Compare ERP Systems:
There may be as many as 50 ERP software systems available in the Australian market. The systems cover the entire spectrum – from QuickBooks and MYOB to mid-market systems from Sage and Microsoft to high-end products from SAP and Oracle.

There is still some confusion about the differences between an accounting system and an enterprise resource planning system. For me, an ERP system is one that automates business processes across most, if not all, departments within a company. Using that definition, even a system like QuickBooks or MYOB can be considered an ERP system for a small company.


Tiers:
To make some sense of the huge array of systems, we placed each one in a tier based on customer revenue and employees and product cost. This is a convenient, albeit not perfect, means of differentiation. For example, an organization with low revenue may have a global vision or complex business processes that place it in a higher tier.

On the accompanying chart, we slotted all the products into what we believe are the appropriate tiers based on cost and target market. Be cautious if you’re trying to calculate the costs for a system, since these numbers are just averages. For example, the licence fees for a Tier 3 product should range from a minimum of 50,000 to as much as $150,000. Assuming the licence fees are $100,000, the implementation fees could be anywhere from $125,000 to $150,000, depending on the complexity of the implementation. SAP and Oracle are Tier 1 vendors that initially targeted the Fortune 1,000. Those implementations could cost millions for the larger customers. But since the market is limited to 1,000, SAP and Oracle are now going after much smaller companies.


Trends:
The trend toward consolidation of software vendors continues. In November 2005, Infor acquired GEAC. In April 2006, Lawson Software and Intentia merged. In May 2006, Infor acquired SSA. Infor’s systems now include the former BPCS, Baan, Prism, Protean, Infinium, BRAIN, SCT, Lilly, MAPICS, and NxTrend.

What should this mean to a potential buyer? One concern is that your new system will be purchased and gradually phased out, requiring you to convert prematurely to a new one. So do you consider only the bigger companies that can’t be bought out? We think this is a mistake for a number of reasons. First, even some of the largest ERP systems such as PeopleSoft and JD Edwards have been acquired. Second, by focusing on a specific vertical, smaller ERP vendors can compete effectively, partly because the systems are tailored to the needs of the vertical and partly because the vendor’s employees are often extremely knowledgeable about the vertical. Third, some people would prefer to be a big fish in a small pond: they prefer to work with smaller ERP vendors where they think they will have a bigger influence and be able to speak directly to the owners. Finally, although small companies have fewer resources to invest in R&D, they don't have the same baggage as the big vendors that need to worry about all the systems they have acquired. Smaller companies can be more nimble in adapting to new technology.

Recently there seems to be a much higher demand for ERP software solutions. That demand, has been fuelled by an improved Australian economy, a need to replace systems that were hastily and inefficiently implemented in response to Y2K, and the favourable exposure ERP systems from Sage and Microsoft are receiving in the market. In comparison to the late 1990s, companies are demanding much greater due diligence, including independent analysis and references, before making their ERP purchasing decisions.

NetSuite seems to be leading the charge on the ASP front, and you can expect all the major players to follow. In a recent presentation, NetSuite CEO Zach Nelson pointed out that SAP and Oracle dominate in the enterprise marketplace with about 72% market share between them. But the mid-market appear to be fragmented with no leader.  To succeed in the ERP mid-market, a system must be easy to use and implement, have rich and integrated functionality, be easy to customise, and be available at a low cost. Nelson says the high-end systems don’t meet all these requirements, and will therefore have a difficult time in the mid market.

Another major trend is the merging and linking of ERP with customer relationship management and business intelligence. It doesn’t make a lot of sense to have a CRM system that can’t either place orders or at least have access to all customer transactions. Order processing has typically been considered a back-office function, while CRM has been considered front office. Ideally a lead in the marketing automation system (a CRM component) becomes a prospect in the sales force automation system (a CRM component), which in turn becomes a customer in the ERP system. This should happen with the press of a key. Also, the sales forecast should be updated based on information in both CRM (quotes) and ERP (orders).

Business intelligence has also become a hot topic over the past few years. BI means turning data into information useful in making decisions. The latest trend is to have a dashboard that is role specific. On the dashboard, you see all the essential information with drill-down to details. The dashboard will also contain your key performance indicators, or at least those that are based on data within ERP. Unfortunately, some KPIs (for example, measurements of customer satisfaction) are outside of ERP, and you may need additional software or customization.

Recently I attended the Microsoft Dynamics Partner Readiness event, and heard Microsoft Canada president Phil Sorgen talk about the company’s vision and opportunity with its business management solutions. Sorgen made it clear Microsoft Dynamics is strategic to Microsoft, and the intention is to win. In just five years, Microsoft Dynamics has reportedly amassed 291,000 customers worldwide through acquisitions and new contracts, and sees a huge opportunity to increase market share. According to AMR Research, the business applications market amounts to US$62 billion, and Microsoft is driving to be a leader.

Microsoft’s strategy to bring together the two distinct worlds of software – business process automation (for example, Microsoft Dynamics) and personal productivity (for example, Microsoft Word and Excel). Microsoft Dynamics already looks and works like these productivity solutions, and you will continue to see tighter integration with new versions of Microsoft Office and Microsoft Windows Vista. The company is spending $4 million in Canada this year to promote the Microsoft Dynamics brand through radio, print and the Internet. It is also making huge investments in R&D -- $7.6 billion this year across all of its products.


Added functionality:
Increasingly ERP software systems are adding additonal functionality for example service management, commitment accounting, project accounting, back order fulfillment, forecasting, freight calculations, warehouse management functionality and backflushing. Service management can be a big differentiator when comparing systems for companies that offer repairs or service. Commitment accounting is typically a requirement for not-for-profits, but I don’t know why other companies don’t use it to compare budgets not to just actuals, but also to commitments (open purchase orders).

Project accounting is a must for any company that has projects spanning fiscal years. And why clutter up the general ledger with project details? Back order fulfillment can be an important requirement for companies that take many back orders and then need to fulfill them when the goods are ready, based on customer priority, requested ship date and other factors. I have seen Excel spreadsheets used to sort this out and it’s not pretty.

A lot of companies fall down in forecasting, partly because they don’t have the tools. Forecasting is not easy. It should be based on orders as well as quotes and their probability. It could be based on history, subject to seasonality and regression analysis; or on projections from marketing’s awareness of changes in the environment. There are also minimums, maximums and economic order quantities to consider. Some organizations even include sales directly from their customers to get a sense of what’s moving. For example, some distributors and manufacturers obtain sales data for their products directly from their retail clients.

Freight calculations can often be a differentiator between systems. Some systems will not only calculate shipping costs based on destination and method, weight, volume and dimensions, but will also recommend the shipper based on current rates. Ideally, there is integration with the shipping company’s system, and the tracking number is downloaded so that the status of the shipment can be easily accessed.

Advanced picking and put-away are typically associated with warehouse management systems, which can be very expensive. But there may be some relatively modest requirements that could make the warehouse a lot more efficient. For example, it might make a lot more sense to pick in waves (multiple orders at the same time) so that warehouse employees minimize the time spent walking through the warehouse. Finally, we come to backflushing. For those of you not familiar with this term – it has nothing to do with plumbing. Backflushing is an efficient way to update a system when the manufacturing is complete for a product. Finished goods are increased and all the components that were used to make the product are decreased at the same time.


Bottom line:
ERP systems are mission critical, and often (if properly implemented) will give organisations a significant competitive advantage in the marketplace.

If you would like to contact an ERP implementation partner please visit Provida for sales and implementation information.