Wednesday, September 9, 2009

The Cha(lle)nging World of Value-added Resellers

The enterprise applications market continues to quake, thereby significantly reducing the number of independent software vendors (ISVs). Those who survive (and often thrive) have been devising strategies to penetrate new and uncharted markets, whether they are geographically remote, or within an esoteric industry, or both. For many reasons, these vendors tend to look for the help of a value-added reseller (VAR) or distributing channel partner for geographical penetration. They may also seek help from other (often smaller) ISV partners to fill functional and technological product gaps. However, some recent announcements accentuate the fact that distinguishing between a VAR and an ISV might not be as straightforward as it used to be.

Part One of the series The Cha(lle)nging World of Value-added Resellers.

A decade or so ago, when the enterprise resource planning (ERP) market was doubling in size year over year, most vendors had to turn to implementation channel partners in one form or another, whether they were called resellers, distributors, system integrators (SI), or consulting partners. If one also considers the rush to beat the Y2K deadline, it becomes clear why the major concern of these partner firms was their technical competence. Indeed, few of them were business- or industry-oriented, neither by nature nor training. At the time, such resellers would obtain an abundance of leads through referrals (from the vendor or otherwise), and would then service these installations for a long time, which meant a comfortable, recurring revenue stream.

The market dynamics and requirements of today have changed dramatically. Now, it is all about understanding business, and not merely technology, all within an atmosphere of cutthroat competition. Previously, firms did not have the pressure to uncover new leads that the VARs of Microsoft, Sage Software, SAP, Oracle, IBM, Infor, Exact Software, Epicor Software, SYSPRO, Salesforce.com, Intuit, NetSuite, and so on increasingly face now. The need for faster deployment speed, improved systems quality, better cost control and resource utilization, and more flexibility to change requirements on short notice have also become critical in today's business environment.

Certainly, partners are needed to provide the link between the master vendor and an expanding (or not yet penetrated) market, such as the small and medium business (SMB) market in some still growing regions. However, the real task is to develop and expand relationships with the right type and number of partners, so that the master vendor can also grow its presence in the target market. Indeed, many vendors have recently come to the realization that their customary obsession with mere VAR quantity might actually weaken the effectiveness of a good partner program. Increasingly, the quality of such a program is about covering the market potential effectively, by focusing on targeted, carefully picked partners who can deliver ever-higher value in the markets the vendor needs to address, while keeping all parties focused on customer needs and satisfaction.

But the magic formula for a mutually beneficial arrangement for the vendor and its partners has traditionally been complicated, if not completely elusive. After all, the goals of both parties are basically the same: to prosper, to obtain prospects of continual gain of new business, to satisfy and more than satisfy customers (future references) and so on. The difficulty is in the execution, especially for the partner: typically a smaller firm, it has to balance its viability (after all, it has to invest in starting up the business, in training and maintaining a number of consultants and sales employees for a particular product, etc.) with exclusive loyalty to a particular vendor, which in turn cannot possibly guarantee enough business to every partner.

While master vendors prefer an exclusive relationship (some even impose this exclusivity), at the end of the day the vendor cannot take care of the cash flow and liquidity of each partner. Having said this, losing a VAR due to bankruptcy or defection means disruption to business, as well as customer dissatisfaction: every change is painful. If a VAR's business slips away, it must and likely will be replaced, either by the vendor's own professional services, or by another VAR hungry for new business. On the other hand, to stand a chance of higher business volume, many VARs have to partner with multiple master vendors, which often results in becoming "a jack of all trades and master of none."

When choosing a VAR partner, some vendors thus impose stringent requirements, mainly regarding the prospective partner's competence, size, and business model concept. Partners, on the other hand, typically place importance on values such as the vendor's track record of partner satisfaction, brand preference, and the vendor's backing and loyalty. After a partnership is signed, training and support is supplied by the vendor in the start-up phase. But after a certain number of customer systems installations have been performed, the partner is traditionally deemed to be self-sufficient, and from this phase on, the vendor helps mostly with marketing support. In other words, the VARs still have to be able to close deals themselves and maintain a viable business model, which increasingly means expressing the message that they are specialists in one or more defendable niches.

Moreover, not only is there a likelihood of internal competition for business (because of crowding in some region or vertical segment), but also many VARs have realized lately that living from just the markup on the vendor's software license fees will not suffice in the long run. There is rapidly constricting opportunity for "pure installers," who can perhaps make the technology pieces fit together (installation, data import, occasional table customization, user training, and so on), but who are not necessarily able to think strategically on the customer's behalf through all the implications, or to pinpoint tactical complications that might arise when these pieces get joined together.

Certainly, some partners can provide valuable industry-specific expertise (if their seasoned staff members happen to come from a certain industry), or provide strategic counseling about how systems might enhance operational performance and business objectives (so as to be able to charge for business consulting, which is more lucrative than pure software peddling and installation). However, there is increasingly the notion of the VAR need for intellectual property (IP) packaged as software, which can be applied repeatedly elsewhere ("develop once, deploy many times"). The big market push of late is to serve vertical markets which want software to fit the special needs of their business. Even with a high degree of technical knowledge, most VARs nowadays need a degree of business skill that differentiates them from generalists.

The added value inncreasingly required from partners is not only that they be able to sell in the markets in which they currently have presence, but also that they spark the creation of vertical solutions and add-ons to the master vendor's horizontal solution to the rigorous needs of a refined group of customers anywhere in the world. For example, on a global basis, SAP's PartnerEdge channel partners have reportedly created more than 550 qualified mySAP All-in-One partner solutions for microverticals (in other words, sub-segments of a defined vertical industry) based on the flagship mySAP ERP application targeting the lower mid-market, and over 250 add-ons for the SAP Business One product for SMBs. In December 2005, SAP announced that 12 new solutions were among the first certified integrations under SAP's PartnerEdge program, while an estimated 200 more are in the pipeline from SAP ISV partners worldwide.

SAP has been addressing the upper mid-market with SAP packaged solutions that have the same code base, such as the core mySAP ERP/mySAP Business Suite. These solutions come combined with appropriate SAP Best Practices templates and accompanying services designed to significantly reduce deployment time by eliminating development and leaving configuration only to be conducted for each customer. On the other hand, SAP has earmarked SAP Business One for the smallest businesses, and for subsidiaries of larger enterprises (see SAP Tries Another, Bifurcated Tack at a Small Guy).

Thus, of late, there seems to be ever more blurring of the line between VARs (the partnering firms that would rather focus on implementation and integration than on software development per se) and ISVs (the partnering firms that would rather focus on developing software applications than on implementation and integration). There are still many remaining "white space" opportunities in most major vendors' functional product roadmaps, which are too small for the mighty vendor to justify developing in-house. This is particularly the case with the recent advent of composite applications based on service-oriented architecture (SOA). For this reason, some expect to see growth amongst business services providers (BSPs) that combine software with market- or vertical-specific business process intellectual property and services, further increasing user choices and enabling improved business efficiencies. In general, the growth of standards-based and component- or SOA-based applications will bolster joint venture application development between vendors and their resellers (see SOA as a Foundation for Applications and Infrastructure).

By adding assembly as an alternative, Web services and SOA will probably change the traditional "build versus buy" debate and application decision. In this scenario, the partnering software and services providers would sometimes join forces with innovative early-adopter customers to develop business process-focused templates, more and more often with an industry-specific flavor (see Buy, Build, or Somewhere Between and Build versus Buy - A Long Term Decision). The best example of this kind of alliance might be Salesforce.com's AppExchange or NetSuite's NetFlex on-demand application development platforms (see Software as a Service Is Gaining Ground). Certainly, with limited research and development (R&D) resources and even fewer time resources for bringing new products and services to market, almost every vendor is leveraging offshore development resources. However, this does not necessarily address the concurrent time-to-market and innovation issue, whereas owning a solution built atop the vendor's own software by an early-adopting savvy customer or partner does both.

The catch lies in making sure that the partner can justifiably develop and sell those kinds of applications, without reinventing what some other partner in another corner of the world has already invented. Also needing to be considered is the potential shock of realizing that the master vendor has also—possibly clandestinely—been developing the same functionality, which means the cannibalization of the partner's business. Having said this, no partner will complain if the vendor wants to acquire the intellectual property and roll it back into the standard product's foundation (see Has SAP Nailed Plant Level Leadership with Lighthammer?).

The Tale of Two Extremely Different VAR Experiences:Indeed, only a handful of vendors thus far have developed a nurturing model for their partners. Possibly the best example is the business model of Swedish ERP vendor, Jeeves Information Systems. This model has been exclusively indirect, since most of the company's employees work on product development. Its revenues are thus sourced only from licensing and maintenance fees, while sales, installation, modification and servicing is effected through nearly 400 dedicated partner professionals worldwide. This gives Jeeves a presence in about fifty locations in eighteen countries, primarily in Europe. Consequently, there is basically nothing to prevent its reselling partners from creating their own packaged ready-to-run solutions for industry verticals as a platform for further adaptation to each client's business. A considerable number of such industry solutions built on Jeeves Enterprise are in fact available today.

Jeeves might thus be offering the best of all worlds: a measured balance of packaged versus adaptable solutions, which has long been in sharp contrast to the routine entire-applications-value-chain approach (or "as much as possible") illustrating the business model preferred by most other master vendors. Conversely, Jeeves prefers to focus only on product development (R&D) and sales support, while completely leaving lucrative sales, customization, implementation, training, and support to trusted and competent partners. In some ways, this resembles the model of former Lilly Software Associates (now part of Infor), Microsoft Business Solutions' (MBS) recent Industry Builder, Sage Software's Sage Select, and SAP's PartnerEdge initiatives, although Jeeves gives partners much more leeway to develop and own the intellectual property of tailored industry solutions.

In other words, until recently many other vendors preferred centralized development (that is to say, by the vendor itself) of new extensions. This kind of development is easier to administer, quality test, and deliver across the globe. It also provides a unified front to customers, but it still limits the partners to being mere installers, perhaps with some software localization IP opportunities. For instance, the above-mentioned SAP Best Practices program was introduced in the mid-nineties, and includes internal SAP data structures for fostering re-use across industries, as well as external programs for helping partners plan the development and management of their value-added solution components. SAP's most significant recent Best Practice initiative includes the creation of regional small-to-medium enterprise (SME) Solution Centers to accelerate the delivery of offerings for midsize enterprises, support closer collaboration with partners, and reduce the cost of creating new offerings. Partners can then leverage the output from the SME Solution Center (which includes SAP Best Practices, ASAP Focus methodology, and an implementation services package) as a starting point, and can configure the output for their specific sub-industry and specialty to create a qualified mySAP All-in-One partner solution, which in some instances, has reduced deployment time to less than sixty business days.

In any case, the market created by Jeeves is nearly ten times the size of its own turnover, since partners with experience and skills operate critical links of the software value chain, such as sales, modification, and installation. These kinds oof revenue scales and ratios could only be wishful thinking for other vendors' ecosystems, not to mention for the internal competition amongst the hundreds of resellers covering the same market segments. Furthermore, specialization is thereby maximized at every level, since partners often have specific industry skills and deep domain knowledge in various business processes, which in turn provides qualified feedback for Jeeves' product development. These partners are selected industry specialists who can tailor Jeeves Enterprise to fit virtually every customer's need; over 80 percent of the partners have more than 5 years of experience with the product, which means that end-customers should in theory gain expert advice and support.

But achieving such nirvana is a far from easy, as demonstrated by the examples of some vendors which have recently completely reverted to a direct sales model, due to the lack of competence and zeal in their former VARs. The recently acquisitive SMB market incumbent vendor, Made2Manage Systems (see Made2Manage Systems �One Year After': Reenergized and Growing), cites many examples of a total disconnect on the customer-VAR-vendor line, including cases where some VARs did not inform the customers of the latest product and service developments (although that would have been a no-brain sale). Even if customers had needed these developments, they would not have known what exactly to ask for. Some extreme cases involve VARs that did not tell their customers of the M2M University educational offering, in order to keep training revenues to themselves. Implementation quality issues also presented a major problem, and the vendor cites much improved customer satisfaction surveys since going back to the direct model.

Indeed, while ill-fated ERP implementations have long been reported and their causes analyzed (see The "Joy" of Enterprise Systems Implementations), according to a recent press release by DiamondCluster International, a Chicago, Illinois (US)-based consulting firm, data about ERP implementations are still disturbing. By some accounts, 20 percent of projects are shut down before they are completed, and more than half do not finish within budget, schedule, or scope. And yet in 2005 alone, about $20 billion (USD) was reportedly spent to buy, implement, and maintain ERP systems. Such investments will undoubtedly continue, since organizations need the efficiencies that ERP promises. One of the major causes of project failure has been the business-oriented inadequacy of implementation partners.

Supply Chain Management Vendor Finds Balance for Service Supply Chains

The early years for Click Commerce (founded in 1996) centered on extranet enablement, and in particular, on demand chain solutions for business-to-business (B2B) and business-to-customer (B2C) e-commerce. Click Commerce's early channel management software allowed manual and dynamic creation of relationship hierarchies and online communities within a distribution channel, through the use of membership rules. The intent of this functionality was to help enterprises establish B2B distribution portals and B2B-to-consumer portals. In these portals, the relationships and business process rules between the enterprise and its channel partners are transparent to the consumer. Enterprise channel management strategies gradually gave way to the potentially explosive private trading exchanges (PTXs), leaving Click Commerce and competitor Comergent in a leading position for the sell-side PTX market. This market, however, never materialized.

Click Commerce also ventured into product information management (PIM), acquiring PIM vendor Requisite Technology in late 2005. Flagship client Delphi Automotive worked with Click Commerce to move its entire aftermarket catalog online, as the first step towards aggressively driving its aftermarket e-business. Large tier one suppliers looked to Delphi as a model for how to manage an aftermarket e-business strategy without rubbing distributors and original equipment manufacturers (OEMs) the wrong way. Delphi's initiative also continued Click Commerce's successful run at extranet implementations in automotive and heavy equipment channel management.

Click Commerce's Version 4.0, dating from early 2000, featured layered architecture consisting of the Relationship Manager platform and a suite of more than eighty application modules. Version 4.0 featured extensible markup language (XML) for communication between its application modules and an enterprise's legacy, enterprise resource planning (ERP), and other back-end systems, in order to streamline implementation and integration processes. Click Commerce licenses Relationship Manager and Application Suite at enterprise or divisional levels. The enterprise then authorizes its channel partners, and in some cases the consumer, to access the modules, including the enterprise's ERP software and other legacy systems, via an Internet connection and a browser.

More recently, Click Commerce has ventured into warehousing and service supply chain execution solutions, with the acquisitions of Optum Software in early 2005 (which had in turn previously acquired World Chain) and Xelus, Inc., a leader in services parts management, in June 2005.

Optum was an established supply chain execution (SCE) vendor with over 750 implementations of its MOVE WMS product; clients included Grainger, Federal Mogul, GE Aircraft Engines, and Pier 1 Imports. Like many SCE vendors, Optum realized that its core competency of complex, high volume warehousing and distribution systems could be transformed if the classical four walls and enterprise-constrained boundaries in SCM could finally be broken. Optum invested heavily in its TradeStream product; this was a collaborative integration and aggregation application which provided centralized visibility of order and inventory information. This was an ambitious undertaking, and a more difficult project than it seems, given the difficulties of connection technologies and critical mass participation within a specific supply chain community. TradeStream was piloted and implemented by Lucent Technologies, which brought credibility to the initiative.

The company which for three decades was known as LPA, renamed itself Xelus in mid-2000, to exemplify its new zeal. Xelus, a leading service parts inventory management application vendor, survived by dominating the market for best-of-breed service parts inventory and demand planning technology—first with customized systems, and then with software applications. After a difficult period from 2002 to 2004, the company emerged with new technology, leveraging its installed base of clients like Delta Airlines and British Airways.

Click Commerce's supply chain solutions, while diverse, find synergy and balance through Network Logistics.

Network Logistics:

Click Commerce's supply chain solutions spectrum now spans three segments:

  • demand chain solutions, which regroup B2B and B2C e-commerce, product information management (PIM), and channel management
  • supply chain solutions for warehouse management, order fulfillment, and supplier relationship management
  • service supply chain solutions, with parts forecasting, planning and optimization, repair depot management, and reverse logistics.

Network Logistics combines the strengths of the (acquired) parts, coupled with existing and newly developed technology:

Integrated service supply chains require the connection of demand, supply, and service, to power high performance supply chains that are lean, extended domestically and globally, agile and flexible, and demand-driven. Supply chain execution can be more complex in the service supply chain, as parts and assemblies have multiple and varied part identities, workflow, and assembly and disassembly processes. Service supply chain optimization is the key message and strategic thrust of Click Commerce. Service supply chain complexity is inherently plagued by critical issues of disconnected and error-prone manual processes, suboptimal fill rates and service levels, high inventory and cycle times, forecast inaccuracies, and limited flexibility. Click commerce is proceeding with its solution strategy based on the premise that time is the common metric across all links in the service supply chain. A tight coupling between decision support and execution systems is required in order to reduce cycle times, which translates into increased performance.

Network Logistics 4.1, the current generally available suite, addresses the critical service supply chain issues via rapid trading partner integration; n-tier supply chain coordination; global supply and demand visibility; order and forecast collaboration; real-time sense and respond capabilities; predictive, exception-based event management; and supply chain analytics. More specific to service parts management than previous releases, this release also offers subinventory tracking of inventory details, attribute and rule specifications based on part group, parts substitution, user level configurability, replenishment based on inventory condition, and enhanced serial number tracking.

Click Commerce has an ambitious product evolution roadmap that includes the technical progression of its Network Logistics and next-generation warehouse management systemn-tier architecture, pure Java code base, with multiplatform support and database independence. The next generation WMS solution, WMX, scheduled for release in the fourth quarter of 2006, will be based on service-oriented architecture (SOA), and will be deployable as a service-and-use standard open source tool. Salient features will include voice identification and radio frequency identification (RFID) with compliance. Click Commerce is partnering with Vue Technologies for RFID, and pilot projects with Ryder and HP are under way. (WMS), towards a J2EE

Click Commerce recognizes that the playing field is highly competitive and fragmented with IT behemoths, best-of-breed operators, and B2B platform players. It is imperative for Click Commerce to differentiate via the provision of strategic business process-centric solutions, with technology and solutions that compliment ERP, designed for the extended enterprise. These complimentary solutions need to be flexible, adaptable, and efficient. Click Commerce believes that it will remain competitive because its composite applications will create true business process solutions that follow the current market trend toward integrated suites of best-of-breed applications. ERP has traditionally not been equated with highly agile performance, and Click Commerce believes it can provide process-centric solutions faster and cheaper, with an on-demand or license deployment model.

While manufacturers tend to perceive a conflict between best-of-breed and ERP suites, actual deployments indicate that coexistence is the norm. Recent analyst studies find that companies that implement a framework of leading functionality with strong integration between application solutions can achieve best-in-class operating results.

Manufacturers have dramatically improved inventory turns, and effectively positioned their service parts operations as a key profit center for the future. This coexistence between service planning and enterprise transaction application solutions has enabled service-oriented manufacturers to optimize their resources while supporting increasing demands and complexities with agreements at the level of customer service. Manufacturers have traditionally leaned towards best-of-breed functionality. However, until recently, the lack of acceptance of best-of-breed applications has been a key barrier to technology integration. Applications and integration technologies such as SOA are now evolving so that companies can obtain the best overall solution to their business problems.


Recently announced revenues of $58.7 million (USD) for fiscal year 2005 represented an increase of 128 percent over fiscal year 2004 results. Revenues appear to be evenly split between the three solution segments of demand chain, supply chain, and service parts. The balance of solution offerings appears to be achieving a positive result where the sum of the parts translates into a well-balanced whole. Given its head-to-head competition with major ERP vendors (SAP, Oracle, SSA Global, Infor, and Epicor) and Manhattan Associates, the largest best-of-breed supply chain execution (SCE) vendor, Click Commerce realizes that it will require focus, leverage, and near flawless execution. They are honing in on industry verticals like high tech, electronics, automotive, and aerospace, where they can leverage existing assets as well as its product strategy of an integrated and agile B2B suite delivering more for less. There may also be new opportunities in consumer goods and retail, with its WMX product attributes for RFID and voice identification coupled with strong value-added processing capabilities and next-generation architecture

No Yawn Intended: Enterprise Applications Giant Introduces a Mid-tier Support Choice

A recent series of articles has highlighted—at great length—the price for value conundrum which has long affected both enterprise applications vendors and users (see Is There a Panacea for Enterprise Software Pricing, Yet?). On one hand, vendors would like to have well-oiled business models that promote stable and recurring revenue streams, which in turn ensure future product and service enhancements. To be fair, one should also acknowledge the revenue recognition guidelines that publicly owned US companies have to abide by, which promote the current perpetual software licensing, service, and maintenance arrangements. Also, there are "pricing potholes" even within the more recent and creative initiatives (such as "value-based pricing," "pay as you grow," "on-demand," and so on) that might even, in the end, result in unforeseen costs and become more expensive. These pricing mechanisms typically work well for smaller and simpler applications, but have thus far largely failed with the most complex enterprise-class applications.

User enterprises, on the other hand, demand ever more certainty, comfort level, and justification for what they are paying for, and why they are paying for it. Indeed, enterprise software purchase contracts are rife with "fine print" addendums (which are sometimes longer than the main body of the contract, and which exist typically to protect the vendor from any future liabilities), which customarily specify that the contract includes only the stipulated basic functional and service scope; for any additional module or service attention there is another pricing math applied altogether. For this reason, the client will likely pay far more in the end than if it had gone for "wall-to-wall" license and service arrangements up front.

To the end of mitigating some of the above traditional service and maintenance contractual pitfalls, and to underline its commitment to evolving to meet changing business demands, in early 2006 SAP (NYSE: SAP) expanded its portfolio of support services with the introduction of SAP Premium Support. Generally available on a global basis, this new offering provides an additional option for SAP customers seeking heightened levels of responsiveness, personalized attention, enhanced access to SAP expertise, and new opportunities to drive down information technology (IT) operating costs thanks to service continuity (in other words, thanks to minimization of interruptions).

SAP Premium Support is reportedly based on SAP customer and market research, which revealed increasing customer recognition of the importance of support, as well as a preference for ever closer engagement with SAP throughout the deployment life cycle. The offering provides a new option placed between SAP Standard Support, already a fairly competitively priced and packaged basic support offering, and SAP MaxAttention, a high-end offering tailored to match the specific needs of larger global enterprises. The intermediate support plan offers even faster issues resolution, annual IT assessments, and a designated support advisor, who serves as a personal, day-to-day contact for support-related topics.

Consequently, SAP now offers customers the following three distinct services offerings:

1. SAP Standard Support covers four areas: continuous improvement, quality management, knowledge transfer, and issues resolution. It also offers SAP Solution Manager and SAP Service Marketplace. Standard support is provided at 17 percent of the annual net license fee.
2. SAP Premium Support augments SAP Standard Support with a so-called service-level agreement (SLA), individual services, and a designated support advisor. It is offered at 22 percent of the net license fee.
3. SAP MaxAttention is offered to customers whose operations demand mission-critical, customized support. It includes a permanent on-site support team; an executive sponsor; and SAP Safeguarding, a service portfolio that manages the risks involved in complex implementation projects. A tailored program for each customer aims at keeping costs in line; helping ensure that the go-live date is met; and ending the implementation project with a technically strong SAP solution.

All enhanced support offerings are provided on top of Standard Support, which means that Solution Manager is available in all support scenarios. Based on SAP's ambition to continually improve the value of its solutions and to reduce operations costs, SAP Premium Support aims at delivering comprehensive technical and operational assessments, and actionable recommendations. Under the program, the assigned support advisor guides the customer through the implementation of recommendations, and helps ensure a closer relationship to SAP. In other words, for a 5 percent increase (of net negotiated annual license fees) over standard maintenance fees, customers are entitled to specific benefits:

* SAP provides an annual technical assessment and written plan to optimize the user's IT environment, support infrastructure, or business processes; potential risks and opportunities are identified, and the customer receives a formal report and individual plan for improvements. SAP pledges to provide Customer Competency Center (CCC) setup advice in the assessment section. Assisting customers in optimizing their CCC operation is a strong component of the assessment provided as part of Premium Support. As a corollary, support advisors can also assist the customer with CCC certification or re-certification steps, as well as audits.

* A support advisor (the individual in SAP's support organization who is designated for the account) works to help users understand the written plan, conducts periodic reviews of actions against the plan, and acts as a single support contact and customer advocate (including in the case escalations if there are problems with resolving a difficult issue).

* SAP guarantees response times for specific problem levels, which are based on SLAs. These response times also include time to corrective action. In addition to the right to institute the usual financial penalties for vendor under-service, the customer is entitled to visibility of the status and estimated resolution of the problem.


Some pundits might question the ulterior motive behind this initiative (by identifying it as a mere ploy by the vendor to generate more recurring revenue), and thus anticipate lack of interest and enthusiasm on the part of users. And some might try to find cases where the plan might not really be beneficial (or where it might be worthwhile rather to opt for one-time paid service on demand, given that users can already obtain the technical assessment and written plan for a consulting fee). However, some risk-averse prospective and existing customers who run complex business processes might still find it worthwhile to invest an additional chunk of money for their peace of mind, or to generate a feeling that they are somehow more "special" to SAP.

Possibly the most controversial contractual fine print items are service and support calls. But business-related problems inevitably arise daily from the use of software within any business environment, and they may result from flaws or bugs in the software, or from a misunderstanding about how the software works, or both. In any case, software customers want to be able to contact a qualified expert to discuss the issue and resolve it in a timely fashion, with minimal impact on their business—and they do not really care whether the issue arises from a bug or from user error or ignorance. Software vendors need to provide unlimited access to support services that include experts who are trained in detecting and fixing design flaws in the software, and who are able to explain—in lay terms—how to get the software to perform the strategic functions required by the customer. To that end, no one wants to plow through fine print to see how many calls the customer has been accorded free of charge, and within which time bracket they have to be resolved.

Given that SAP and Oracle have always been each other's pet peeves, it is not a coincidence that SAP Premium Support is offered at the current price of Oracle's counterpart standard support; and that at least should not leave many folks indifferent or drowsy. With the components of the Premium Support offering remaining intact, SAP is able to cover a subset of a landscape (so-called partial landscape coverage). Some larger and more alert mid-market customers might hence be attracted by the availability of designated SAP representatives who in the past were only available to their largest brethren. This will likely force other vendors to start dishing out their enriched offerings along similar lines.

Certainly, some question marks will arise at this stage, and SAP will have to flesh out many more support scenarios in order to attract masses of customers opting for the support plan. Details and explanations will be needed for prospects and customers with highly heterogeneous IT environments, including many legacy systems. Namely, will the users who have other mission-critical applications in place necessarily accept the suggestions of a support advisor who is also a support contact point for SAP? It will take time and many proofs of concept to develop the discerning users' trust that the advisors will act in the best interest of the customer rather than in the interest of bringing more business to SAP (possibly by recommending the replacement of niche competing applications with the SAP equivalent).

Even if the customer's best interests are in the advisor's mind, SAP will have to more vigorously clarify and detail support scenarios for the emerging complex IT environments that will evolve in the world of service-oriented architecture (SOA) and composite applications. This is particularly necessary given SAP's recent push to recruit many partners of SAP's Powered by SAP NetWeaver and Certified by SAP NetWeaver programs (see Multipurpose SAP NetWeaver).

The problem with any all-encompassing deal for managing anything as complex as global manufacturing and supply chain operations is that some users might end up paying an unnecessary premium: the vendor has to price it high enough to enable it to deal with the swath of possible problem situations in diverse IT environments. In other words, user enterprises that have no frequent problems or that are good at controlling them on their own, might end up paying too much. The minimum price for SAP Premium Support is about $30,000 (USD), which translates into customers spending more than $150,000 (USD) in software licenses annually. Only time will tell whether the costs are well within the market value. Nevertheless, the presumption is that these costs are based on SAP's vast experience, within which it has managed to come up with a profile of its typical Premium Support customer, including functional and service requirements.

Certainly, SAP advisor personnel will have to display deep industrial experience, business acumen, and multidisciplinary skill sets, since not only will they have to be intimately knowledgeable of the mix of SAP functional and technical features (and their interdependencies), but also of partner products, and perhaps the complete playing field (including competitive offerings). There are not many details at this stage about the current size and strength of the SAP Premium Support advisory roster.

More choice and personalized attention can only be a good sign for consumers, and prospective and existing customers, especially those with a majority of IT assets belonging to SAP (while not necessarily being homogenous SAP shops) should certainly evaluate this optional service agreement. After all, they have a stake in the health of their vendor and its ability to keep abreast of the latest developments, but a critical evaluation will allow them to better assess (or reassess) a likely ongoing relationship. The devil, as usual, is in the details, and every user company should conduct a thorough study to determine whether ensuring peace of mind is worthwhile enough to opt for the entire package, given that some of the elements of SAP Premium Support may be available piecemeal. Users should definitely approach SAP and ask for concrete instances of (for example) advisors' deliverables and proofs of concept; early adopter benefits; and conflict of interest preemption.

At the heart of all this, of course, is the notion of return on investment (ROI). This is not a new concept by any means, and is quite straightforward: it is the ratio of the benefits of a project, initiative, or purchase, to the associated costs and investment (see Whose ROI is it Anyway?). Performing ROI calculations might be easy, but deciding what figures to plug into the calculations can be particularly daunting, given that there are both tangible benefits (such as service uptime increase) and intangible, "soft," non-quantifiable benefits (such as user satisfaction or smoother business processes).

Generally speaking, there is hardly any valid reason why prospective and existing users should not challenge their software vendors to better address some of their legitimate requirements for more certainty and tailored attention as an integral part of the administration and deployment of their applications. There is no "one size fits all" solution to the problem, but as with any long-term contract, prospective clients should carefully review the fine print to understand the implications that the new or revised licensing and service contract will have on their future expenses

User Recommendations for Pricing Management

What SAP Gets via Partnerships:As explained in Applications Giants Bolster Their Pricing Management Capabilities in retail, pricing and profit optimization are analytic applications that analyze demand patterns and optimize pricing by each stock-keeping unit (SKU) by selling location in order to optimize revenue and gross margins. In a bid to meet the growing demands of the price management market, SAP has entered another partnership, this time with Vendavo. The benefits SAP will gain from this partnership are similar to those previously held by SAP—which have often resulted SAP acquiring its partner. Past partnerships-turned-acquisition have included TopTier and TopManage for a portal and small business applications, respectively (see SAP Acquires TopTier to Further Broaden Its Horizons); A2i for product content management (PCM) and master data management (MDM) capabilities, see SAP Bolsters NetWeaver's MDM Capabilities; Part Four: SAP and A2i); and Lighthammer to deliver enhanced connectivity between the plant floor and the enterprise (see Has SAP Nailed the Plant Level Leadership with Lighthammer?).

Part Three of the Applications Giants Bolster Their Pricing Management Capabilities series.

Vendavo has long been a strategic marketing and development partner of SAP. It has an industry-centric pricing product, which is delivered as an SAP xApp-like composite application. Consequently, the SAP and Vendavo product roadmaps are jointly developed and synchronized, and both vendors are collaborating with customers to avoid duplicating effort and overlapping functionality, and to provide more seamless integration.

Through this partnership, SAP immediately gains workflow-based price execution capabilities, and both vendors have plans to jointly expand into price optimization. In addition to remedying the performance and scalability of embedded Vendavo solutions (currently, the 32-bit Vendavo product architecture limits the historical data size that customers can import to evaluate the transactions' profit) there are other improvements reportedly in the works. For example, the ability to handle multiple pricing waterfall definitions for different business units, in a single instance of product, is also being improved.

Furthermore, a high percentage of Vendavo clients are also SAP clients, which should help SAP manage their expectations. Additionally, the improved price execution functionality should make SAP more competitive in non-SAP environments too. SAP has a solid native price execution functionality for administering prices once they are determined, but has no optimization functionality and only limited enforcement capabilities.

For an extensive discussion of the issue of pricing management see The Case for Pricing Management and The Rise of Price Management.

Also see The Retail Battleground for Pricing Management for further discussion of the justification for pursuing the acquisition strategy.
SAP Responds to Customers Demand:Although the price enforcement functionality is largely based on analytics and workflow, which are both provided by the SAP NetWeaver stack, developing the pricing know-how seemed apparently daunting even to the mighty SAP. Reseller deals are unusual for SAP, which usually prefers to develop its intellectual property in-house. The only similar deal that comes to mind would be the agreement with Virsa for the US Sarbanes-Oxley Act compliant software (see Joining the Sarbanes-Oxley Bandwagon; Meeting the Needs of Small and Medium Businesses). It might be interesting to note that SAP has just recently acquired Virsa.

SAP has repeatedly stated that when its customers ask it to incorporate new functionality into its product suite, the vendor will consider making partnerships or acquisitions to meet these needs. Although that approach might sometimes conflict with its strategy to attract a vast independent software vendor (ISV) development community within the NetWeaver environment, it is nonetheless quite clear that SAP is dedicating a significant amount of resources to the NetWeaver concept, since what drives SAP is the desire to sell NetWeaver licenses, and its portal and integration technology.

But, the competition is not going to sit still and wait for Vendavo and SAP to deliver their algorithmic price optimization capabilities, especially for specialty chemicals customers whose needs are growing in this area. There are many competitors out there, but only some have broader price management solutions that do not require harrowing customizations and claim to have credible customers in the chemical industry. Of these are PROS Pricing Solutions, pVelocity, Metreo, and Zilliant.
Ultimately, this move into pricing management is good news for the respective customers of Vendavo, Khimetrics, ProfitLogic, SAP, and Oracle, particularly those that seek to improve their pricing processes and exchange relevant information with business partners that are not necessarily SAP or Oracle shops. These announcements may also come in handy for SAP and Oracle customers looking for a pricing solution, and it should generate increased confidence about vendor viability for many Vendavo, Khimetrics,or ProfitLogic customers. They should immediately explore how the tight integration into the application stack via SAP NetWeaver or Oracle Fusion Middleware might benefit them. SAP and Oracle should take the acquired products' integration relatively judiciously, while being careful to preserve and build on the formerly independent products' successes in order to allow the right balance of autonomy and embedding to evolve.

SAP and Oracle users evaluating price management solutions, especially if they are comfortable with NetWeaver and Fusion and are in process or retail industries, should seriously consider the added products. Nevertheless Khimetrics and ProfitLogic customers or prospects with no SAP or Oracle products, or those that do not plan to engage these vendors should not automatically rule out Khimetrics and ProfitLogic. Since their functionality will become SAP- or Oracle-centric down the track, customers or prospects should also consider other pricing providers, some of which are also SAP partners like DemandTec. Retailers should contractually compel the acquiring vendors to support these pricing products as separate applications for the foreseeable future, and achieve favorable deals if they want to implement other SAP or Oracle products.

In other industries, users should evaluate different options, keeping in mind the vertical industry's savvy and fit, along with the vendors' commitment to industry and technology standards. If vendors claim to focus on a certain industry, prospective customers should add them to their long list and look at them first. Users should ask these vendors why they feel they can do a better job, and should look for the vendors' understanding of the industry's revenue, its cost and profit drivers, and the product features that take will take these factors into consideration. Asking for industry-specific references goes without saying. If vendors do not exist for a particular vertical, or if an adequate reason is given for not using a vertical vendor, then a horizontal or cross-industry pricing vendor might be appropriate. Also, expertise of the professional services team delivers more vertical distinction than the software itself, but with a sizable price tag.

In general, almost every company can benefit from a pricing solution and improved pricing practices, and should approach the management of selling prices and increases with the same rigor they use to curb upstream supply chain and manufacturing costs. On its own, price management might improve revenue (by a few percent) and gross margin (even by an umpteen percent), but the truly amazing benefits will only come when price management is integrated with the appropriate cost information and demand management system. Companies that can shape demand through price changes should focus on a combination of price optimization and price enforcement, whereas the other companies might want to start with price enforcement first. Thus, avant-garde companies are turning their focus toward price management, while their direct competitors are feeling the pressure to embark on their own pricing management deployments. A litmus test to gauge whether thee solution is needed is to ascertain how long it takes to process a special pricing request. This will determine how convoluted the pricing approval workflow is. How long salespeople spend looking up, inquiring about, and communicating prices should also be determined.
As price management is still an emerging and highly fragmented space, selecting vendors based on their viability is not possible, because the space will consolidated. Thus, seeking appetizing projects with a proven payback and proof of concept are advised. It is also advisable to seek an on-demand deployment, where possible. Since price execution functionality, such as price list management, discount management, price configuration, etc. is delivered through enterprise resource planning (ERP) functions and data, it is essential that the selected price management product can be easily integrated with tools like MDM, to achieve immaculate order-to-cash execution processes.

In reality, not all businesses are ready to benefit from profit/pricing optimization, but all these products and services are driven by information that comes from the users' existing systems or can economically be generated. Pricing/profit optimization is not magic. It starts with information and if users do not have the right information, they will not get the right result. Typically a few years of data history is needed to "prime" the system (meaning lots of data capturing, quality testing, and interaction with the vendor), but, some companies will still make errors about data they do not have, which brings us back to the need to balance pricing with demand management and consumer research to gauge, for example, whether the consumers feel the last price hike was justified.

Applications Giants Bolster Their Pricing Management Capabilities

Almost all companies need to manage selling prices and potential price increases with the same firmness used to manage manufacturing and procurement costs. Traditional enterprise applications providers, having lacked the pertinent native capabilities and intellectual property to aid in this domain, are now moving to oblige their customers in various industries. For an extensive discussion of the issue of pricing management see The Case for Pricing Management and The Rise of Price Management.

Thus it is a small wonder that, despite the many acquisitions and the impending consolidation of the market, there is still a plethora of vendors that handle only pieces of the price management puzzle and have expertise in a certain set of industries and niches. For instance, large enterprise applications providers might have pricing tools that use business rules for different discounts for client classes, but these tools' cumbersome pricing lists and information require significant manipulation and effort to turn them into viable sell-side strategies.

Conversely, some specialist pricing vendors focus on capabilities like price visibility, and provide a dashboard to show how well or poorly current pricing is doing, while others do price optimization and planning, or offer methods for setting a better price.

The following is a list of several pure-play vendors (some which have recently been acquired) that have carved out certain niches in the pricing space.
Vendor Niche
DemandTec Retail merchandize pricing and promotions.
KhiMetrics (now part of SAP AG [NYSE: SAP]) Grocery and general merchandise pricing, promotions, markdowns, demand forecasting, and demand intelligence.
Manugistics Expanded into many industries' pricing provision, after the acquisition of airline and hospitality pricing specialist Talus in 2000. See Manugistics Lays Groundwork for Talus Integration.
pVelocity Profit management for process manufacturers. It supports a combination of customer segmentation and offers profitability analyses of the manufacturing process for each product. It also aligns corporate profitability by making price enforcement tools available to both manufacturing and sales personnel. pVelocity also focuses on "profit velocity"—the profit/time ration of a product or piece of equipment, along with a planning tool to adjust throughput rates as a what-if scenario tool.
Metreo Price optimization and price enforcement functionality for manufacturing and distribution companies with complex transactions and a high volume of data.
ProfitLogic (now part of Oracle) Soft goods and apparel markdown pricing.
PROS Revenue Management A veteran energy and airlines price optimization provider, with advanced capabilities across all the above three areas of price management
Maxager

Mining and power industries pricing, and also in process industries, in terms of profit velocity and optimization of profit across the plant.

Rapt Price optimization in multiple industries
SAS A business intelligence (BI) giant now has price, promotion and markdown optimization suite in supermarket and other fast-moving retail segments due to the acquisition of Marketmax a few years ago. (See SAS and Action-Oriented Business Processes: Alliances, Partnerships, and Acquisitions)
Lawson Software A prominent enterprise resource planning (ERP) provider with some retail pricing capabilities, after the acquisition of Numbercraft in 2003. (See Lawson's Approach to the Retail Market.)
Revenue Technologies A price enforcement provider in multiple industries.
Selectica The leader in order configuration and pricing.
Azerity A high-tech/electronics products price execution and enforcement provider.
Vendavo Price analytics and execution in chemicals, mills, gas, and oil, and high-tech sectors
Zilliant Originally a price analytics and optimization vendor, which has recently branched out into price enforcement and price execution for manufacturing and distribution sectors), to name only some.

These pricing management brand names have recognizable clients, though not all are willing to publicly vouch for their providers. Namely, when user companies find some pricing success they are reluctant to talk about it, largely in an effort to preserve their "best kept secret". However, when projects fail or underachieve, much grumbling and demand for concessions are heard.

This is Part One of a three-part note.

What are SAP and Oracle Doing?Marshaling the most complete retail industry systems is one of the latest battlegrounds between Oracle and SAP. Early in 2005, after some tug-of-war, Oracle outbid SAP for Retek, a specialist vendor of retail merchandizing management software. Then in mid 2005, Oracle added to its retail functionality by acquiring ProfitLogic, a niche vendor of merchandize pricing and profit optimization software with strength in specialty goods and apparel markdowns. Then in early 2006, Oracle acquired 360Commerce, a premier provider of store and workforce management solutions (most likely to counteract SAP's Triversity move) and TempoSoft for its retail workforce optimization capabilities.

For more information on the scope of retail management systems, see Retail Systems: A Primer and Retail Market Dynamics for Software Vendors.

As detailed in The Case for Pricing Management, pricing is a complex process, and this is particularly true in retail. In this sector, a thorough understanding of the numerous interdependent variables that drive demand, such as seasonality, price elasticity, cross-elasticity between items, and inventory presentation, are critical to making profitable pricing decisions. To that end, Oracle Retail Price Optimization (whose functionality largely comes from former ProfitLogic) provides merchants and price analysts with customer demand insight and optimization. These functionalities enhance the pricing process by enabling retailers to provide the right products at the right prices, to promote products to drive sales, and clear them profitably, while providing more space for fresh, full-price merchandise.

Some targeted capabilities that should allow users to sharpen their pricing policies and drive higher profits include the ability to

* Determine key items based on true customer market-basket drivers;
* Consider key demand drivers such as price elasticity, seasonality, cross-elasticity, and targeted price elasticity models at the item and store level;
* Predict "drag along" revenue and margin for each key item at the store level;
* Recommend the exact minimum relative price gap need to compete effectively for each store or key-item;
* Predict the whole-store revenue and margin impact of a key item price change;
* Provide what-if decision support to simulation options prior to executing the strategy; and
* Assess the impact of competitive price changes.

However, recent moves by SAP might jumpstart a more comprehensive and pervasive adoption of price management solutions (in several industries), which is particularly relevant givenn that price management solutions certainly needs a major boost marketing awareness and product development investment. Last November, Vendavo and SAP announced that SAP will offer a more comprehensive solution for price and margin management by reselling Vendavo's price management software suite to its customers within manufacturing industries, such as chemicals, high tech, and oil and gas. The new solution, which is "Powered by SAP NetWeaver" certified, will complement and enhance the price execution capabilities of mySAP ERP and mySAP Customer Relationship Management (mySAP CRM) with real-time, sophisticated pricing analytics, a framework for price setting and policy management. Also, there will be interactive negotiation capabilities to recommend, negotiate, and evaluate prices and terms on sales agreements. Sold under the name SAP Price and Margin Management (SAP PMM) by Vendavo, the solution is generally available. SAP is initially targeting the chemicals, high tech, and oil and gas industries, but it anticipates addressing a much broader set of industries in future release cycles.

Vendavo and SAP's strong partnership is supported by a growing number of Fortune 500 customers that are willing to talk about their experiences, thereby giving the vendor and the pricing execution concept a much needed "shot in the arm" which will help strengthen this market. Vendavo currently claims about twenty customers, where about two thirds' of these are common customers with SAP, such as Hexion Specialty Chemicals, BP Petrochemicals, Georgia-Pacific Co., and Eastman Chemical Co. Some other publicly named chemical customers include Borden Chemical, Honeywell Specialty Materials, Chemtura Corporation, and NOVA Chemicals. Many of these have reportedly increased their net margins significantly by solving a broad range of pricing challenges that include managing strategic pricing initiatives, such as creating and executing custom pricing based on a specific customer' purchase history or strategic importance. They have also been able set list prices, manage price lists, control margin leakage, negotiate and manage contracts, price quotes, track pricing performance and customer compliance, and communicate prices across the organization.

To that end, Vendavo solutions have to integrate well with other mission-critical, customer-facing processes and applications. The vendor has thus worked with SAP for more than three years and it takes great pride in the seamless integration of its solutions and in the strength of its Powered by SAP NetWeaver certification and partnership (which currently means that Vendavo uses SAP's Web Application Server, BI, Enterprise Portal and Exchange Infrastructure [XI] components of SAP NetWeaver). But now, customers will be able to license a comprehensive, fully-integrated price and margin management software solution from a single source—SAP.

On the other hand, SAP cites that the relationship with Vendavo is a prime example of how the "gentle" giant meets specific customer needs by leveraging the independent software vendor (ISV) partner ecosystem, called SAP's Industry Value Network (IVN) to complement and extend SAP solution offerings by filling the "white space and red space" in its industry product roadmaps. It might be interesting to note that it was the SAP Chemicals Industry Business Unit (IBU) that has also long sensed the rising demand for adaptive manufacturing (plant-level visibility). As a result, it struck a partnership with Lighthammer that subsequently resulted in its acquisition and the delivery of SAP xApp for Manufacturing Integration and Intelligence (SAP xMII). For more information, see Has SAP Nailed The Plant Level Leadership With Lighthammer?

What Vendavo Contributes:At this stage, Vendavo can certainly help with graphical and interactive price execution and enforcement capabilities. It bases the SAP PMM approach on three core elements—insight, guidance, and empowerment. Insight, or the Vendavo Profit Analyzer module provides "on-the-fly" pricing analytics for business decision makers, so that they can understand every component that drives pricing performance. The module features capabilities, like price waterfalls; price and margin bands; scatter plots; comparisons; indexing; time series and trending; statistical analyses and regressions; performance driver analyses; etc.

To illustrate, the product breaks prices into its most important factors. Along with the price of the product, it also includes shipping and payment terms, delivery time, customized engineering, etc. When a salesperson fills a template with the terms of a specific deal, he or she is able to see some flagged anomalies, for example, such as that free shipping is only applicable for orders worth more than $10,000. On the other hand, managers are able to set up workflow-based resolutions (approvals) of these situations to stop profit leakages.

Guidance, or the Vendavo Price Manager module, provides price setting and policy guidance to drive more profitable decision-making, with the aim of consistent direction and the proper amount of control of prices and policies across the entire business—including business units, product lines, market segments, geographies, channels, etc. While the goal is to maximize the price, enterprises have to first focus on having a clearer rationale why each price element is set in certain way. Equality becomes the focus, and any outliers are eliminated. To that end, the module can manage multiple price lists, set analysis-driven prices and policies, perform mass price updates, maintain pricing policies, export prices to ERP systems, create Microsoft Excel-based price books, route price and policy change requests, etc. Another important factor is that SAP PMM can handle mass price updates to SAP. Consequently, many customers have reportedly gotten significant payback from improving billing accuracy.

Last but not least, Empowerment, or the Vendavo Deal Manager module provides price negotiation capabilities to make every transaction more profitable in every aspects of the deal, such as price, volume, terms of sale, etc. The product can compare multiple pricing scenarios, analyze these against benchmarks and peer groups, and develop win-win proposals with tradeoffs and suggestions. It can also track contractual commitments and purchase deliveries, leverage competitive win/loss information, and get context-specific target and floor prices. Additionally it can manage configuration- and formula-based pricing, and route proposals via relevant workflow approvals. All these modules can also handle multiple currencies and units of measure (UOMs).


A Dynamic Answer to Enterprise Resource Planning for Services

Although revenue for Microsoft Business Solutions hovers around the $1 billion (USD) mark (only 1/40 of Microsoft's total revenue), Epicor has strategically carved out a significant niche in the Microsoft enterprise resource planning (ERP) market.

Epicor, a Microsoft BackOffice certified company, has built nearly a $400 million (USD) business by being early adopters of .NET technology and one of the first enterprise applications to have 1,000 customers running on Microsoft SQL Server (for the first time in its history Epicor surpassed the $100 million (USD) mark in the fourth quarter of 2006). In addition, strategic acquisitions of Scala Business Solutions in the global mid-market sector and CRS Retail Systems, Inc. in the retail industry have established Epicor's growth in the ERP market. The Scala acquisition has solidified Epicor's global presence in over 140 countries around the world.

With the Scala channel and the aggressive Microsoft-centric technology road map, Epicor has filled a gap within the Microsoft Dynamics family of products. However, it remains to be seen how Microsoft will respond to Epicor's growth. Will ERP for the services market experience another acquisition? Or will Epicor continue on its own path, chipping away at the Microsoft ERP marketplace?

In ERP for the services industry, Epicor has established its presence and its fully integrated offering in the upper mid-market (user organizations with revenues between $250 million {USD} and $1 billion {USD}). In the Microsoft world, where Dynamics SL caters to small services organizations and Dynamics AX competes in the mid-market services sector, primarily through Microsoft's industry builder initiative partnership with Foliodev, there is significant room for Epicor to dominate this space. Epicor delivers a complete ERP solution for larger services organizations targeting the architecture, engineering, construction, Marcom, management consulting, accounting, and software industries that require strong project accounting, resource planning, and time and expense capabilities. With the combination of its customer service model, market expertise, and comprehensive functionality critical to larger services organizations, Epicor delivers a Microsoft-centric ERP for services offering where the Microsoft Dynamics product line falls short in delivering a complete ERP system for services organizations in the upper mid-market.

Epicor Focuses on Its Customers

Epicor's emphasis on customer service has and continues to fuel its growth and success. More than any other mid-market ERP player (except for Microsoft) Epicor has an impressive 15 support centers around the world, consisting of 250 specialists that provide support to clients in 20 languages. In today's marketplace, features and functions play partial roles in the selection process of buyers evaluating ERP solutions. More frequently, ERP players focus on value-added capabilities, such as the quality of their support and customer service, as critical differentiators in the marketplace. In fact, many smaller vendors leverage their higher quality customer service and industry expertise to differentiate their offerings when competing against the tier one ERP giants (such as SAP and Oracle) in the mid-market. During Epicor's user show last October, an overwhelming majority of clients expressed that Epicor delivered excellent customer service by ensuring timely responses and resolution of user issues. Consequently, Epicor has capitalized on its leading customer service approach to gain market share from large tier one ERP vendors.

What's New in Epicor for Service Enterprises?

Epicor for Service Enterprises 8.1.1 focuses on delivering expanded capabilities in the customer relationship management (CRM) and project modules, together with new capabilities in account management. To better serve the upper mid-market in the services industry, Epicor has tuned performance in a number of key areas. Over the course of 2007, Epicor is planning on delivering new capabilities in resource management, multisite, and collaboration in order to better meet the demands of mid-market services organizations with multiple locations.

Epicor has overhauled its resource management module for the upper mid-market services industry including enhancements that streamline its ease of use, develop a resource workbench for capacity and resource planning, and offer off-line capabilities in Excel. Similarly, Epicor is aggressively pursuing its development strategy in the resource management module to grow market share in the mid-market services industries where resource management capabilities are core to the business. Furthermore, the enhancements will serve larger customers with international operations, delivering new features to address multi-company requirements, multiple tax issues, multiple currencies, multiple sites, global resources, and varying business rules in order to manage the diverse data of global services organizations.

Epicor's new information worker (IW) initiative will provide unparalleled collaboration capabilities for Epicor clients that are power users of Microsoft Office applications. Today, Epicor IW leverages Microsoft Office 2003 applications, integrating the ERP capabilities of Epicor with Excel, Outlook, Word, and SharePoint (Microsoft Office 2007 support is coming in a future release). This will help Epicor improve its clients' productivity by extending the use of Microsoft Office with Epicor. Epicor IW clients are able to synchronize their customers, bids and opportunities, client histories, and resource schedules with Outlook contacts, appointments, and tasks, eliminating duplicate entry into each system

Epicor has also simplified the collaboration between its system and Microsoft Office applications, such as Word and Excel, by quickly searching and dragging information from the Epicor task pane to fields in Microsoft Office. Moreover, Epicor users can save these documents to the SharePoint server, and then initiate a workflow process to create a transaction in Epicor along with the necessary document link managed by SharePoint server, thus ensuring improved collaboration and tracking of data. The addition of Epicor IW will improve the efficiency of an Epicor organization that is a power user of Microsoft Office applications, and that is looking to reduce multiple data entry and to streamline Epicor's interoperability with Microsoft Office.

Product Strengths

Epicor's biggest strength lies in its strategic technology partnerships with Microsoft. This partnership enables Epicor to deliver complete functionality on the popular Microsoft platform. Epicor's commitment to Microsoft technology also enables its clients to fully take advantage of Microsoft's technology road map to deliver a service-oriented architecture (SOA) framework. In fact, Epicor's current SOA offering is based on a Microsoft .NET framework, which is easily adaptable to client environments running on a Microsoft platform. Epicor's use of Visual Studio leverages Microsoft technology to assist organizations in their SOA strategies in the customization, reuse, and integration of the Epicor system within their existing infrastructures. Additionally, Epicor's tight integration with Microsoft Office (through its IW module) and Microsoft Project provides above average collaboration and project management integration for project-oriented organizations in the services sector. Consequently, services organizations with Microsoft shops can optimize their productivity with Epicor for Service Enterprises.

Epicor's focus on delivering a competitive best-of-breed professional services automation (PSA) solution provides the advantage of offering comprehensive project management and time and billing functionality, in conjunction with complete back-office capabilities critical to running a successful, billable services organization. With respect to features, Epicor offers above-average resource management capabilities with its resource workbench module, assisting organizations in managing the resources that drive their businesses. Moreover, its Microsoft-centric solution is ideal for Microsoft shops that are looking to maximize the collaboration between Epicor and such Microsoft solutions as Dynamics GP for accounting, ProClarity for business intelligence (BI), SharePoint for collaboration, and Microsoft Project for project management. As a result, for an organization seeking a fully integrated ERP system, Epicor's solution delivers fully integrated PSA capabilities (including complete project accounting) on a single platform.

Product Challenges

Epicor's biggest strength also represents its biggest challenge. Its Microsoft-centric application comes with the obvious limitations of Microsoft. Specifically, limitations include working with Microsoft SQL Server and its potential barriers of integration with non-Microsoft environments. For example, large organizations that have Oracle and IBM environments are faced with integration issues when working with Epicor's strictly Microsoft platform.

Similarly, Epicor's project portfolio management (PPM) capabilities are not as competitive as those best-of-breed PPM offerings that generally focus on aligning an organization's business strategy with project deliverables. Although ERP for services organizations tend to market to project-centric organizations, their PPM capabilities (as is the case with Epicor) are less robust and do not deliver the depth of functionality as PPM vendors focused on internal information technology (IT) departments. Similar to most integrated ERP for services offerings, Epicor has not yet fully embraced portfolio management capabilities and project governance methodologies to address the strategic issues faced by the executives of services organizations. Consequently, as portfolio management extends its influence in all areas of project management, ERP vendors will have to expand their PPM functionality.

User Recommendations

For service organizations that are believers or staunch adopters of Microsoft, Epicor is an excellent choice, and likely should be on their short lists. Leveraging both Microsoft Office applications and Microsoft technology, Epicor delivers a superior ERP for services offering for mid-market organizations than the Dynamics product line. However, for organizations that are seeking capabilities beyond the limited scalability of Microsoft (as is the case with SQL Server), Epicor may not offer adequate scalability. In addition, organizations should be cognizant of the current state of ERP for the services marketplace. In a consolidating marketplace, buyers considering Epicor should track its current growth that is making inroads into Microsoft's ERP market share. These inroads could potentially lead to an even deeper business relationship with the software giant. With a strong global presence through its Scala network, and Microsoft's gap in the mid-market services sector, Epicor could fit in the Dynamics family, serving a global audience.


The Return of Supplier Relationship Management

As the year 2000 approached, the catchphrase "lean manufacturing" was loosely thrown around in manufacturing industries. The media and software vendors led organizations to believe that a supplier relationship management (SRM) system could achieve the promise of lean. Yet the benefits promised by SRM systems were not kept. As organizations matured, they realized how the benefits were interrelated. Information sharing, sourcing, purchasing, and supplier relationships could translate into increased customer satisfaction and control of global spend. How to efficiently predict consumer demand was beginning to come into focus. As organizations realized the need for these separate functionalities, they started to look toward a solution that would combine these tasks. Enter SRM.

As time marched on, organizations were less than impressed by the unacceptable results of how these solutions were implemented. Vendors and resellers did not educate organizations on the full user capacity or on how everything ties together. Lack of knowledge transfer from vendor to organization gave the perception that the system did not meet the organizations' needs. Organizations lacked an understanding of how to translate the benefits of an SRM system into tangible results and of how all the system's features could help businesses save money, increase operational efficiency, and control global spend. Stories of failed implementations and misconceptions of what the software system promised rapidly brought the development of this "next generation" business tool to a near complete halt.

Several years later, SRM systems are now reemerging as the next big promise. Several of the benefits that an SRM system can deliver, such as management of globalization, adoption of mandated standards, inventory visibility, methods of managing stabilizations of technologies, and dealing with supplier auditing issues will be examined.

Reasons for the Resurfacing of SRM

Globalization

As organizations expand and become global operating entities, SRM is viewed as a method to help manage the process. The manufacturing of products is now largely outsourced to the East, as North America has become a service-based economy. This change in business structure has caused organizations to reexamine their current systems to determine if they can satisfy the new economic conditions created by this shift in the economy.

Organizations must deal with foreign suppliers, but how? Information must flow freely between domestic and international channels and from one system to another. Global enterprise resource planning (ERP)�distribution products, such as those from SAP and Oracle, often provide such tools as supplier portals. A supplier portal is a tool for compiling information (a significant feature within the SRM software) to build contacts, audit functions of each supplier or partner, verify quality of products, and monitor supplier and partner performance. Users can think of this as customer relationship management (CRM) for suppliers. This is done by way of supplier scorecards, establishment of sourcing relationships, the creation of supplier information, establishment and maintenance of procurement channels, etc. If a North American organization has overseas trading partners, these partners may use the SRM system as an effective means to link up with western operations and schedule shipments, manage trading partners, control sourcing strategies at the point of origin, manage supply overseas, and aid in the organizational planning of inventory to satisfy customer shipments.
Forced Adoption

Large organizations, such as Wal-Mart, Target, Albertson's Metro, etc. are mandating standards that their suppliers must conform to—that is, do business their way as a condition of partner interaction. Suppliers are forced to comply with standards that were created specifically to reduce costs, manage the supply chain from end to end, and ultimately lead to lower prices and increased customer satisfaction. Small suppliers that cannot conform to these guidelines are forced to exit from a business relationship with the originating company.

A system such as Wal-Mart's Retail Link was designed as a tool specifically to manage inventory, suppliers, and procurement and to enable full partner disclosure to adapt to changing customer demands. The thought behind the system was that if partners could share order information, they could more accurately prevent "stock outs," adjust order quantities, predict and accommodate forecasted quantities, and essentially reduce the size of the supply chain, leading to more selection and lower prices for the consumer.

Retail Link performs the following:

* analyzes and controls global spend by category, volume, and product
* manages service level agreements (SLAs)
* avoids duplication of contracts or materials to the same supplier
* consolidates purchasing volumes and improves supplier selection
* involves partners in the early phases of product development

Inventory Visibility

Organizations maintain that inventory visibility makes them more competitive. "How much," "where it's at," "what's its status," "who currently has it," and "when can it be delivered" are questions all organizations ask about their inventory. Knowing and understanding these variables allow an organization to make better decisions pertaining to demand planning, replenishment stocking, and, most importantly, availability of inventory to fulfill customer orders. SRM systems are great tools to accomplish these business objectives. Even vendor managed inventory (VMI) is usually handled by some form of SRM system, normally through the supplier portal.

With the capabilities to view "in transit" inventory over multiple modes, an organization can control and manage potentially critical supply problems. The SRM system provides a unified view of inventory from one source that supports the business. Issues such as custom delays, extended lead times, scheduling conflicts, and transportation problems, to name just a few obstacles, can be adjusted and addressed within the SRM software. This advance notice of possible disruption to the supply of goods can provide alerts to all partners affected so that they may react accordingly and adjust to the disruption. The ability to view "in transit" products allows for accurate forecasting and replenishment. The collaboration of all the affected business partners allows organizations to respond to rapid market changes, and to deliver goods to consumers on time and at decent prices.

Stabilization of Technologies

The new millennium has brought stabilization of technology. The rapid growth of the Internet has allowed organizations to use stable technology to share information over secure channels. The second nature of this method of communication has allowed for stable connections between locations as well as increased throughputs of network communications, which had previously not been reliable in the 90s. Modem connections gave way to e-mail, digital subscriber line (DSL), and T1 connections, and fax machines became electronic data interchange (EDI), extensible markup language (XML), and flat files that were sent electronically. This level of technology may have been previously overlooked or neglected due to poor information technology (IT) infrastructure and non-communication between partners. These technological advances were catalysts in taking partner interactions and trading to the next level. As organizations have built their networks, and stable connections are now the norm, the industry is reaping the rewards of SRM systems.

Web services have enabled business-to-business communication to progress. This is the base technology used for supplier portals, and it requires access from several locations globally. Any business partner can log in and check the status of a part, peruse an order, check an estimated delivery time, etc. based on user security. This convenience and information sharing is expected to be standard, as organizations try to limit shipping costs, plan efficient routes for their goods, control and manage suppliers, and minimize costs. Stable technology allows organizations options when implementing SRM systems. In terms of supply chain execution software available, only recently have vendors started to offer hosted models of software as a service (SaaS). Traditionally, this type of software was available only as in-house applications. Today, companies in all supply chain disciplines offer SaaS solutions, from demand management and warehouse management systems (WMS) to SRM. E2open, for one, offers a full SRM-hosted solution.

Secure access and availability of industry-specific hubs (such as automotive or aerospace) are offered through hosted solutions. This level of collaboration capability may not be possible through an in-house system. A hosted solution offers access to other trading partners online. This service makes it possible for even small organizations to compete globally and comply with mandated standards imposed by trading partners.

Supplier Accountability

Organizations have difficulty holding suppliers responsible. Metrics can easily be built within an SRM system because supplier data is located within the system. The collection of data gathered from the portal repository lends itself well to holding suppliers responsible for quality and compliance issues. According to an Archstone Consulting survey conducted in August 2006, 58 percent of organizations fail to use incentives and penalties to audit suppliers. Resources (approximately 49 percent) are not properly assigned to supplier management, consequently causing quality issues and duplication of resource managers for the same vendor accounts. Organizations assign duplicate resources to accounts without realizing it, which can be due to having several points of contact instead of just one, and time and money are spent unnecessarily to do the same job twice.

Issues with quality and lack of compliance are not accurately tracked. According to Archstone Consulting, 45 percent of organizations believe that suppliers do not comply with their own SLAs when they deliver product. Organizations have been looking at ways to change their sourcing and procurement strategies to get the above metrics back in line. They are beginning to see the value of the information a portal can supply. Consequently, the data aggregated from an SRM system can be used to analyze spend, cost, and performance, and eventually to align the data to the business practices.

Conclusion

Organizations are realizing that the issues an SRM system can address can significantly influence their bottom lines. Factors such as globalization, mandated standards, inventory visibility, stabilization of technologies, and supplier accountability are forcing organizations to reevaluate the need for an SRM system.

SRM solutions exist today that were not available just a few years ago. The possibility of a hosted solution for SRM, such as those offered by SAP and E2Open, are now more available than they have ever been. Of course, an organization always has the option of implementing in-house applications. Stabilization of technology has lowered the price points of these systems, which are allowing more organizations to take advantage of benefit from the vast benefits an SRM system can offer.

Common benefits of an SRM system include

* increased customer service
* accurate forecasting and product planning
* control of global spending
* control of procurement and sourcing
* greater inventory visibility
* reduced inventory carrying and holding costs

If these are organizational goals that are mandated from the top down, then an SRM system may be the solution to implement some of these initiatives, while receiving a return on investment (ROI) that is palatable.