product offerings; its next release will integrate route scheduling and optimized vehicle scheduling into its basic ERP software, says Michael Maguire, vice president of supply chain solutions.

Customers' demands for a return on their investments in just three or four months have led the ERP giant to design its niche products for quick implementation, Maguire says. That's a change from the typical ERP implementation, but Maguire says that complexity has not been sacrificed in the interest of a quick installation. "It's not 'SAP light.' We haven't dumbed-down SAP," he insists.

At Oracle, meanwhile, the goal is to tie the company's WMS to its shipping capability and transportation management system, according to Jon Chorley, senior director for inventory and WMS products. The company also plans to release a transportation planning product next year, he notes. Once those pieces are in place, Chorley says, Oracle will have "a very broad logistics offering."

Of the two, SAP generally is regarded as having the market edge. "SAP and Oracle have both been successful at selling niche supply chain products," says Sunil Chopra, professor of operations management and information systems at Northwestern University's Kellogg School of Management in Chicago. "SAP, however, has been better at sustaining its sales because its supply chain products have in general performed better than Oracle's."

Oracle and SAP aren't the only ERP vendors offering logistics software packages. Denver-based J.D. Edwards and Company; Baan, the Dutch ERP company; and PeopleSoft Inc. of Pleasanton, Calif., all have offered logistic products for several years—and all are seeking to penetrate the logistics market more deeply.

Each is approaching that market from a different perspective. J.D. Edwards, for example, started out in the financial field. Since inventory was such a huge component of the assets it was managing for its clients, the company built an inventory management system, notes Bill Petersen, logistics product marketing manager. J.D. Edwards added warehouse management tools in 1995 and a transportation product in 1998. Both are optional modules that can be integrated with the financial system, Petersen says.

Baan's focus is on supply chain planning. It entered that market last year with the integration of software vendor CAPS Logistics into its supply chain management division, says Wilson Rothschild, director of product marketing at Baan SCM in Alpharetta, Ga. CAPS' product line was optimization-based, and the smaller company had started out in supply chain planning, he notes.

PeopleSoft's primary logistics product is warehouse management software, which the company launched more than two years ago, says Kevin Nanney, supply chain product strategy manager. The software's capabilities include order-capture systems, reservations, pick/ship, and inventory management. It also can handle such functions as labor-efficiency management, optimization, slotting, and "pegging" of production against sales orders and purchase orders, he adds.

ERP vendors are keeping an eye on Microsoft of Redmond, Wash., which also has begun offering WMS and transportation products. For now, Microsoft is focusing on the middle market, so it isn't competing head-to-head with the big ERP vendors. "Our sweet spot is companies under $250 million in annual revenue," confirms Mitch Leistein, industry product manager at Microsoft Business Solutions in Fargo, N.D. "We're working with companies that may not have a fully fleshed-out ERP." That situation could soon change, though: Analysts expect the company to grab a toe-hold in the low end of the market and then move upstream to larger enterprises.

Not Yet a Threat?

Not surprisingly, niche vendors are unhappy that the ERP giants are invading their territory. They say ERP companies have created logistics applications solely to sell new products to a market that's finished with buying enterprise software. "The ERP market is completely saturated," says Jay Mitchell, director of marketing at WorldChain Inc. in Fremont, Calif. "The new revenue comes from extending their execution footprint. So they sell a warehouse management system."

PeopleSoft's Nanney counters that his company doesn't intend to compete directly with best-of-breed vendors. "We'll add some light transportation needs, load selection, carrier selection, but we won't get into the full transportation like a G-Log or RedPrairie," he says. "I don't think we would consider ourselves competitive with Manhattan for WMS or G-Log for transportation." But not every vendor is taking that view. Chorley, for one, says Oracle wants to develop a best-of-breed product that can handle high-volume distribution.

Whatever their objectives, the big ERP companies have at least one competitive advantage over best-of-breed vendors: With software installations numbering in the thousands, they have a ready-made customer base. In fact, says Northwestern's Chopra, their expansion into logistics products has rarely attracted new customers. Instead, ERP vendors are largely selling new products to old customers.

Ease of integration with ERP systems is a big attraction for existing customers. "ERP vendors are gaining traction because a lot of the users have already invested in the big players and they prefer to keep their application streamlined rather than going to smaller vendors with integration issues," says Noha Tohamy, a supply chain and logistics analyst at Forrester Research. Best-of-breed providers, who say they know more than a little about software integration, disagree. WorldChain's Mitchell, for one, charges that some of the largest ERP vendors are raising false expectations about the ease of integration of their logistics products.

ERP companies, many of which are large enterprises with broad installation bases and deep pockets, also are seeking sales by reassuring customers that they have a secure future. "Customers want someone they can count on five years from now," says SAP's Maguire.

Niche vendors, meanwhile, contend that their products alone have the necessary depth to drive logistics operations. Indeed, analysts generally agree that the ERP vendors still trail behind niche vendors when it comes to warehouse and transportation functionality. That advantage may not last much longer, though. "Probably given enough time, ERP companies could do some damage to the pure WMS vendors, but not in the near future," says Ravi Madala, managing principal with Keogh Consulting Inc. of Brecksville, Ohio. "But ERP vendors have the financial backing they need for development, and in the next five years they may catch up."

ERP vendors are confident they will soon be able to do just that. "...[T]here is only so much functionality you can build into a warehouse system," says Petersen of J.D. Edwards. "They're coming to the end of their rope. Not only are we catching up, we're reaching parity."

Editor's note: For more on ERP vendors' current and future strategies, see "What Will Drive the Enterprise Software Shakeout?" by Sunil Chopra and Peter Meindl in the January/February issue of Logistics Management's sister publication, Supply Chain Management Review.

Author Information

Robert Spiegel is a freelance writer specializing in technology and the electronics industry.

Why Avnet picked a niche vendor

When it came time for Avnet Inc. to choose a warehouse management system, the company could have had its pick of dozens of established vendors. The Phoenix-based company—the largest distributor of electronic components in the United States—was using more than a dozen systems thanks to a series of mergers and acquisitions in the 1990s, says Jim Smith, senior vice president of operations.

A number of factors were considered during the selection process. For one thing, the chosen WMS had to possess enough scale to handle all of Avnet's North American operations. The company stocks more than 80,000 SKUs, and its Chandler, Ariz., warehouse alone ships 9,000 orders per day. Many of the company's products require assembly, processing, and even programming before they can move out to customers, so the selected system would have to offer visibility into all of those areas. Smith also wanted a system that was flexible enough to accommodate a very unpredictable workload. "When we first get here in the morning, we have no idea what 80 percent our daily activity is going to be. It's very dynamic," he says.

Smith evaluated the various enterprise resource planning (ERP) products that were already in use at different Avnet facilities. He also looked at a number of new products. "One of the larger guys had a nice module with a WMS and manifesting systems, but once you peeled back the onion they didn't even have a bar-code system," Smith recalls. That offering also did not provide visibility into the supply chain, he adds.

In the end, the company chose a WMS from Optum Inc. of White Plains, N.Y., a niche vendor. Avnet took the unusual step of adapting its internal processes to Optum's software rather than customizing the software to fit its operations.

The reasons were two-fold. For one thing, Smith trusted that Optum's system was modeled after customers' best practices. "The specialty software companies are always looking to improve their products, and they're going to take the best practices from their customers and build them into the programs," he says. Additionally, Avnet wanted to be able to easily upgrade the Optum system, which would be more difficult with customization. "If you have a core WMS system in a standard release," Smith says, "there is nothing wrong with building on niche software to address your system."