When AMR Research unveiled its annual rankings of supply chain management (SCM) software vendors earlier this year, a lot of people were left scratching their heads. Conspicuously absent from the top of the list, which ranked players by 2003 revenue, were some of the best-known vendors in this space: the so-called best-of-breed SCM software providers like Vastera, Manugistics and Aspen Technology. More surprising still was the pre-emption of the ranking's top spot by a company most people wouldn't consider to be a supply chain management software vendor at all—SAP AG, the German company famous for its enterprise resource planning (ERP) software. Number two and number three were also non-traditional SCM vendors—Oracle and PeopleSoft. It's not that the best-ofbreed vendors didn't make the list—they were there all right—but it was evident at a glance that they trailed well behind the ERP giants in revenue.
That's no accident. Though ERP vendors came late to the supply chain management game, they're trying to make up for lost time. About six years ago, says Shridhar Mittal, senior vice president of solutions marketing for i2 Technologies in Dallas, ERP vendors woke up to the vast market potential of supply chain management applications. At first, they partnered with companies such as i2 to dovetail solutions with their own. But as the ERP vendors started to develop their own solutions, those partnerships broke down in the late '90s. Now the two factions are engaged in a head-to-head battle.
Chances are, whether you're using ERP, human resources management software or just database management services from any of these companies, you'll soon be hearing pitches for their dazzling new supply chain management capabilities.And you may be tempted to take them up on the offer. A lot of companies jump at the chance because they perceive the ERP supply chain capabilities "as being virtually free," says Greg Aimi, analyst at AMR Research in Boston. The thinking goes like this: You've already paid a fortune for ERP; why pay another company even more for additional capabilities that the ERP vendor might throw in?
But should you bite? Aimi, for one, urges buyers to proceed with extreme caution. Though he acknowledges that it can work out, he's quick to warn that the decision requires "a great deal of scrutiny, not just blindly accepting [the ERP vendors' promises]." The ERP companies are strong on persuasion, he says, but they often fall short on delivering on their promises when it comes to supply chain execution, especially for transportation management.
No more tangles
Still, a surprising number of companies are willing to sacrifice some functionality if it means they can stay with one solution provider and avoid the cost and hassles of systems integration, Aimi says. That thinking is reinforced by upper management. "Once a company has decided to go with SAP or Oracle and have one backbone, as it were, the bias is so strong, starting with the CEO and CFO, that it's very difficult for any supply chain execution vendor to penetrate," he says.
Lori Schock, supply manager for chemical company Dow Corning, based in Midland, Mich., acknowledges that her provider, SAP, lags behind the niche supply chain vendors, but she says she's happy with the supply chain solution it provides. "When they deliver, they deliver a 90- to 95-percent solution, where the niche players tend to go for 100 percent. It's a broader piece rather than a customized solution," Schock says. "What you need to ask is how important is that piece between 90 and 100 percent and, after you add the cost of taking it to 100 percent, is it worth it? When I did that comparison for Dow Corning, I found that the solution provided by SAP met our needs. It allows us to offer our customers choices, and at a very reasonable price."
Schock is clearly not alone. "What we're seeing is a big move toward buying from an integrated vendor rather than a best-of-breed—a large company that customers feel is going to be around tomorrow," says Carol Ptak, vice president of manufacturing and distribution industries at PeopleSoft, based in Pleasanton, Calif. Ptak says PeopleSoft has made huge inroads into the WMS market, attracting more than 1,000 WMS customers, including Wolseley UK Ltd., a distributor of building and plumbing supplies, and Saint-Gobain, a French glass manufacturer and distributor of building supplies.
Ptak rejects the notion that PeopleSoft's WMS falls short of the best-of-breeds' offerings. The company has partnered with Atlanta-based Manhattan Associates and RedPrairie of Waukesha,Wis., to fill in any gaps in functionality when it comes to supply chain management, she says. Furthermore, Ptak adds, PeopleSoft is now working with Barry Lawrence, assistant professor with Texas A&M's Department of Engineering Technology in College Station, Texas, to make sure what it's building is "compliant with the best in class out there."
SAP, too, dismisses claims that its products still lag behind the niche players' offerings. "I think we've made a lot of progress," says Bob Ferrari, formerly an analyst with AMR and now director of supply chain business development at SAP. Ferrari points to SAP's "rigorous schedule of annual releases to add functionality" since the company entered the supply chain space in 1998.
Promises, promises
But not everyone's convinced that the ERP companies will be able to match the best-of-breeds' capabilities anytime soon. "[ERP vendors profess to be] a short distance away from providing you with what you need and more than what you need," says Aimi. "However, once you get rolling with implementation, gaps in capability surface and the customer says: 'I can't live with this. I can't do business with release 4.0 when the promised stuff [won't be available until version] 6.0.'" Once they realize that they can't get by with 60 percent functionality, he adds, "they embark on a costly effort to get up to where they would have been with the best-of-breed companies anyway."
That makes Rick Kelley happy. Kelley, director of sales and marketing at Nistevo, based in Eden Prairie,Minn., says a considerable amount of his business comes from customers who need an "interim solution before SAP delivers." International Paper, he says, has been waiting four years for promised transportation management functionality from SAP and has meanwhile been using Nistevo. "I worked at Oracle for four years before I came here," says Kelley. "They have bright product development folks, but delivering on the TMS side is still several years away."
Although some suggest that the well-capitalized ERP giants could catch up quickly if they wanted to, Larry Ferrere isn't worried. Ferrere, chief marketing officer with supply chain software vendor Manhattan Associates, believes their size will work against them. "ERP vendors are spread very thin," says Ferrere, whose credentials include a stint at ERP vendor JD Edwards (which PeopleSoft bought in August 2003) and also in logistics at Andersen Consulting (which has since been renamed Accenture). "SAP has a large development investment, but they're spread over lots of applications and lots of verticals over lots of geographies. A big ERP vendor has the pressure of having lots of very big customers who have their own needs, and even SAP has limited resources in terms of money and people. They still have gaps, I believe, even in their ERP world."
Even in cases where ERP vendors have tried taking a shortcut—that is, by simply buying a company with a welldeveloped application—it hasn't always worked out, Ferrere points out. He cites the example of PeopleSoft's acquisition of Red Pepper, an advance planning and scheduling software vendor, in October 1996. "[Red Pepper's] was frankly a better solution [than PeopleSoft's]," says Ferrere. "But when they didn't run it as a separate and focused division over the long haul, it lost focus, even though they had the basis of a great product."
Despite appearances, the ERP giants aren't possessed of unlimited resources, Ferrere adds. Because the ERP vendors are publicly traded companies, they have to justify investment in new areas to Wall Street. "I think any one of the supply chain execution areas represents a $100 million investment, if you're going to design a world class WMS or world trade management system," he says. "Are [they] going to be able to justify half a billion dollars or more to get this capability?"
Manhattan Associates recently ended its formal partnership with SAP. "We now clearly feel we're a competitive threat and take business away from them," says Ferrere. "I keep coming back to the fact that if people could use one vendor, they would. But I don't think people are prepared to sacrifice getting the best business solutions they can get. The world is too competitive."
Keep it simple
In the meantime, the tech world is evolving in ways that could work to the best-of-breeds' advantage. For example, the task of integrating different software systems into one company's operations—or even a group of companies joined in a supply chain network—is no longer the same hurdle it once was, Ferrere points out. Best-of-breed supply chain software vendors have been forced to address connectivity as they've evolved, linking together the elements inside the supply chain muddle—integrating WMS with demand planning and TMS and so on. So these days, plugging supply chain functionality into ERP systems is just another run-of-the-mill integration, or should be.
Mittal at i2 concurs. "With all the new technologies available with supply chain operating services, it's not difficult to integrate systems any more," he says. "The CIOs should understand that this is the way the world is moving and that there isn't one application or architecture that can meet your needs. It has to be a composite application."
Ferrere believes that's particularly true where complex operations are concerned. Although getting supply chain management capabilities from your existing ERP vendor might work if your operations are relatively simple, he says, large, highly automated and complex systems still need best-of-breed software.
That's not to suggest anyone should run out to find 20 different vendors to work with. There's still merit to the idea of keeping things simple, the analysts agree. "My advice," says Aimi, "is if you can't do it with one company, keep the number of vendors as low as possible."
