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.