Not just for the big guys

23 Sep 2003

Supply chain management (SCM) software is nothing new. Vendors such as SAP, Oracle and JD Edwards have long integrated supply chain modules into their enterprise resource planning (ERP) software suites used by blue chip companies the world over. What is new is the concerted effort being made by software companies, through their local implementation partners, to sell such software to smaller businesses.

“What’s happened is that organisations such as SAP and Oracle are aware that the mid-market is where they need to be,” explains Philip Larragy, enterprise sales manager at systems integrator Mentec. “At the enterprise end, the decisions are already made, so they realise they need to move down the food chain a little and both vendors have been working hard to deliver solutions in that area.”

Over the last couple of years, both Oracle and SAP have launched products aimed at this new segment. The familiar Oracle Business Suite is still there for large, so-called ‘tier one’ customers but there are now two other products addressing the lower-end customers: Fast Forward, pitched at the mid-range or ‘tier two’ level businesses and the newly launched Special Edition, aimed at the mass market. SAP has a similar breakdown: MySAP Business Suite is the full ERP suite while SAP All in One and SAP Business One target the lower end of the market.

But Oracle and SAP are not the only big names to court smaller companies. Microsoft, too, is aggressively targeting this segment through its Great Plains product and has already signed up a number of customers. For example, McDonalds Ireland — through its distribution partner, Metroplex — relies on Great Plains to manage the distribution of everything from frozen chips to cleaning supplies.

What are the differences between high-end systems and those aimed at the mid-market? The obvious one is cost. With mid-market systems, most of the modules are preconfigured to work ‘out of the box’ which minimises the amount of customisation needed. So, in contrast to high-end systems where consultancy costs usually outweigh software licensing costs by a factor of 2:1, the cost of installing a mid-range product is split more evenly between the two. While a large-scale SCM implementation can cost hundreds of thousands if not millions of euro, small companies can put a system in place for between €20k and €100k.

The other main difference lies in the number of modules: high-end systems tend to have considerably more. The four essential modules that would usually make up a basic SCM system are procurement, planning, sales and distribution. However, many new SCM systems now include extra features tailored to the supply chain. With MySAP SCM, for example, there is a big emphasis on collaborative features such as demand and supply planning and scheduling across a community of trading partners.

“You’ve got to be able to work much more closely with your suppliers to make sure they deliver the raw materials you need, when you need them,” remarks Nigel Ford, solutions marketing manager, SAP UK & Ireland. “And you need that information very early in the planning process.”

Typical users of SCM software include distribution companies, pharmaceutical manufacturers, and fast-moving consumer goods producers and retailers. In theory, however, the technology should be considered by any organisation that has a long and complex supply chain to manage. While most companies will, of necessity, have automated their supply chains by now, many others still have older ‘legacy’ systems in place which in many cases do not have the functionality of more modern systems that have features such as web-based ordering. The shortcomings of these systems are now becoming obvious to their owners and there is a steady flow of organisations looking to upgrade to better technology.

One company to have already done so is Sercom Solutions, the DCC-owned business that operates supply chains on behalf of companies such as Dell, IBM and Canon. Two and a half years ago, Sercom threw out a legacy system and invested €2.5m in a SAP enterprise resource planning system (R/3 version 4.6c) in combination with a special business-to-business application, Web Methods, to manage its operations.

“We had an old manufacturing ERP system called Visibility which would be barely known,” recalls Kevin Henry, joint managing director. “Over time, we added on various things and when you went to upgrade, you’d all sorts of things hanging off it. It was just unsustainable. Since we’ve upgraded, we’ve gone from last place to first among our competitive peer group in terms of technology.”

In the supply chain business, good technology is a must, Henry insists. “Our IT infrastructure is critical to us,” he says. “We would be dead in the water without it. It’s a tough business we’re in. Without technology, we would need to have vastly more people whom we couldn’t afford because it’s such a competitive business.”

Henry believes a concept called ‘virtual manufacturing’ will drive the growth of the SCM software market. This is where a company will choose one location to manage its international manufacturing activities although no actual production takes place there. Palm’s operations in Ireland is one example.

“Palm’s EMEA manufacturing headquarters are based in Ireland but in reality it has five people who are based in our building here and we do everything from there on: sourcing, parts approval, incoming inspecting, functionality testing and so on. The actual manufacturing is done in the Far East but essentially if you buy a Palm anywhere in Europe, Middle East or Africa, we will have supplied it.”

Despite an apparent wealth of business opportunities, the SCM software market is encountering some tough times. The sluggish economy and the clampdown on IT spending have meant that buyers are thin on the ground and those that are buying are looking to get value for money.

“Return on investment seemed to go out of the window during the Nineties,” says Gerry Lyons, head of small business solutions at Mentec, “but now people are much more focused on benefits and asking questions such as what am I going to save? Why should I change? Will your product reduce the cost of transactions?”

Larragy agrees that the market is flat but he expects to see some new contracts in the coming months particularly in the multinational sector.

“With the multinationals, there tends to be a requirement for shared services type solutions, whereby the Irish subsidiary not just manufactures for EMEA but also supplies the IT infrastructure for it, including the supply chain infrastructure and that would be a growth area,” he says.

Larragy cites the example of PepsiCo in Cork, whose shared services operations are now on a par with its production activities. The Cork site uses Oracle software to manage international supply chain activity with other Pepsi sites and franchise bottlers.

He also sees opportunities in the public sector. For example, he sees huge potential cost savings for the health services if a common integrated supply chain system were introduced.

“There’s a huge need because there’s a lot of waste in terms of materials and equipment. Our health service needs to save money. This is one area where it could,” he notes.

Like Larragy, Frances Meade, account manager with SAP Ireland, believes that the market for SCM is about to turn, and for a particular reason. “While the market is a bit less buoyant than two years ago, the requirements are still there for businesses. They still have to prove their efficiencies, they have to reduce costs, they have greater visibility of their supply chain. Companies are still having to invest in this area.”

What has changed compared with two or three years ago, she says, is that companies are more cautious and modest in their application of SCM software: rather than go for a ‘big bang’ approach, they will start with a small-scale implementation and proceed from there.

“Like any system, SAP can be a multimillion euro project but people are realising that it’s not only for the big guys: software can be delivered in bite-sized chunks,” she says.

Faced with sluggish demand, software vendors and consultants are dropping prices and pushing pre-packaged solutions that offer better value for money. For those organisations that have not done so already, now may be as good a time as any to explore what the technology has to offer.

By Brian Skelly