SoftBrands to Institute Fourth Shift for SAP Business One Manufacturing Work-Plan Part Four: SoftBrands

What SoftBrands Brings into the Picture?

At the National Manufacturing Week (NMW) event, held February 23-26, 2004 in Chicago, Illinois (US), SAP AG (NYSE: SAP), the leading provider of enterprise applications, announced the availability of new industry-specific solutions for small and midsize manufacturing companies, with the aim of extending its leadership as a provider of solutions for an even broader range of companies, from small enterprises via mid-market companies to the world's industry leaders.

Part One and Part Two of this note details the announcements. Part Three began a discussion of the market impact by looking at SAP's answer for SMBs and focus on penetrating the US SMB market.

To that end, SoftBrands should be pleased by becoming one of a few strategic partners for SAP Business One. Conversely, SAP Business One, despite notable introduction and attention grabbing, has,not suited manufacturers so far as it lacked native manufacturing resource planning (MRP) and many other manufacturing-oriented capabilities. For that reason, prospects have still been required to consider the higher-priced and more complex mySAP All-In-One or mySAP Business Suite alternatives so far. This will have only defeated the purpose and it may not have helped much in preempting the intrusion of some competitors that specialize in plant-level manufacturing systems (such as QAD, Ross Systems, Agilisys, SSA Global, SYSPRO, MAPICS, Epicor, etc.), despite SAP's dominant presence in manufacturing industries. To that end, Fourth Shift adds proven manufacturing functionality and, in the longer run, provides some novel capabilities to support lean environments.

While some may be surprised by SAP not opting to leverage its existing and very deep manufacturing-focused functionality of mySAP Business Suite again, the reasons for opting for the incumbent tier 2 or tier 3 vendor's capabilities could be the following—time-to-market expediency, price adequacy, and simply another admission of mySAP Business Suite's inappropriateness in the SMB arena. In any case, we commend SAP for forming this partnership to address the tier 3 manufacturing sector, which again speaks volume about the vendor' true commitment to the sector in a manner different than to simply water-down its unsuitable large and complex application. SAP's cited reasons for partnering with Softbrands include SoftBrands' brand recognition in the target market, its existing customer base and global reach; large accounts potential; and fully integrated functionality with SAP Business One at the user interface (UI) level.

SoftBrands indeed brings a solution with multilingual capabilities and a broad customer base, many of which are smaller divisions or plants of large global corporations utilizing SAP at the corporate, white collar level, e.g., Eastman Kodak, Gillette, and Unilever. Fourth Shift product remains a major breadwinner for the SoftBrands Manufacturing division (approximately 65 percent of its revenue), being a web-enabled product for different manufacturing mid-markets (available in seventeen languages) spanning across sixty countries with more than 4,000 customers, some of which are the fastest growing manufacturers and global enterprises from the Global 2500 including Eastman Kodak, Unilever, Bosch, TTK Prestige, and Electrolux.

Fourth Shift product covers many bases with nearly fifty integrated application modules handling order entry, accounting/finance, inventory control, manufacturing, executive decision support/ BI, engineering, purchasing, and shipping, along with the adaptable web-based supply chain visibility modules that communicate through portal technology. The product has traditionally been very strong in terms of transaction entry and reporting and tactical level production status visibility, lot traceability, cost control and work in progress (WIP) management, rendering it well suited for order-ship-bill operations within make-to-stock (MTS) and configure-to-order (CTO) manufacturing environments. Through the integration with DemandStream there is support for lean manufacturing, although that provision specifically is not included in the recent announcement with SAP.

The technological compatibility between Fourth Shift and SAP Business One seems to be there too. By embracing concepts of component (modular) technology in designing its product, Fourth Shift has been providing a great number of middleware interfaces (APIs) for interconnectivity among its own and third-party components, also providing for flexibility and incremental deployment. Fourth Shift 7 provides connectivity to other applications based on the Microsoft standards like .NET and XML, which is considered quite appropriate for its target niche.

This is Part Four of a five-part note.

Parts One and Two presented the event summary.

Part Three began a discussion of the market impact.

Part Five will cover challenges and make user recommendations.

Fourth Shift Background

Having long acquired a reputation for quick and inexpensive implementation and excellent service and support, during the mid-1990s, in an effort to expand up-market from its traditional small, single-site enterprise stronghold, former independent Fourth Shift embarked on harnessing advanced technology (i.e., featuring object-oriented, Windows NT/SQL Server-based, productivity enhancing graphical user interface) by introducing OBJECTS Enterprise Software in 1997. This was an intended upgrade of its former outdated MSS product (which was written in 3GL C code, and featured a batch process architecture and non-relational proprietary database) that was supposed to enable users to link to multiple sites using the Internet or wireless technology. Disappointing sales sent the company back to the drawing board, where it combined OBJECTS with MSS, releasing MSS for OBJECTS in 1998, soon after to be renamed in Fourth Shift Software System.

In 1999, Fourth Shift began developing a further set of applications to enable its customers to conduct B2B and business-to-customer (B2C) e-commerce by acquiring underlying technology for these applications through the purchase of Computer-Aided Business Systems (CABS), a Colorado-based (US) developer of workflow-based e-business solutions. The CABS' acquisition has much improved the company's plant execution and multisite product functionality, which had been mediocre or non-existent before, by providing VisiBar and VisiWatch applications. VisiBar is a data collection and workflow application that accepts input from multiple sources (e.g. bar code scanners, sensors, digital scales, relays, and other software applications) and allows users to create scripts to transfer, manipulate, analyze and act on the collected data, enabling thereby the organization to, for example, automate plant floor, materials transfer and warehouse operations.

VisiWatch is a transaction monitoring application that can be set up to "watch" for specified events and then take a predetermined action, such as sending an automated e-mail message, generating a report, making a change in another database, or synchronizing the info with another enterprise system. VisiWatch is a Visual Basic for Applications (VBA)-programmable software application, a sort of a "silent assistant" designed to monitor and react to any of the following seven kinds of events: transaction event, time-based event, startup event, file event, e-mail event, transmission control protocol (TCP) event, and object linking and embedding (OLE) events. Thus, Fourth Shift could be regarded as one of the first proponents of emerging business activity monitoring (BAM) applications (for more details, see Business Activity Monitoring—Watching the Store for You).

This partnership provides SAP with the opportunity to further extend its reach within its large corporate customer base by serving the needs of their distant smaller plants and divisions dispersed around the globe. Thus, SAP should hereby have the wherewithal to defend its major accounts from encroachment by the above vendors touting low-cost, astute plant systems that "happily co-habit" with SAP. For more food for thought on this topic, see Standardizing on One ERP System in a Multi-division Enterprise. There should also be interest in this product combination from smaller independent manufacturing sites.

On the other hand, the Fourth Shift product will get the marketing support of SAP, as well as access to the SAP global VAR channel, which should help improve its dwindling visibility, particularly after the near death experience following the AremisSoft stint. To refresh our memory, early in 2001 Fourth Shift Corporation, a former prominent mid-market ERP provider for manufacturers, became part of then AremisSoft, another diversified but quite obscure ERP provider, and has unfortunately all but fallen into oblivion due to the alleged criminal activities of its new parent company towards the end of 2001. Namely, AremisSoft, with the accusations of reporting fictitious revenues, the ensuing Security & Exchange Commission (SEC) investigation, a shareholders' lawsuit, and the company's consequent bankruptcy filling, became a harbinger of an Enron-like trend.

Amid the turmoil, a part of AremisSoft spun off from the old corporation with its clean books, and renamed itself into SoftBrands Inc., which has been operating as a privately-held holding company and has since taken over the responsibility of its products and customer base hoping to shed its tainted past, to return to its enterprise software roots, and leverage its large installed base of more than 5,000 users in 60 countries. At the end of 2002, SoftBrands announced a new $20 million (USD) round of financing that put it on a firmer financial footing with working capital and a war chest to continue strategic acquisitions as a stated strategy for the company. SoftBrands believes the spin-off action has completely distanced it from AremisSoft's Chapter 11 filing, and has allowed it to move on unfettered by past difficulties. It has spent the past year also sensibly re-aligning itself with significant changes in the overall IT market, such as the demands on enterprise applications providers to deliver better ROI, their increasing need to balance skill shortages and the escalating costs of new product development between certain regions. The new organization seemingly has since been seeking to advance its two flagship ERP products—Fourth Shift and evolution—as well as its add-on DemandStream solution, which addresses lean manufacturing and execution.

However, the company has lately been quite subdued, with very few new contracts for its flagship ERP systems, except for some emerging markets like China, where it has more than one hundred employees in four offices and several hundred customer installations, and in India, where it has eighty staff members and thirty installations recently. As a whole, the company also now has over 500 employees, which has dropped from 700 in 2002 and its revenues are at best at the same level like the revenue for 2002 of approximately $80 million (USD). A silver lining for this company is its DemandStream suite for lean operations, including support for kanbans and outsourced processes, allowing companies to preserve their ERP rather than to replace them, which goes well within the current economic milieu.

Thus, SoftBrands will get an immediate shot in the arm in terms of market visibility for Fourth Shift, followed by a possible significant increase in license revenue as it begins to capitalize on SAP's channel and brand recognition. SoftBrands can also excite its existing customers with a compelling upgrade path to the future SAP Business One/Fourth Shift combination. This should not only prevent any erosion in the installed base but it should also open up the possibility of expanding into additional sites or divisions.

SAP also gets a product that should be appealing in new, emerging manufacturing markets, such as China, India, and Eastern Europe, which SAP has been keen on penetrating. Fourth Shift was one of the first ERP systems ever sold in China a decade ago, and SoftBrands has become quite established there, with offices in Beijing, Shanghai, Guangzhou, and Tianjin and with 400 customers. If one could extricate at least one benefit gained from former AremisSoft, it could be its early astute moves in terms of rejuvenating acquired software largely by shifting its developments offshore to India, and then to China owing to Fourth Shift's strong presence in the market. This coincides with SAP's recent efforts in China with SAP Business One, and the fact that SAP has also teamed with Sybase, which has a very strong foothold in the Chinese market, all which makes SAP a very strong player in China as well.

The offshore development remains a significant part of the new company's strategy, since product development for evolution is done in India, and for Fourth Shift in China. SoftBrands was indeed one of the first vendors that fully incorporated offshore development into its research and development strategy in a more than a casual manner, the trend that has recently taken hold market-wide. SoftBrands Manufacturing boasts to run its "software factory" in much the same manner that many of its customers handle production operations—by doing its design and engineering in the West, whereas the development and maintenance work is done offshore in China and India. The product comes back home for quality assurance, final assembly, and release. Much of manufacturing is moving that way, like it or not, and the vendor believes it has an advantage of understanding the dynamics and the requirements of doing business with an extended supply chain that includes offshore production resources.

This concludes Part Four of a five-part note.

Parts One and Two presented the event summary.

Part Three began a discussion of the market impact.

Part Five will cover challenges and make user recommendations.

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