Lilly Software - Product Enhancements Remain Its Order 'Du Jour' Part Two: Market Impact

Market Impact

In the final quarter of 2002, Lilly Software Associates Inc. (LSA) (, a privately held enterprise applications provider for small and medium sized manufacturing and distribution enterprises, made a number of announcements of enhancements to its product line. The details are covered in Part One of this note. This part discusses the Market Impact of those announcements.

Having achieved within its first decade of existence much more (e.g., over 3,000 customers worldwide) than many of its more visible, publicly-traded and much longer present competitors, Lilly Software has so far done many things right. Total revenues for 2002 are expected to be ~$41 million, which might be flat compared to 2001 and down compared to 2000's ~$45 million, but the company has been maintaining, since its inception, at least a 10% profit margin. Moreover, given that its above-estimated revenue consists only of a pure license revenue with a smaller portion of maintenance revenue, its continued solid performance (i.e., over 200 new customers in 2002), with even a small license revenues growth is in a real contrast to many competitors' results (even those of bigger vendors) who have been riding lately mostly on increased service revenue. To that end, given all other implementation and associated service revenues (i.e., installation and implementation support, project planning and management, classroom and on-site training, and ongoing consulting services) are attributable to its network of loyal, exclusive value added resellers (VARs) that remain independent legal entities, LSA-induced compound revenue would go close to $80 million. Lilly Software Associates as a whole has approximately 500 employees worldwide, including the associate organizations (sales & service) and the corporate office that has 185 employees. The vendor is nowadays represented in 30 countries.

While not repeating the growth of the golden late 90s, Lilly nevertheless remains profitable and without long-term debt. It continues to invest uncompromisingly in R&D, and consequently espouses a convincing broad but compact product portfolio for its target market. After a decade of serving the small-to-medium end of the discrete manufacturing market with one of the first Windows-based manufacturing software solution's with an intuitive graphical metaphor (thus the VISUAL product name association), Lilly has a good grasp of what these enterprises are looking for reasonable pricing, software solutions that return results quickly, and rapid implementation timeframes.

This is Part Two a four-part note.

Part One covered recent announcements.

Part Three will be a Competitive Analysis.

Part Four will discuss Challenges and make User Recommendations.

Lilly's Differentiators

Even within the heartland of manufacturing business software for small-to-medium enterprises (SMEs), one could also note two of the original factors that differentiate Lilly from among several dozens of like vendors 1) its focus on 'to-order' discrete manufacturing, and 2) its considerable embracement of Theory of Constraints (TOC)-based advanced planning & scheduling (APS) concept on top of a deep core-ERP manufacturing functionality. Thus, LSA's VISUAL Enterprise suite is a shop floor oriented extended-ERP system with embedded finite scheduling and constraints management in mind. Its VISUAL APS module, which is based on concurrent scheduling of materials and capacity, was patented with the US Patents in 1998 (i.e., US Patent No. 5,787,000). The product suite also features strong built-in manufacturing execution system (MES) capabilities and VISUAL Quality, a quality management system (QMS).

Another notable difference with VISUAL suite is the ability to use metrics and tools not found in almost any other ERP system to manage throughput in an orderly way to increase customer service and profit on a period-by-period basis. Consequently, with its often self-explanatory graphical screens, the VISUAL Enterprise suite should enable companies to capture accurate, near real-time data about their plant-level business processes using ERP, APS, MES, Quality Management, Customer Relationship Management (CRM), E-Business Relationship Management (ERM), and Warehouse Management System (WMS) capabilities. This is an indeed impressively broad range of homegrown software coming from a relatively small newcomer software vendor, but with an indisputable domain expertise and true entrepreneurial spirit.

Again, with its VISUAL APS module, Lilly had long embraced the concept of finite scheduling, which means the software assumes that plant capacity is finite, as opposed to the traditional material requirements planning (MRP) systems, which would always assume infinite capacity. These solutions should also be able to surmount potential bottlenecks of various origins, even when they shift within the plant as a result of ever-changing production mix or other factors. Constraints addressed in finite scheduling typically include machine and labor capacity, the order or sequence of operations, and material availability and resource issues (for more info, see Advanced Planning and Scheduling: A Critical Part of Customer Fulfillment).

Further, finite scheduling packages also typically establish buffers of time and/or materials so that work proceeds at an even and efficient pace through the plant. To that end, Lilly has long been offering finite scheduling software that supports the widely accepted Theory of Constraints (TOC), which, authored by Eliyahu M. Goldratt in his proverbial blockbuster novels, urges that plants should be scheduled so that work centers are paced around each plant's key constraints (i.e., bottlenecks), thereby ensuring that some areas are not starved for work, while work piles up in front of others. Using time buffers to accommodate occurrences, such as last-minute customer requests, unreliable vendors, and absent employees, the system should ensure customers receive products on-time.

To that end, recently released VISUAL DBR (Drum-Buffer-Rope) module is an extension of VISUAL APS with added buffer management, in which manufacturing users are invited to transform themselves using the methodologies and which is supporting Lilly's professed risk-reward sharing opportunity. When implementing DBR and TIP concepts, companies reportedly must agree to fundamentally change their business operations at least.

Rather than try to maximize the use of many resources, VISUAL DBR typically maximizes the use of the single, most heavily-loaded resource, so called CCR (Capacity Constrained Resource). The schedule for the CCR resource is then called the Drum' because it determines the rate at which product flows through the shop. Rope' is the "pull" technique, similar to kanban or just-in-time (JIT) concept, for releasing material onto the shop floor. Drum-Buffer-Rope is a TOC approach for regulating the flow of work-in-process (WIP) at, or near, the full capacity of currently the most restricted resource in the manufacturing chain. To that end, companies should never release material before the earliest calculated material requirements date, and they should release only enough material to match product flow.

Cross-Industry Enhancements

Not resting at its laurels, Lilly also continued to add cross-industry enhancements within VISUAL Enterprise Version 6.2, resulting with many beneficial tools to help automate business processes and streamline workflow. For instance, VISUAL Manufacturing now includes the much anticipated MRP by Warehouse' capabilities, which should allow companies to set different planning policies for individual warehouses by individual part number. There is also a new VISUAL Plant Maintenance module, which should help an enterprise schedule and manage planned and unplanned maintenance activities, while VISUAL DesignLink now supports AutoCAD.

Lilly has also developed a new Order Management window that makes it easier to check product availability, and has added improved sorting, linking, and efficiency factors to the Scheduling Window and the Common Sense Throughput Window. Committed to addressing customer needs, Lilly Software has included a variety of user-requested convenience enhancements including the ability to access a part's purchase history from Part Maintenance, auto-browse functionality for non-key fields, and the ability to update the estimated costs in an Engineering Master with actual costs from a work order, to name some.


Moreover, the relative recent product addition (since April 2000) has been VISUAL CRM, which supports marketing campaigns, sales force automation (SFA) tools, product configurator, call center, field service, and customer service functions, and it is fully integrated with the rest of the VISUAL Enterprise components. While one can refer to those as basic CRM functions, the SME market should appreciate the native integration of as needed' functionality, that is now being expanded throughout the supply chain. Allowing companies to integrate data about accounts, contacts, sales opportunities, quotes, service orders, help desk calls, and tasks, VISUAL CRM is a compelling addition to the VISUAL Enterprise suite, and it has apparently been a strong revenue contributor. The suite also features an e-commerce module named VISUAL eBusiness with both buy and sell side functionality.

The real strength of VISUAL suite is its integration across all the functions of a manufacturing enterprise from design, via sell, make, distribute, to after-sales service. The fact that most of LSA's applications have been developed in-house, instead of through multiple acquisitions, might be a significant differentiator in the areas of product consistency and interdependent integration. To that end, Visual CRM and Visual eBusiness are not sold as stand-alone applications to interface with other alien' ERP systems rather they are locked into the rest of VISUAL portfolio, which delivers considerable benefits in terms of data pervasiveness and access to information.

The market has long realized that CRM systems not only require integration with ERP systems to reconcile data such as customer master data, but also the bigger issue of integrated inter- and intra-enterprise business processes. For make-to-order (MTO) products, the overall process starts with capturing customer requirements at the front end that can be dynamically converted into work orders, routings, and other procedures via product configuration engines. The traditional use of CRM software, which initially had to do with sales opportunity management, contact management, and tracking the customer database, and then grew into the area of post-sale customer-support activities, has meanwhile produced many natural integration points from CRM and ERP all the way down to the shop floor.

The fact has long been that several Lilly peers mainly partner for CRM and/or APS capabilities, rather than having built their own software, giving Lilly a deeper level of native integration that cannot be obtained via third-party partnerships or acquisitions. The best example would be product configuration, which requires a tremendous amount of integration deep in the guts of an ERP system as it leverages the item master, bills of material (BOM), work operations (routing), costing/pricing, work order management, sales order, and sales quote management, each of those parameters affecting cost, and available-to-promise (ATP) date. Therefore, the third-party product approach lands itself with problems like redundant data elements that need to be repeatedly tediously synchronized between disparate databases and systems, and it also leads to very common problems such as different user interfaces (look and feel), different release schedules, programming languages, and in some cases, even different database technologies.

Lilly Software thus is one of a select few mid-market ERP vendors with an intrinsic ERP-CRM-APS integration, Verticent (formerly PowerCerv), Syspro and Frontstep being notable some (see PowerCerv Finally Overpowered By The '02 Hurricane Season and Mid-Market ERP Vendors Doing CRM & SCM In A DIY Fashion).

Other VISUAL Products

At the beginning of 2001, Lilly introduced VISUAL Jobshop, an integrated manufacturing solution for small, entrepreneurial companies, which has meanwhile apparently proven itself as a healthy revenue contributor, as well as a counteractive move towards the blossoming aspirations of the likes of Best Software, ACCPAC and Microsoft Business Solutions (MBS) in their attack from the lower-end of the market. Compatible with popular small business accounting packages (i.e., Intuit's QuickBooks and Best's Peachtree) the Jobshop product is quite suitable for up to 10 users, and has been launched in the US, Spanish speaking South American countries, and in South Africa where there are seemingly large market opportunities.

While the company has been reaching down-market with Jobshop, it has also been attempting to expand up-market by adding capabilities to support multi-site manufacturing and distribution customers. To that end, Lilly features the software that supports the needs of distribution companies with its VISUAL Enterprise for Distributors (formerly VISUAL Distribution) product. Also one of the newer members of the LSA VISUAL product family, it is a multi-site supply chain execution (SCE) solution targeted at the larger manufacturer/distributor that requires well-rounded warehouse management system (WMS) functionality. The solution features a graphical user interface (GUI) front-end running on Windows NT with an Oracle database. The first released module released was VISUAL Distribution Center Management System (DCMS), a radio frequency (RF)-enabled WMS designed to compete with best-of-breed solutions of the top-tier WMS vendors like Manhattan Associates or RedPrairie. Contrary to VISUAL CRM, this product is offered both as a stand-alone product and as an integrated component of Lilly's VISUAL Manufacturing suite. The stand-alone nature of the Distribution and WMS products expands the company's opportunity well beyond its manufacturing stronghold.

This concludes Part Two of a four-part note.

Part One detailed recent announcements.

Part Three will be a Competitive Analysis.

Part Four will discuss Challenges and make User Recommendations.

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