Mid-Market ERP Vendors Doing CRM & SCM In A DIY Fashion Part 2: Market Impact

Market Impact

The erstwhile frenzy of enterprise applications software company mergers and/or acquisitions was not exactly a big surprise, as consolidation is normal to almost every industry. The Y2K-problem caused a market slump in 1999 and the current protracted global economic slowdown has been particularly hard on the smaller vendors, which have the same need to expand their offerings but much scarcer resources at their disposal to do this than their bigger counterparts.

While the heyday of the ERP market in the mid 90s somewhat postponed the consolidation in the lower tiers of the market, it has, however, not been the case in recent years. As the M&A activity is seemingly dwindling, although not completely (see SAP Tries Another, Bifurcated Tack At A Small Guy), the vendors that have survived the crunch will now have to energetically respond to the growing demands on the underlying collaborative product architecture and functionality, with customers remaining vendor viability cautious. A further degree of integration and convergence will likely take place between ERP, SCM and CRM applications in 2002, with SCM and CRM moving towards the transactional aspects that have until lately been the stronghold of ERP.

Customers increasingly demand that these applications collaborate better with one another and with external, third-party applications. Also, the enhanced functionalities of these technologies as well as an abundance of interfacing software should make this possible. Still, although the advent of Web services based interconnectivity and collaboration between disparate applications is promising (see Liberty Alliance vs. WS-I; J2EE vs. .NET; Overwhelmed .YET? Part 2: Comparison, Challenges, & Recommendations), customers will still increasingly look for one strategic vendor to fulfill the vast majority of their business application needs, particularly in the lower end of the market. It is not any more a question whether any ERP vendor provides some SCM or CRM functionality, but rather how much functionality and with what level of integration (see Integration is the Name of the Game in Software Systems).

Furthermore, as ERP, SCM and CRM applications individually improve to collaborate better, other technology components might also come into play to enhance the level of collaboration. In addition to e-procurement and private trade exchanges (PTXs), one of these could be the pricing and revenue optimization technology, which extracts data from both ERP and CRM applications to, e.g., determine the best prices to quote and the best promotions to apply in every particular case. Product lifecycle management (PLM) is another promising area, especially for the manufacturing sector, where product data management (PDM), which is part of PLM, will likely become more intertwined with ERP, SCM and CRM applications. Engineering department's productivity and product design cycle-time reduction might lose their competitive advantage trait in a few years, as most industries will have reached the same level in these areas by then. Therefore, PLM collaboration aspect might gain the spotlight of importance then.

To that, in the ERP market, the major vendors focused on the high-end of the market have virtually evolved into providers of comprehensive e-Business suites. While that has long not been the news for SAP, Oracle, and PeopleSoft, many Tier 2 vendors like J.D. Edwards, Baan, IFS, Intentia, QAD, and others, have recently significantly expanded their traditional ERP suites, either internally or via acquisition, or both. All these also compete with a slew of smaller extended-ERP vendors for the market for small to medium enterprises (SMEs). The two vendors' announcements detailed in Part One Pascal link to Part 1 additionally reflect the morphing enterprise applications landscape as all vendors scramble to outrival competition or, more often, survive and position themselves well for the next phase of e-Business that features a market cognizance of the need for a seamless link between demand and supply along the entire supply chain.

In the mid-market, where vendors lack the deep pockets of their Tier 1 competitors, more conventional consolidation and/or alliances have taken place. These aim to combine the resources to deliver extended enterprise software suites that meet the 'one-stop shop' requirements of smaller companies. Look for more smaller applications vendors to acquire new functionality through partnerships or internally and/or merge to protect themselves, as there is still a multitude of players in the market and it is very unlikely that all will survive in the long run.

This mid-market vendors urge has been accentuated by recent Microsoft intrusion into the CRM space (see Microsoft Throws .NET At SMEs, With CRM As Bait), and by Best Software's acquisition of Interact Commerce that still owns possibly the most popular and most often partnered with CRM products. Interact's product strategy with ACT! for smaller businesses matched well with Best's portfolio of low-end operational systems (e.g., MAS90, BusinessWorks, and Peachtree), while SalesLogix, on the other hand, complemented well Best Enterprise product for midsize companies. However, due to SalesLogix' Open CRM initiative and a number of mid-market ERP product alliances and subsequent product integration experiences (a deal with Exact Software (formerly Macola Software) and Expandable Software being some), these vendors could now be in the predicament that their competitor controls the important piece of their offering.

This is Part 2 of a two-part analysis of recent Tier 2 and Tier 3 ERP vendor announcements.
Part 1 detailed the announcements.

The Do It Yourself Route

Frontstep and Syspro, likewise Lilly Software, have largely chosen the 'self have, self do' route. They belong to a small group of visionary vendors in the mid-market, that provide extended ERP and significant web-based supply chain functionality, with a strong international presence and a focus on Microsoft technology. The main competition in their mid range make-to-order (MTO) manufacturing stronghold beside J.D. Edwards, IFS, Oracle, QAD and SAP, would include further down the market Epicor, Made2Manage, Fourth Shift, Navision, ROI Systems, and Lilly Software, to name some.

Frontstep more than Syspro, likely owing to its larger size and publicly-traded visibility, has earned a reputation for being innovative in all of ERP, e-collaboration, and supply chain terms going back to its much-publicized 'customer-centric' nature of its product lines. Key Frontstep's functionality is aimed at synchronizing customer orders with inventory and capacity, with an overall visibility throughout supply networks. This may significantly lower operational costs and improve on-time deliveries by automating inventory sourcing and manufacturing planning with web-based demand and supply management across multi-site operations and suppliers. Modules include Intelligent Sourcer, Point Promiser (the promising engine for ATP collaboration across trading partners), Capacity Promiser (for cross supply chain capacity promising) and APS, which extends to cascading supply chain synchronization.

Both vendors have long embraced APS technology and methodologies, as well as CRM. With this recently enhanced functionality as another stab at natively delivering powerful SCM and CRM modules, Syspro and Frontstep are positioning themselves as almost holistic e-business providers with strong ERP capability and experience rather than as mere ERP vendors. Their focus has long not been entirely on their traditional back-office functionality although that aspect of the offering has not been forgotten. In that regard, both Syteline and IMPACT Encore, the respective flagship suites for mid-sized manufacturers, by and large offer support for customer service, order processing, inventory control and purchasing, manufacturing production management, production planning and scheduling, cost management, project control and financials, product configuration for sales order management and manufacturing, APS, business intelligence, workflow automation, with business process definition and execution, advanced forms, and business process modeling. Furthermore, Frontstep's Syteline ERP v6, which is due one of these days, offers additional functionality and much stronger inter-suite integration, alleviating thereby some functional shortcomings of the past. Apart from this, the company will bet its future on the recently announced Customer Synchronized Collaborative Solutions (CSCS) initiative, with view to achieve dominance in the MTO demand-driven manufacturing and distribution sectors.

However, in addition to strong extended-ERP functionality, at the heart of both vendors' business models is Internet messaging and XML-based technology, and professional services that enable them to connect to, and provide e-business solutions for, many back-office systems (e.g., via Frontstep's Active Link for application integration, business process automation and collaboration). The strategy may seem innovative in a market where customers may view ERP as a hackneyed news, although still of a paramount importance as a pillar of all collaborative applications. Syspro and Frontspep could therefore attract new prospects outside their large customer bases, particularly enterprises with other competitive back-office solutions in place, which are open-mindedly looking for easily deployable Internet-based solutions.

When it comes to CRM, the above touted features are what their targeted customers likely need at this stage. An affordable, natively integrated application with reduced implementation risk and innate integration to MS Outlook and MS Excel will likely strike a chord with the vendors' existing customers. The integration factor, as well as the vendors' extensive experience in the manufacturing sector, may provide them a competitive edge against both larger ERP vendors and CRM specialists with more general-purpose products, like Siebel, Onyx, Kana, Pivotal, Interact, FrontRange, and Salesforce.com. Nevertheless, that is not necessarily going to be the case outside of these two vendors' install base, given much broader and deeper functionality of pure-CRM players and somewhat different approaches and mindsets between CRM and ERP systems deployment and maintenance. CRM applications typically require more customization and they undergo more frequent functionality changes and updates than their traditional tried-and-true back-office counterparts, where ERP vendors - CRM wannabes still have a way to go.

User Recommendations

Small and medium size enterprises using Syspro's and Fronstep's back office applications that have solid SCM and CRM product needs should react positively to this news. They should evaluate the above functional enhancements as a way to add value to their existing applications although bearing in mind that other vendors may also offer more mature products. These companies should consider adding the announced functionality to their requirements list, as to secure value in terms of both cost savings and increased efficiency. Approach vendors to clarify for you the integration or significant application customization possibility, especially if you are a more complex enterprise, with multiple-platform and strong scalability requirements. Both current and prospective customers of either vendor should make thorough reference checking a priority.

Syspro's target market is general multi-site and multi-national discrete manufacturing companies and their divisions with up to $150 million-a-year revenue range and up to 100 concurrent users per site. Since the Material Yield System module of IMPACT Encore is designed to address the specific needs of manufacturers and distributors that rely on the cutting of shapes and pieces from standard size materials - sheets, tubes, and rods - as part of the manufacturing process, the targeted industries are plastics, steel, rubber, paper, and lumber. Frontstep's target market is mid-size manufacturers and distributors, or divisions of Fortune 500 companies. It targets enterprises with annual revenues up to $30 million primarily via resellers/VARs, while the larger enterprises with up to $1 billion are handled by its direct sales force.

Frontstep focuses on discrete, MTO manufacturing environments rather than on make-to-stock (MTS) or highly engineered (design-driven) environments. Frontstep's strongest vertical sectors are aerospace & defense, industrial equipment and specialty vehicles, but the vendor also competes in consumer products, plastics, electronic equipment, semiconductors, high-tech, and transportation equipment industries. Frontstep customers looking for e-business solutions with CRM, procurement, and supply chain functionality should put Frontstep solutions on the short list. The company is usually a good fit with companies that are very demand pull-driven and need to respond fast and often proactively across their supply chains in a complex MTO environment to compress lead times.

More information on both vendors strengths and challenges can be found in Syspro Hatches 'Encore' IMPACT On SME Manufacturers and Frontstep Still Awaiting Better Times.

This concludes Part 2 of a two-part analysis of recent Tier 2 and Tier 3 ERP vendor announcements.
Part 1 detailed the announcements.

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