David vs. Goliath
The ERP software little guys continue to challenge the giants
by Dick Friedman
Even though two giants of ERP software for distributors have recently grown larger through acquisition, their size does not necessarily give them an advantage over smaller system providers. In some ways, plus-size is a negative. Let's look briefly at the acquisitions, and closely at the pros and cons of the Davids and Goliaths – including giants not mentioned in this article. Furthermore, one of the two giants described here will develop ERP functions for a pioneering super giant that has not been providing ERP functions. The gigantic pioneer will become the latest ERP giant, but will not license software.
Acquisitions
Infor Global Solutions bought Lawson Software. Infor's software packages include sx.enterprise, A+, some less well known names, and software for manufacturers. Lawson is not well known to distributors and wholesalers because it serves
sectors other than distribution.
The other giant resulted from a private equity firm buying Activant Solutions and Epicor Software, and combining the two under the Epicor name. Activant's software packages include Eclipse, Array, Prophet 21 and Prelude. As with Lawson, Epicor is not well known to distributors and wholesalers because it serves
sectors other than distribution, mainly manufacturing.
A new ERP giant
Salesforce.com, the pioneer in providing computing functions as a pay-as-you-go service (Software as a Service or SaaS), purchased part of Infor Global Solutions. As part of that arrangement, Infor will develop applications that will be available only on saleforce.com's cloud computing "social network." Initially, Infor will develop inquiry into ERP data;
quotation, order and proposal generation and management; and customer relationship management (CRM). More applications will follow.
Salesforce.com has offices around the world, and its stock price is part of the S&P 500 index. The company provided SaaS at a time when few other firms did, and grew even during the tech crash of 2001/2002 when traditional software licensors were contracting. Salesforce.com started out by providing only sales force management functions (scheduling visits and phone calls, scheduling follow-up calls, letters, visits, etc.) Today, it provides other functions, but not ERP, and has more than two million subscribers. And there are many companies providing SaaS to various segments of the economy.
This arrangement implies that Infor will not offer SaaS on any social networking platform but may continue to offer SaaS via its own servers.
Not all Davids are heroes
Even though there are fewer small companies providing ERP software to wholesalers and distributors than prior to the year 2000, there are still dozens out there. They are not as visible as the giants because they do not have the budget for aggressive marketing and advertising. Smaller budgets also mean they have fewer personnel for providing installation education and training, post-installation support and R&D. Smaller budgets mean that their viability is not as high as that of the giants, and if a small provider ceased doing business, there would be fewer ex-employees to provide ongoing support.
On the plus side, smaller companies tend to provide software and services that are less expensive and are more willing to negotiate contract terms. Historically, when software companies merge, prices tend to increase (supply and demand). Smaller providers also tend to be much more flexible in customizing the software prior to installation and in response to post-installation requests. Support tends to be more personal, such as communication by phone in addition to Web-based problem reporting and feedback.
Not all Goliaths are villains
For the most part, the cons of the smaller players are the pros of the giants, and vice versa, but there are some exceptions and nuances. The giants are not very flexible on changes in contract terms (especially with smaller distributor prospects), and are very reluctant to modify software before installation; they aim for one-size-fits-all. For distributors up and running, support tends to be impersonal, with Web-based problem reporting and feedback. Requests for software changes/additions almost always go to the user group for approval (and if approved, the changes/additions are incorporated into the base software package).
On the pro side, the giants tend to adapt new technology sooner than the smaller providers, for example, enabling the ERP software to function with mobile devices such as an iPhone or iPad. Another example could be termed "vertical interfacing," which in English means that the software, with optional extra cost modules, can interface with vendors/suppliers, and/or with customers. This interfacing is not as rigorous as true Supply Chain Management, yet does allow electronic sharing of information and documents, but not planning.
Financially, the giants can offer larger percent (and absolute) discounts on the initial cost of the license for software than smaller players. Training and education prior to a new installation, or for new employees needing training in addition to online offerings, are offered several times a year. User groups are larger, which facilitates an exchange of business ideas, not just technical aspects of the system in question. Sometimes there are sub-groups for different types of distributors or for different functional areas (such as accounts receivable).
A mix of pro and con is the situation where some of the software packages of some giants are sold by resellers, sometimes termed VARs. The resellers tend to be amenable to pre-installation software changes and to negotiating prices and the contract for services; the contract for the software license is fairly untouchable (compared to smaller providers). The reseller, not the giant, provides installation education and training and post-installation support but can call upon the giant if a reported problem is difficult to fix. One con is that reseller personnel may not know the ERP software as well as personnel at the giant. Another is the viability of the reseller.
Even though the big have gotten bigger, the decision of which ERP system to obtain is still as critical as ever. Going with a giant does not guarantee success, nor does going with a smaller provider mean there will be problems. Although money counts, especially in this "new normal" environment, the decision must take into account many intangible factors.
Dick Friedman is a recognized expert on warehouse operations, WMS and warehouse technologies for fastener, tool, industrial and MRO distributors. He is a Certified Management Consultant and is unbiased, so he does NOT SELL computer systems, WMS or warehouse technology. He applies more than 30 years of experience to help distributors objectively determine if a WMS or any warehouse technology would be worthwhile. He also helps prevent warehouse errors and increase productivity, often through inexpensive, quick changes that don't require a WMS or any technology. Call (847) 256-3260 for a FREE consultation, or visit www.GenBusCon.com.
This article originally appeared in the Nov./Dec. 2011 issue of Industrial Supply magazine. Copyright 2011, Direct Business Media.
INDUSTRIAL SUPPLY MAGAZINE
The November/December issue of Industrial Supply magazine features an in-depth cover story about Kimball Midwest. Plus, we're featuring articles by contributing writers Dirk Beveridge, Frank Hurtte, and Mike Marks, as well as interviews with numerous product and distribution industry experts.
