Supply Chain and Logistics Technology: ERP has arrived

As the engines that run organizations’ finance, human resources, distribution, manufacturing, sales, and service functions, enterprise resource planning (ERP) solutions have been expanding to include more supply chain management functions. Companies like SAP, Oracle, Infor, and Microsoft, for example, have been steadily acquiring and building out their own technology to support their customers’ warehouse management (WMS), transportation management (TMS), labor management (LMS), and supply chain planning processes.

As a result, best-of-breed players in these supply chain management sectors have suddenly found themselves going head-to-head with some of the software industry’s largest, most dynamic organizations. In the meantime, many analysts say that the dividing line between best-of-breed software platforms and the “good enough” options that most ERPs have offered up is dissolving.

“I’d go as far as saying that the lines between these two domains continues to become more and more transparent,” says Tom Cassell, vice president of the North American SAP/SCM practice at consulting firm Capgemini. “That’s been evolving over the last several years, with overall technological advancements and the use of in-memory processing systems that make is easier to expand large, ERP-type solutions being two of the driving factors.”

The cloud is also making a significant impact on the large ERP provider’s ability to “add” robust supply chain software capabilities to its existing functionalities. “When you can deliver software easily over a vehicle like the cloud, it tends to help unite ERP and supply chain,” says Cassell, who works with a number of shippers that want an ERP that can provide full supply chain management functionality.

Over the next few pages we’ll explore the inroads being made by the large ERP providers in the supply chain management software space, focus on the key challenges that are holding this trend back, and share where analysts believe the big EPR providers may be heading inside this realm.

Blending two worlds
Defined by Gartner as “the ability to deliver an integrated suite of business applications,” ERP applications automate and support a range of administrative and operational business processes across multiple industries, including line of business, customer-facing, administrative, and the asset management aspects of an enterprise. Supply chain management (SCM) applications support management and movement of raw materials, work-in-process inventory, and finished goods from the point of origin to the final destination. 

According to Dwight Klappich, research vice president for Gartner, the “blurring” of the lines between ERP and SCM is a logical progression in the ongoing maturity of both types of software. “Big vendors like SAP, Oracle, and Infor have figured out that there are areas where they can invest in their businesses and develop solutions horizontally across their solution sets,” he says. “That’s actually putting them ahead of some of the best-of-breed vendors—particularly in areas like mobile technology and analytics.”

Klappich points to SAP’s HANA as one example of how a large ERP provider is making inroads in the supply chain management arena. HANA is an in-memory database technology that can provide instantaneous results from transactional data.

The system can look at performance over a given time period for a particular task and utilize predictive analytics to forecast how well the task will be executed over the next shift or time period. According to Klappich, this differs from the “after the fact,” descriptive analytic manner in which best-in-breed vendors typically handle functions like labor reporting.

“Now here’s SAP pushing forward and providing something that says: ‘Hey, I can look at my work today, tomorrow, this week, or next quarter,” says Klappich, “and then bring in a forecasting element to try to figure out what my labor requirements are going to be.’”

This functionality is especially useful for companies that work in seasonal or cyclical businesses and helps them to answer questions like: Do I need more people? Do I need to add more shifts on Thursday or Friday to get out in front of the weekend push? Or, should I balance the shifts and human resources across the week?

Klappich says that the ERPs also have an advantage when it comes to user interfaces, and the ability to add new features—such as mobile capabilities—to their SCM menus.

“Oracle is taking advantage of its Endeca acquisition,” he says, referring to the provider of unstructured data management, web commerce, and business intelligence solutions the company brought on board back in 2011. “That has helped it leap ahead on the user interface by simplifying that interface and providing richer search and navigation techniques than your traditional ‘slap a bunch of tables up on a screen and let’s just scroll through them’ approach.”

Even with those bells and whistles working in their favor, the large ERP players still “lack the overall depth and breadth for the largest and most complex facilities,” says Klappich, who is bullish on the ERPs’ ability to continue improving and enhancing their SCM offerings. “They continue to enhance their applications, add new capabilities, and, in some cases, take a step ahead of the best-of-breed vendors.”

ERP is here
Rewind just 10 years and you’d be challenged to find a shipper that didn’t need some sort of best-of-breed supply chain management software to handle its warehousing, transportation, yard, labor, supply chain planning, or global trade operations. The environment is decidedly different today, with all of the ERPs making inroads in the previously uncharted waters of SCM.

“We’re seeing a lot more acceptance of larger ERP providers that have solutions in this space,” says Cassell, “And while these new solutions don’t always match up with what some of the best-of-breed vendors offer, in nearly all cases the former are ‘good enough’ in terms of native integration, total cost of ownership, and other criteria.”

Pointing to WMS, TMS, and planning as top three supply chain functions that the ERP providers are targeting, Cassell also sees opportunity for those providers in the GTM space as well. “Given the state of international business, it’s becoming more and more of a requirement for larger providers to have that capability,” he says. “Similar to WMS and TMS, these ERP-based GTMs may not have everything, but they do serve as viable alternatives for many shippers.”

On the WMS side, Clint Reiser, research analyst with ARC Advisory Group, says that SAP is making some inroads with its EWM (extended warehouse management) solution. In some cases, he says that shippers are drawn to the large vendor’s EWM platform because it’s often offered at a discounted cost to current SAP users, and an IT team may already be knowledgeable about SAP and able to handle the associated integration, installation, and support.

“If a company already has an SAP background, it may want to just stick with one vendor,” says Reiser, who sees ERP-based WMS gaining traction at the fastest rate in Europe. For the most part, he says corporate IT departments—versus the logistics managers themselves—seem to be taking the biggest interest in ERP-based SCM applications. “It’s not cut and dry,” says Reiser, “but very often it’s the operational side of the business that pushes for best-of-breed.”

BofB vs. ERP
Steve Banker, ARC’s director of supply chain, says that while a dividing line between ERP-based SCM applications and those developed by best-of-breed providers does still exist, it tends to be most prevalent in the context of large, complex distribution centers that need full-blown WMS, TMS, labor, and other solutions.

“The best-of-breeds still tend to win those larger deals,” says Banker, who sees the most activity on the ERP side taking place with smaller shippers. “Arguably,” he points out, “some of the ERP providers have better solutions for ‘warehouses attached to a manufacturing plant’ than the best-of-breeds do.”

On the TMS side, Banker points to Oracle OTM as one example of how a larger ERP provider can provide “one of the richest solutions on the market, feature and function-wise.” This rising tide, he adds, seems to have lifted a number of other ERP players that have integrated TMS into their offerings and helped them win larger, more complex deals.

“If you’re talking really big, complex, heavy-freight spend kind of solutions, I would expect to see both Oracle and best-of-breed players like JDA involved in the deal,” says Banker, who also sees supply chain planning solutions—both at the distribution and inventory levels—continuing to be folded into the typical ERP offering. “Oracle is one vendor that went out and acquired a best-of-breed demand planner and is now strong in that area,” he adds.

Looking ahead, Banker expects a continued shift over to cloud-based solutions and an ongoing argument over whether a shipper needs a best-of-breed SCM solution—or if an ERP-based option is more economical, easier to integrate, and offers enough functionality to cover all of the bases.

“Our forecasting for pretty much all enterprise-class solutions is predicting heavy cloud uptake, even by the ERP vendors that have been a little bit slower to get there,” says Banker. “On the SCM side, the same argument will continue. The best-of-breed folks will say that you should buy a best-of-breed supply chain platform and layer it right on top of an ERP, and the ERP folks will continue to argue that the total cost to operate their solutions is much lower if you buy the SCM software from them.”