Inflation occurs when an abundance of money exists in relation to goods. This creates artificial demand as consumers accelerate their purchases to avoid future price increases. Suppliers, competing to meet this demand, confront temporary capacity shortages that they alleviate by shifting resources to higher-margin goods and raising the prices of lower-margin goods. In addition, they accelerate purchases of material to avert shortages and avoid future price increases. These actions create additional demand for goods, perpetuating the inflationary cycle.

Today's ERP systems originated from Material Requirements Planning (MRP) and Manufacturing Resources Planning (MRP-II) techniques developed in the 1970s and early 1980s. They focus on improving the accuracy, speed and visibility of short- to medium-term resource planning and allocation decisions, thereby improving management's ability to confidently make profitable commercial decisions. They also focus on minimizing operating costs, and maximizing short- to medium-term revenues, through improved coordination and execution of daily sales, engineering, procurement, production, logistics, maintenance and accounting activities. In short, they are designed to maximize profits by timing business events so exactly that productive resources are committed as late as possible, but never too late to miss profitable sales opportunities.

These are very important business problems during inflationary times, because one or two avoidable, critical resource shortages could mean a missed sale and reduced ability to recover fixed costs. For example, accidental over-commitment of a bottleneck work-center or shipping vessel may delay the arrival of finished goods and cause upstream work-centers to shut down until the backlog is cleared. The cost of underutilized upstream capacity is still incurred, even if production or shipping delays cause lost or delayed revenues.

Prices stabilize or fall when an abundance of goods exists in relation to money. This artificially reduces demand as consumers postpone their purchases in anticipation of even lower prices. Suppliers, challenged to recover their fixed costs, now have excess capacity. They respond by cutting the prices of goods, especially their high-margin products, in order to stimulate sales. In addition, they decelerate their own purchases of material to use-up existing stocks, and await future price decreases. These actions further postpone the demand for goods, setting the stage for a deflationary cycle.

At this writing, Asia and other developing regions are slowly recovering from an acute recession and strong deflationary pressure, while other regions (notably, the United States) continue to enjoy robust growth and modest inflation. This disequilibrium has created a combination of inflationary as well as deflationary pressures throughout the world. For instance, demand for goods remains strong in the United States because buyers there still have inflationary expectations. Asian suppliers have cut prices in order to boost export sales and utilize excess capacity.

If, as many believe, the world is in transition from inflation to price stability or perhaps deflation, how will business priorities be affected before, during, and after the transition? How will changes in business priorities affect ERP system requirements?

Just-in-time (JIT) principles became standard business practice during inflationary times. In essence, repetitive purchasing and JIT delivery are tactics for hedging against price increases while minimizing inventory-carrying costs. Buyers negotiate fixed-price repetitive-supply contracts that are fulfilled and paid for over the life of the contract through periodic shipments timed to meet the actual need for goods.

Price stability makes such hedging unnecessary, and deflation makes it highly unprofitable. But buyers will be under even greater pressure to keep inventories low, since the value of inventories remains the same or depreciates in relation to cash. As a result, buyers will insist upon immediate delivery of small quantities whenever they can, at spot prices, although some suppliers will succeed in selling large quantities for immediate delivery by offering "temporary" price reductions, especially during the transitional period. For all these reasons, discrete (order-based) procurement and fulfillment systems can be expected to regain popularity lost to repetitive (schedule-based) systems during inflationary times.

At the same time, buyers and sellers can be expected to monitor competitive spot prices more vigilantly than before. The growing popularity of reverse auctions, data warehousing and data mining testify to the increasing demand for such market intelligence. Demand will increase rapidly for powerful search engines and business-to-business electronic commerce technology to solicit and extract the right information at top speed.

The importance of forecasting systems for short- to medium-term planning is likely to diminish. During inflationary times, suppliers used forecasts, customer orders and future repetitive schedule commitments to anticipate capacity as well as material shortages. Forecast accuracy is critical to the proper timing of business events when capacity shortages exist, but becomes irrelevant when unused capacity is abundant.

Inflation made it profitable for suppliers to be selective about what they sold, and to whom. When persistent capacity shortages exist, profits are maximized by discontinuing low-margin products and rewarding high-margin customers. Performance measures such as Economic Value-Add (EVA), employed in sophisticated sales, product profitability and customer profitability reporting systems, evolved to address this requirement. Suppliers are likely to abandon these tactics when confronted with excess capacity, the sooner the better, and "hunt" instead for as many new customers as they can.

Demand will grow for data warehousing, search engines, opportunity management (OMS), customer relationship management (CRM) and collaborative electronic commerce systems to help the sales force identify and qualify new customers fast. Improved sales incentive, sales engineering and product configuration tools will also be needed to find and close new customer business faster than the competition.

During inflationary periods, non-interest-bearing money owed by trade debtors should be collected as soon as possible in order to maximize its purchasing power, and non-interest-bearing money owed to trade creditors should be paid out as late as possible. In between, this money can be invested in short-term financial instruments or commodities bearing relatively high rates of return, since inflation goes hand-in-hand with higher interest rates and commodity values. Over time, many sophisticated remittance processing, money-management and hedging tools have evolved to meet this requirement.

In periods of steady or declining prices, there is no particular incentive to collect any more money from solvent trade debtors than is needed to meet current obligations. The relative benefits of sophisticated remittance processing, money-management and hedging tools are further diminished on account of the lower interest rates typically associated with price stability. But demand for improved credit management tools and up-to-date creditworthiness data is likely to increase, because of the risk that more customers will be in financial difficulties. Strong demand for sophisticated financial hedging tools can also be expected during the transition, because of arbitrage and currency instability caused by inter-regional disequilibria.

Demand for logistics systems grew rapidly during inflationary times, in support of JIT business practices. These systems cut shipping costs and minimize in-transit inventory investment by coordinating available shipping capacity with production schedules and procurement requirements, improving management's visibility of current shipping schedules and freight rates, and automatically raising and tracking the necessary paperwork. The value of all these benefits is likely to increase during periods of steady or falling prices.

Persistent excess capacity rewards suppliers who can deliver goods faster than the competition, on short notice. Earlier, it was demonstrated that buyers would insist upon immediate delivery of small quantities, at spot prices inclusive of freight, instead of negotiating long-term repetitive supply contracts. In markets characterized by steady or declining prices, a supplier who is able to deliver the goods exactly when they are needed will win the sale at today's spot price that in no event will be lower, and perhaps will be higher, than tomorrow's.

The supplier's ability to honor such commitments profitably, however, requires immediate knowledge of material availability, production status, shipping schedules, best available freight rates and available shipping capacities. Thus, in addition to conventional supply-chain management (SCM) systems, suppliers are likely to demand collaborative electronic commerce systems to help locate the best available means of transportation, carriers and rates. They will also require improved manufacturing execution (MES) and warehouse management (WMS) systems to get an up-to-the-minute picture of their internal production and logistics operations, and to further reduce inventory investment.

As prices stabilize or fall, suppliers will face increasing pressure to minimize logistics costs. This is best done through a combination of advance planning and solicitation of competitive spot-market bids for shipping services. Thus, demand for logistics planning and cost accounting systems can be expected to remain strong.

Overhead costs are distorted immediately, and dramatically, by surplus capacity. Labor-intensive producers can adjust fairly rapidly through labor-force reductions, but capital-intensive producers cannot. Liquidating properties or fixed assets can eliminate the cost of persistent surplus capacity, but the assets may be difficult or impossible to sell. Manufacturers can be expected to implement a variety of short- to medium-term accounting tactics and longer-term financial tactics in order to minimize the adverse consequences.

Tactical accounting changes can be anticipated in the areas of fixed asset accounting, overhead cost allocation and inventory valuation. Possible financial tactics include restructuring of operations to minimize fixed costs, asset liquidation and, worst case, asset write-offs.

Fixed overhead costs are typically governed by original acquisition costs and pre-determined amortization schedules. The periodic amortization cost thus accrued is divided by production volumes to determine overhead costs per unit. Excess capacity drives these costs up as ever-smaller production volumes absorb constant amortization costs. In markets experiencing falling prices, real overhead costs will constantly increase over the long run because deflation increases the purchasing power of the original investment.

Businesses tend to amortize their fixed assets as rapidly as allowed during periods of inflation and high capacity utilization. This minimizes short-term tax liabilities by reducing pre-tax profits, and reflects the tendency of equipment to wear-out faster the more it is used. But businesses competing in markets characterized by stable or falling prices can be expected to lengthen the amortization schedules of their existing fixed assets as much as allowed, because equipment is not being utilized as much and because there are smaller pre-tax profits to shelter. This tactic has the salutary effect of reducing overhead cost per unit, reducing cost of sales, boosting short-term profits and strengthening the balance sheet, thereby improving apparent business performance. Many of today's fixed asset accounting and cost-allocation systems, however, lack the flexibility to implement such changes quickly. Strong demand for flexible replacement systems can therefore be anticipated.

Related inventory valuations and the resulting cost of sales per unit will be affected, too. During inflationary periods, businesses tend to maximize cost of sales as much as allowed, chiefly to minimize pre-tax profits and the value-added tax base. In the future, however, financial controllers will be pressured to change their inventory valuation methods by whatever means necessary, and allowable, to minimize cost of sales, in order to further boost short-term profits and strengthen the balance sheet. As with fixed assets, many of today's inventory management systems lack such flexibility. Replacement systems will be needed to the extent that surplus inventories are being cleared in the short- to medium-term, and to whatever extent a minimum inventory investment is required to operate the business over the long run.

During inflationary times, automation of plant, warehouse and office operations became an important tactic for minimizing ever-increasing labor costs. Capital resources could be substituted for labor, and written-off in constant, periodic amounts that declined in real value over time as inflation eroded the purchasing power of money.

This approach is unnecessary during periods of price stability, and downright unprofitable during a deflation, because the purchasing power of money will stay the same or increase over time while the cost of labor stays the same or declines. Further, replacing fixed assets with variable labor resources gives manufacturers far greater ability to control operating costs in the short- to medium-term. Thus, it is probable that labor's proportion of total operating cost will increase, even if the total labor-force is smaller than before. This trend would likely accelerate as existing fixed assets are retired, liquidated or written-off. As a result, steady or declining demand for plant, warehouse and engineering automation systems can be anticipated. This includes robotic, programmable logic controller (PLC), automated storage and retrieval (ASRS), computer-assisted design (CAD), computer-assisted manufacturing (CAM), statistical process control (SPC) and integrated laboratory management (LMS) systems.

Were a prolonged worldwide deflation to occur, demand may shrink so much that suppliers are forced to shut down parts of their operations, or shutter entire facilities. Attempts will be made to sell the idle properties and equipment for the best-possible price, with attendant capital losses written-off immediately.

Sale of assets is most likely to occur while inflation is subsiding, and before the onset of widespread deflationary pressure, because the assets will appear cheap to investors who continue to have long-term inflationary expectations. Liquidations and write-offs will have an immediate, and beneficial, effect on cost of sales, to the extent that periodic amortization costs are significantly reduced in relation to production volumes.

These tactics would not require any significant changes to existing business information system capabilities, but the number of general business systems in-use can be expected to decline as operations are scaled back and facilities closed. These include functions such as general ledger, accounts payable, accounts receivable, inventory control, production control and cost accounting.

Reduction of overhead costs at remaining operations is likely to be a key priority, as well. Older general business systems tend to incur relatively high operating and maintenance costs. Meanwhile, information technology costs have fallen dramatically. As a result, some manufacturers will replace their older general business systems with newer, less-expensive versions, especially if doing so will enable the other tactical changes described in this article to be implemented faster. But many older business systems have already been replaced to address recent Y2K concerns, so the ongoing need for replacement systems is likely to be limited, at best.

Labor Cost Control

During periods of persistent surplus capacity, manufacturers can be expected to reduce their variable labor costs as much as possible. This may be done through elimination of overtime, shift reductions, work-hour reductions, temporary or permanent pay cuts, temporary or permanent layoffs, and reduction of employee benefits. Further, operations may be scaled back or eliminated at high-cost union shops, as well as within high-cost or restrictive labor markets such Germany and labor markets characterized by low unemployment such as the United States.

These effects will be moderated by substitution of variable labor for fixed assets in the drive to control overhead costs, as previously demonstrated. In doing so, however, manufacturers are likely to accelerate the redeployment of productive capacity from high-cost, capital-intensive locales such as the United States to low-cost, labor-intensive regions such as Asia or Central and South America.

These actions may have adverse and increasing social effects, as dramatized by recent protests in Seattle and Washington, D.C. against the International Monetary Fund and World Trade Organization. Worker demands for improved economic security may lead to renewal of isolationist policies in some locales, which would effectively reverse the economic liberalization and globalization trends of recent years.

Business models designed to optimize performance in the previous climate of unrestricted free trade will have to be adjusted to take account of the artificial incentives and penalties created by any new government regulations. This is likely to create new demand for localized regulatory compliance systems that address taxes, duties, tariffs, prohibited goods and foreign exchange controls. At the same time, reduced demand can be expected for general business and supply-chain management systems designed to integrate the unrestricted operations of multinational enterprises.

Business Planning and Improvement:

A variety of tools and techniques evolved during inflationary times to improve productivity and maximize profits. These include material requirements planning integrated with capacity requirements planning (MRP-II), advanced planning and scheduling (APS), activity-based costing (ABC) and total quality management (TQM). All of these techniques address business problems created by limited capacities. MRP-II and APS tools are designed to maximize the utilization of existing capacity through improved coordination of individual production and procurement activities, without necessarily improving efficiencies or yields. ABC and TQM are essentially diagnostic tools for identifying the root-causes of inefficiencies and defects, and enable management to monitor the effectiveness of corrective actions. Used together, these tools allow management to wring maximum productivity from its existing capital investment, before additional long-term capacity investments are considered.

In a period characterized by stable or falling prices, fewer new long-term capacity investments will be considered. Instead, gradual disinvestment of existing capacity may occur. Before disinvestment, there will be little or no real benefit from using capacity requirements planning, APS, ABC or TQM tools except to improve the coordination and efficiencies of a smaller labor force. But even in so far as labor utilization is concerned, greater business benefits will accrue from short- to medium-term adjustments to the number of resources employed, rather than continuous long-term improvement of labor efficiencies.

Materials management is likely to remain a top priority, for reasons demonstrated earlier. After clearing excess stock, suppliers will be under intense pressure to keep inventories to an absolute minimum, since their value will remain the same or depreciate relative to cash in the event of a deflation. Expanded use of discrete (order-based) master scheduling (MPS), material requirements planning (MRP), manufacturing execution (MES) and warehouse management (WMS) tools can be expected in order to properly schedule and manage materials in small quantities, on a JIT basis. Continued deployment of quality assurance and control tools for the purpose of improving finished product yields and minimizing waste can also be expected.

Manufacturers' business priorities will change significantly if a worldwide transition from inflation to price stability or deflation occurs. Many new priorities will be the opposite of those followed during inflationary times. This will have a major impact on market requirements for enterprise systems. The most likely impacts are listed below.

Significant decreases in marketplace demand can be expected for:

• Repetitive purchasing, order-entry and release management systems
  
  
• Sales forecasting systems
  
  
• Capacity requirements planning (CRP) and advanced planning and scheduling (APS) systems

Some reductions in new marketplace demand can be expected for:

• Industrial automation devices and systems (robotic equipment, programmable logic controllers, computer-integrated laboratory instrumentation)
  
  
• Warehouse management and automated storage and retrieval (ASRS) systems
  
  
• Computer-assisted design and manufacturing (CAD/CAM) systems
  
  
• Statistical process control (SPC) systems
  
  
• General business systems (general ledger, accounts payable, accounts receivable, inventory control, production control and cost-accounting)
  
  
• Sales analysis systems
  
  
• Advanced remittance processing and money-management systems
  
  
• Activity-based costing systems
  
  
• Global supply-chain management systems

Some new marketplace demand can be expected for:

• Interactive inventory-control systems
  
  
• Interactive pricing and promotional systems
  
  
• Logistics planning, execution and cost-accounting systems
  
  
• Flexible inventory valuation systems
  
  
• Localized regulatory compliance systems
  
  
• Quality assurance and control systems

Significant new marketplace demand can be expected for:

• Discrete (order-based) purchasing and customer order-entry systems
  
  
• Interactive electronic commerce (Internet) technology for product catalogues, price lists, reverse auctions, collaborative purchasing, customer order acceptance and payment, shipping schedules, shipping rates and shipping capacities
  
  
• Data-warehousing and data-mining engines for competitor prices, prospective customers and customer creditworthiness
  
  
• Sales engineering and product configuration systems
  
  
• Opportunity management, customer relationship management, sales force automation and commissioning systems
  
  
• Flexible fixed asset accounting systems
  
  
• Flexible overhead cost allocation systems
  
  
• Order-based master scheduling (MPS), material requirements planning (MRP), manufacturing execution (MES) and warehouse management (WMS) systems

The subject of this note is the never-ending question within desktop office suites, " What's better, Corel's or Microsoft's?" Generally, this question is answered from an emotional perspective, based entirely on the specific administrator's and/or end users comfort level. There is no one correct answer, both desktop office suites excel in specific areas and pale in others. The contents of this note will pit the two systems against each other in four specific areas:

• Product Functionality: Feature functions contained within the product
  
  
• Product Technology: Protocols, databases, and platforms
  
  
• Product Cost: Initial cost of training, implementation, and support
  
  
• Service and Support: Vendor support following purchase and implementation

Product Strategy and Trajectory:

TEC analysts began assessing the pros and cons of both office suites through the construction of a detailed information repository with over 300 detail-level criteria, arranged hierarchically in our proprietary software-modeling tool, TESS�. Each hierarchical category within the model is assigned a value, which represents its priority relative to other categories, or "weight". Figure 1 shows weights for the top-level categories in the Desktop 2000 Office Suite Model.

Figure I Top Level Rating

Figure II represents Product Functionality
versus Product Technology

In functionality and product technology Microsoft's Office 2000 takes a slight lead. This is primarily due to the advanced web based integration features and integration with the standard Microsoft Windows desktop. In addition, Microsoft Office 2000 includes an e-mail client (Outlook 2000), which is lacking from Corel's offering. Corel excels in ease of use and reduced training costs. Overall, both suites offer a plethora of features from advanced desktop publishing to robust databases.

Corel WordPerfect Office 2000 takes the edge in enhanced accessibility through the inclusion of Dragon Software's Naturally Speaking application, which allows a user to "talk" to the application rather than type. In addition, the Corel 2000 Suite includes a hardware component headset/microphone combo intended for speech recognition.

Figure III represents Product Functionality
versus Product Cost

Corel's WordPerfect 2000 Office Suite Standard is competitively priced at $299.95 (MSRP-USD) as opposed to Microsoft Office 2000 Small Business edition priced at $349.95 (MSRP-USD). However, both Microsoft and Corel's top of the line Office Suites are both $449.95 (MSRP-USD), eliminating any price edge Corel may have had at the Professional Office Level. As can be seen from the above graph, both suites perform well given their relative cost.

Figure IV represents Product Cost
versus Service and Support

Corel maintains a slight edge in cost, while maintaining a very respectable support rating. Microsoft's Office support takes the lead with its robust web support, including an office software update page, a heavily production-tested and experienced support system via telephone (albeit 80% outsourced) and onsite support when entirely necessary. Corel offers web support but it pales in comparison to Microsoft's site in terms of content and navigability. Corel's telephone and onsite support offers trained professionals for both on and off site support, none of which is outsourced.

Microsoft's Office 2000 has been shown as the winner, but only beat out Corel's Office 2000 suite by 3.55% in our proprietary software-modeling tool (TESS). However, neither corporate viability nor corporate strategy was compared in this note; had they been Microsoft would have widened their lead by approximately 25%.

Both suites offer a dizzying array of functionality, disparate office suite interoperability and extra's to make almost any desktop user happy. So why should a user go with one over the other? The answer is really quite simple; most users don't have a choice. The majority (60%) of new corporate and consumer based computer systems come pre-installed with Microsoft Office small business edition, negating the need to buy an alternate desktop office suite.

So what about the other 40%? Chances are that over half of those users or corporations will choose Microsoft Office, simply because 'everyone else has it'. Corel is an extremely good desktop office suite, easily rivaling Microsoft's offering; unfortunately for Corel the proliferation of Microsoft's desktop suite has made it the de-facto standard for corporations everywhere.

Due to the current and ongoing proliferation of the Linux O/S, Corel has packaged a Linux version of they're office product. The additional Linux office suite sales for Corel will improve their corporate standings and financial viability, narrowing the gap between the software vendors ever so slightly.

Shares of Merant, the provider of PVCS, a major software configuration management product (acquired from Intersolv), in addition to other software, have dropped more than 24 percent after the company released preliminary financial estimates for its first fiscal quarter recently-ended, showing revenues likely will be about 17 percent less than the previous year due to a decline in COBOL license fees.

Revenues for the first fiscal quarter are preliminarily estimated to be in the range of $72 million to $73 million, compared to $87.6 million for the same period last year, Merant officials said in a teleconference call and statement. Pre-tax losses for the quarter ended July 31 are estimated to be in the range of $8.5 million to $9.5 million excluding goodwill amortization. The above pre-tax loss range also is estimated before a goodwill charge of roughly $3.3 million.

"COBOL license fees worldwide have declined significantly below expectations and our forecast," said Merant President and Chief Executive Officer Gary Greenfield. He also stated that Merant had originally expected double-digit growth.

Nevertheless, Greenfield said "Egility e-business revenue continues to grow, but didn't accelerate as much as originally anticipated. But operating costs in the first quarter of this fiscal year have declined by more than $10 million as planned, compared with the fourth quarter ended April 30", he added.

Merant officials said they weren't sure of the reasons for the missed projections, though Greenfield said COBOL fees fell "definitely beyond the teens" percentage-wise. He further said another cause might be related to the company's recent reorganization of its sales force. "We intend to continue to thoroughly evaluate the cause for this revenue shortfall while accelerating our e-business transition, and take action to improve execution and return to profitability," he added. Greenfield emphasized that the company is not suffering a cash problem.

Once again, another vendor has stated that growth and license revenues in the mainframe arena are softer than expected (see "System Suppliers Slip Seriously", August 8, 2000 for further details on other vendors in the same boat.)

It is not surprising that COBOL revenues have begun to decline, given the end of the "Y2K" crisis. PVCS has long been a strong candidate for software developers in need of version management and software build control. It will continue to be strong in this space, irrespective of its current stock market woes, although it may become a takeover candidate for a larger firm (i.e., Computer Associates), and should be examined closely at the financial level.

Companies looking at Software Configuration Management tools should include Merant PVCS on a long list of candidates. It is also capable of tracking changes in Oracle's ERP suite, and assesses dependencies and impacts of change, as well as integrating with Tivoli. In addition, PVCS products integrate issue and change management into SCC-compliant IDEs, which allow information interchange between different SCM products, such as Visual Studio and Powerbuilder.

The products in this suite have long been leaders in their field, and should be evaluated by the customer's programmers to determine their fit within the particular environment(s) being considered. The additional consideration should be a financial one, given Merant's current weakness in the stock market. This weakness could potentially be exploited by customers to improve pricing on the products, especially near the end of a quarter or fiscal year.

Mortice Kern Systems (MKS), long known for their expertise in porting UNIX environments (for instance, a Korn Shell (KSH) script or a CGI script) to native Windows NT and Windows 2000, and supporting the full POSIX.2 specification, has expanded into the world of e-business. They have created a new wholly owned subsidiary called Vertical Sky, which is marketing a product called the Vertical Sky Evolution Management Solution�. The vendor believes that it will "provide integrated management of code and content in an e-business". MKS believes that they are the first vendor to enter this space, and that the "new generation of e-business is much more transactional, with many more integrated systems".

According to Randall Howard, MKS chairman and CEO, "Both new and existing customers recognize MKS. The revenue growth of our e-business product line has increased from virtually nothing to the majority of our business and continues to grow and accelerate."

The importance of this effort involves the increasing level of integration between back-end systems and e-commerce front-ends, which is becoming crucial to brick-and-mortar companies attempting to transition to the web or at least leverage it.

MKS recently acquired DataFocus and the SDM Division of Silvon Software to accelerate product development in the software change management arena. Their current customers include Priceline.com, Sentry Insurance, Royal Bank of Canada, and Case Corporation.

Another vendor re-brands itself as an "e-commerce enabler". It seems to TEC that virtually all software vendors are claiming to be in the e-commerce space, and customers should be careful to investigate whether it is a marketing ploy or actual software development.

Mr. Howard believes that the growth in software management products will be as high as $1.6 billion dollars by the year 2003, even though it is considered a mature market. They estimate growth at 24% per year. The move into web content management with Vertical Sky is due to the fact that they expect that market to grow at 83% per year, and match the $1.6 billion number by 2003 also.

Mr. Howard also stated that "In three years I would like to see Vertical Sky as a leading vendor in this new world of e-business management solutions. When that market is literally measured in the billions of dollars, I would like to see Vertical Sky have annual revenues in excess of $250 million by that point."

MKS has a strong presence in the market due to their MKS Toolkit (basically UNIX on Windows NT), and has a strong reputation and awareness among system administrators. If their sales and marketing plan is robust, they should be able to make strong inroads with companies trying to switch from "brick and mortar" to B2B and B2C e-commerce.

Companies evaluating software configuration management solutions should include MKS on the short list. Other companies/products to consider would be Computer Associates Endevor (for the mainframe environment), IBM WebSphere Studio, Merant PVCS, and Microsoft Visual SourceSafe (for a purely Windows environment). There are many other products in this market, and TEC will issue a market note on all of the players in the near future.

In early October Wonderware, a division of Invensys, announced to employees and customers that it was significantly cutting the headcount and discontinuing marketing and sales efforts for the PRISM and Protean product lines. These products, part of the acquisition of Marcam Corporation in 1999, address the ERP needs of process companies with the majority of the install base being in the food or chemical business.

From approximately 400 people, Wonderware will cut headcount to fewer than 100 people over the next six to twelve months. Most of the remaining people will be in product support for the PRISM product, which will remain in a maintenance only mode. Wonderware committed to deliver the next scheduled release of Protean (Release 3.2) with a planned delivery of March 2001. However, customers were told that they should not expect further releases of Protean beyond release 3.2. Wonderware has put in place an impressive retention program to insure the required people will remain in place to deliver on the committed 3.2 release of Protean.

Concurrent with internal and customer announcements, Wonderware told the prospective buyers in several active Protean sales cycles that they were withdrawing Protean from further consideration in the marketplace.

Wonderware has told employees and others that they will begin to transition Protean functionality to the Baan product line. Wonderware/Baan has stated that this product, to be called Baan Process, is targeted for 2002. Baan Process is planned to interface with Baan's complementary products such as Baan Supply Chain, Baan Front Office, Baan E-Enterprise, Baan Business Intelligence, Baan Finance, and Baan Procurement. Baan has stated that they will provide a set of tools to help customers migrate from Protean to Baan Process, upon release.

The Baan tool set and discrete manufacturing models were part of the Invensys acquisition of Baan in the spring of 2000.
With the withdrawal of these products from consideration, the market for Process ERP products from vendors dedicated exclusively to that market has shrunk to very few options. This move, combined with the recent financial problems at Ross Systems, means that only SCT of Malvern, PA is left as a healthy Process-only vendor. Several non-process vendors do offer versions of their products that are aimed at the needs of process companies; these include J.D. Edwards, QAD, and SAP.

While the PRISM and Protean products had not been selling well in the marketplace, the large installed base means that vendors with systems that address the needs of the process market will have increased opportunities over the next one to two years.
Process companies who are currently using the PRISM or Protean products from Wonderware should assume that support will continue on a somewhat reduced level for the near term. PRISM users should question Wonderware on the value of on-going maintenance payments. PRISM has proven to be a stable product over recent years, therefore, PRISM users should assume they would not be forced into changing ERP systems. Prudent PRISM users will expand their search for a replacement product beyond that are proposed by Wonderware.

Protean users should assume that their medium to long-term situation is tenuous and should actively evaluate replacement products in the near term. The transition from Protean to Baan Process is an option that should be evaluated as well as alternative products.

Although Wonderware has indicated that they will transition Protean to Baan Process to address the process market, we are reminded that Baan attempted to enter the process market with the same add-on strategy but abandoned the effort for undisclosed reasons. Customers have been told that Wonderware will offer PRISM or Protean customers financial incentives to move to the Baan Process replacement product.

Assuming this product is brought to market on the current schedule of 2002, will it provide an adequate transition path for the existing users? Will the Baan tools, developed in the early 90's provide the technology required today and in tomorrow's environment? Will the approach of adding process functionality to the Baan discrete manufacturing modules prove to be competitive with solutions from process-only vendors or attractive to current PRISM and Protean customers? Users should question Wonderware on their future options and investigate alternative solutions now to fully understand their situation and options.

Process companies considering a new ERP system should be wary of the Wonderware/Baan offerings. They are urged to evaluate from both the process-only (SCT, Ross) and non-process (including J.D. Edwards, QAD, and SAP) ERP providers to determine if these systems fit their specific needs. Special attention is required in looking at both the process and the non-process vendors to ascertain the fit of the product to the unique supply chain and production management needs of the specific process industry and company

In anticipation of its annual SCT Summit user conference April 8-11, SCT (NASDAQ: SCTC), whose Process Manufacturing and Distribution Solutions Division is a prominent provider of business solutions for the process industries, orchestrated a press release blitz during March.

On March 6, SCT announced an expansion of its vision for its process manufacturing and distribution solutions business. This vision, called "Collaboration in Process," is based on recognition that process manufacturers and distributors will increasingly go to market as members of competing commerce networks. Namely, with the advent of increasing collaboration in supply chains, competition in the manufacturing environment is becoming less about competing products and increasingly more about competing supply chains.

SCT claims its vision extends beyond the traditional supply chain, which is defined by the physical flow of goods, to include the participants who do not directly handle the product but rather handle information, such as exchanges, markets, brokers, and other service providers. This complex relationship network, together with the traditional supply chain network, defines the new paradigm of business - the commerce network. A significant piece of the expansion of iProcess.sct features a relationship network modeling, allowing enterprises to capitalize and collaborate when relationship events occur within or across the commerce network.

To meet its expanded vision, SCT has announced additional products and features that focus on Supply Chain Planning and Optimization, Internet Commerce, and Relationship Management. To that end, on March 20, SCT announced the newest components of the iProcess.sct solution, delivering additional e-CRM capabilities.

The iProcess.sct suite includes advanced planning, demand planning, and advanced scheduling, and with planned expansion to include transportation planning and replenishment planning with support for Collaborative Planning, Forecasting and Replenishment (CPFR) and vendor-managed inventory (VMI). SCT's iProcess.sct also includes sell-side e-commerce and eCRM solutions, with planned expansion to include interactive customer service capability, and access to e-commerce applications via wireless technology.

Central to SCT's product announcements are Interactive Customer Assistance components of iProcess.sct. These will enable real-time customer interaction through SCT's sell-side Internet commerce solution. Using these solutions, SCT claims that enterprises can extend Internet commerce applications with live on-line communications and call-center capabilities. Functionality includes instant messaging, live chat, e-mail, and real-time "follow-me browsing," which enable a customer service representative to remotely guide a customer through the on-line sales process. Trading partners can choose how and when they will do business with each other, whether it be through a website, over the phone, or a handheld or personal digital assistant (PDA). Wireless business activities include placing or checking orders, inquiring on goods available, and looking up quality specifications on newly arriving shipments.

On March 19, SCT also announced a partnership with IBM that combines the iProcess.sct solution with IBM e-business solutions. As part of the relationship, SCT will offer iProcess.sct with IBM's financing, hardware, software and service solutions. With the relationship, SCT embraces key IBM technologies, such as IBM WebSphere* software, MQSeries,* and the DB2* Universal Database. SCT also embraces multiple leading IBM platforms, including the new IBM eServer* pSeries and xSeries systems.

While the new vision focuses primarily on expansion in the aforementioned areas, SCT will continue to offer its Supply Chain Execution/ERP products to the market along with continued upgrades and additional applications for warehouse management and trade funds.
With these announcements, SCT raises the ante for e-commerce within the process manufacturing space. The expanded vision addresses the marketplace realities of its process manufacturing segment. Most of these markets live with the reality of very slim margins. To compete, these companies must continue to reduce their cost while increasing the level of service to their customers. The time-to-market for these companies is often constrained by the idiosyncrasies of handling natural resources (e.g., seasonality and perishability). For these companies, however, the speed of communications promised by the Internet has evolved into a new era of competitiveness that is not that typical within the discrete manufacturing sector.

As industry expert Bill Friend, ex-VP of IT and Logistics for Simplot states, "Competition within the process industries can no longer be based upon price and quality, these are givens. Competition must move to increased levels of service. Process companies must wrap their products in information to better serve the total needs of their trading partners."

Incumbent process manufacturing vendors will have to assess their offerings relative to iProcess.sct to counteract the impact of this expansion in functionality. Since most of them are currently in a tight spot with dwindling resources, this need may only rub salt into their wounds. Vendors that have a broader focus than the pure process manufacturing but that also compete in the space need to more deeply grasp the inherent process market peculiarities versus the advantages of offering perhaps broader but less focused solutions.

While the above strategic moves are a step in the right direction, SCT has yet to adequately address the buy side of its e-business applications, namely, the area of e-procurement. While SCT has formed a partnership with ecFood.com, a leading food ingredient exchange, as part of their buy side e-business efforts, it has not yet provided similar offerings for the remaining segments of its focus (e.g., chemical, life sciences, etc.). Some competitors like Infinium, can tout both vertically focused e-procurement and integrated CRM solutions. Look for SCT's remedial actions in that regard.
Existing SCT customers should consider these announcements as central to their e-commerce plans, although informing themselves about other vendors' offerings would be beneficial. Process manufacturing enterprises from the above mentioned industries that are looking for e-commerce or other enterprise solutions should place SCT on their initial list of prospective vendors. Potential and existing users should be aware of the fact that it is a long journey from vision to execution. Therefore, prod SCT executives about firmer product availability dates and bear in mind typical issues associated with immature product releases.

Great Plains is a leading small-to-mid-market provider of back-office and e-business solutions. In March 2001, the company (still an independent entity at the time) held Convergence, a four-day annual user conference and international business event for its customers.

Although not given much attention at Convergence, Great Plains' foray into the discrete manufacturing market caught TEC's attention. While the company is admittedly aware of its limited success and brand recognition in this market segment, partly the result of arriving late in the game (eEnterprise Manufacturing Series was released only at the end of 1998; the product was previously developed within Great Plains' development environment by Great Plains' former VAR ICONtrol, which the company acquired in April 1998), it is poised to significantly improve its posture and product offering. See Market Impact for our view of Great Plains' odds of success with this endeavor.
This was the fifth Convergence for Great Plains Dynamics and eEnterprise customers, and the first for Great Plains Solomon customers. In September 2000, Great Plains unveiled new e-business solutions and services during its 15th annual Stampede, a four-day international business conference for Great Plains value added resellers (VARs), consultants and solution developers. These constituents sell, support and develop integrated products for Great Plains e-business solutions, (for more information, see Great Plains' Latest Product Offering - Ready to Stampede the SME Market?).

During Convergence users had their turn to preview such new applications as release 6.0 of eEnterprise, although most applications has already been showcased at Stampede. Release 6.0 of eEnterprise is the most comprehensive release in the company's history, with significant new multinational and international enhancements. Still, Convergence featured such recent events as the availability of a time-tracking solution for hand held computing devices.

Other recent announcements included Great Plains' strategic alliance with Concur Technologies Inc. (NASDAQ: CNQR), a provider of Corporate Expense Management solutions, to resell the Application Service Provider (ASP) model for Concur Expense�. Concur Expense is a Web-based travel and entertainment (T&E) expense management solution that will be resold by Great Plains' 2,000 Value Added Resellers (VARs) to middle market companies and existing Great Plains Dynamics, eEnterprise, Solomon IV and Classic customers.

Also noted was Great Plains' announcement of plans to add a web-based budgeting solution to meet the budgeting, planning and collaboration needs of mid-market organizations. FRx Software, a wholly owned subsidiary of Great Plains, will acquire the new budgeting solution, ebudgets, and will re-brand it as FRx� Forecaster�. The integration of FRx Forecaster with FRx's financial reporting application will automate operational expense, personnel, capital and revenue planning and allows multiple users and locations to participate directly in the budgeting process via the Internet, a corporate intranet or a LAN-based network. FRx Forecaster Professional will be available to Great Plains eEnterprise and Solomon IV Premier customers in the second calendar quarter of 2001.

Despite the organizers' attempt to focus on 'business as usual', it was inevitable that the audience's interest was in the status of Great Plains assimilation by Microsoft (see Microsoft And Great Plains - A Friendship That Turned Into A Marriage). The acquisition was formally completed with Microsoft's April 5, 2001. announcement.

"Contentment without complacency" was TEC's impression that Great Plains exuded during the conference with regard to becoming a part of Microsoft. While relying on Microsoft's immense R&D resources (five times bigger than the value of Great Plains' acquisition) is certainly pleasing, it would not suffice in the long run without Great Plains' tenets of success in the past, e.g., focus, product quality, channel, etc. Cannibalizing the business of Great Plains' direct competitors that are still Microsoft's partners is not an option - Microsoft has to be wary of being anti-competitive, given the DOJ's constant attention to its moves. Therefore, Great Plains continuation of business as usual is quite plausible.

Selecting and attracting renowned vendors as its partners and integrating disparate products have marked Great Plains' strategy in the past. Great Plains has impressively delivered on its projection from almost two years ago when it indicated that front-office applications (through the alliance with Siebel Systems) and e-commerce were two strategic areas of focus for the future. The company has even gone a mile further by putting together a comprehensive product offering that includes supply chain management (through the alliance with Logility). Consequently, Great Plains has indeed made great noise and established itself as a global small-to-medium enterprises (SME) market leader. This is not the case in the manufacturing part of the segment, but the company is determined to change its posture in that regard.

The first and foremost reason for maintaining a higher profile is finally having a real product with tried-and-true functionality. The eEnterprise Manufacturing Series provides a broad suite of applications designed for discrete manufacturing businesses with Make To Stock (MTS), Make To Order (MTO), Assemble to Order (ATO) and Hybrid manufacturing environments. It features the following traditional ERP Modules:

Manufacturing Orders	Quoting/Estimating
Capacity Requirements Planning (CRP)	Work Center Definition
Sales Forecasting, Inventory Management	Routings
Quality Assurance	Material Requirements Planning (MRP)
Master Production Scheduling (MPS)	Engineering Change Management (ECM)
Bill of Materials	Work in Process (with Lot/Serial Control and Data Collection)
Job Costing	Sales Configuration

The Manufacturing Series integrates with other typical ERP functional series available from Great Plains such as the Distribution Series, the Financial Series and eEnterprise Payroll. The tight integration with HR, FRx enterprise reporting, e-commerce and Siebel CRM modules, and with Logility Supply Chain Planning modules (still in the future) will render the product even more attractive to the target market segment.

The customer base is also getting to a critical mass, although it still has to grow. The company cites approximately 160 manufacturing installations, almost exclusively in the discrete manufacturing spot, with a small number of batch process manufacturers. Although the company cites targeting the companies with up to $250million in revenues, the real sweet spot is the manufacturing companies with $10million - $75million preferably with a single location. The customers are currently only North America-based owing to Great Plains' endeavor to get all its ducks in a row before releasing products for wide spread availability. The global availability is expected within a year.

Since its competitors, particularly the larger ones, may with good reason object that they had delivered the above product features a way back, the differentiator for this Great Plains' endeavor (and proven success) is to deliver bulletproof, bug free new generally available (GA) product releases, based on stringent product functionality and performance testing. That has not traditionally been the rule for most bigger applications vendors, whose new releases are often bug ridden. The market where Great Plains is competing is quite unforgiving to these kinds of flaws, possibly more so than with the vendor candidly admitting the missing functionality.

What should also bode well for the campaign is Great Plains' possibly unrivaled global indirect channel model that consists of over 2,200 partners; it has been admired industry-wide as the most appropriate delivery business model in the target market segment. Further bolstering its channel is the company's endorsement of the Application Service Provider (ASP) model, which it started more than two years ago (For more information, see Great Plains ASP - Evolution, Revolution, Innovation). Moreover, the speed and low price, as well as the low hardware requirements may cause the prospect to overlook the bells and whistles of other competitors.

Implications For The Future : Nevertheless, Great Plains will have its work cut out for it. The product still lacks in some functionality that TEC noticed as increasingly required during recent software selections engagements such as lean/flow manufacturing, intuitive visual (graphical) finite scheduling/plant level execution, plant maintenance, document management/PDM, etc. The product also lacks strong distribution requirements planning (DRP) functionality, which still renders the product not particularly suitable for multi-site implementations. There is also lack of vertical focus and industry templates - the fact that the majority of customers are electronic manufacturers/OEMs is more the result of serendipity than the company's orchestrated effort in the industry.

To that end, during our attendance at Convergence, TEC was made aware that some alliance negotiations were in progress, and the market should expect related press releases in the near future. While belonging to the Microsoft family has advantages, the downside is that Great Plains' intended initiatives would likely be hampered and tied to the strategy of the bigger brother. The request for expanding the functionality of Microsoft bCentral small business service may push aside some other initiatives that Great Plains had earlier deemed necessary. Before integrating with Microsoft bCentral can happen, in turn, Great Plains' stable of products has to be re-architected/re-written for .NET as opposed to any proprietary development tools (e.g., Dexterity). And only then, when all the products are interchangeable, eEnterprise will be able to benefit from using the Solomon IV superior distribution or project management functionality and vice versa. This is not going to happen any time soon.

Any protracted delay in articulating and delivering these initiatives would aggravate the challenge of protecting Great Plains turf from such Tier 1 and Tier 2 intruders as SAP, Oracle, J.D. Edwards and PeopleSoft that indisputably have a more comprehensive and deep offering. The threat will remain even if the Tier 1 vendors' offering is toned down for the smaller market segment (see SAP Claims Big Gains In The Low-End Battleground and PeopleSoft Joins The Hunt For SMEs). One should also not overlook the fierce competition from direct competitors like NavisionDamgaard, Epicor, PRONTO, and Lilly Software to name but a few. These players can still tout their superior native manufacturing and distribution functionality and vertical focus, which are indisputably ever more important tenets of competitiveness within the SME market.

As a summary, Great Plains has most of what it takes to be a strong competitor - product, channel, implementation methodology, market focus and corporate viability. There is still much room for improvement in expanding the functionality and the market awareness; with Microsoft's wind in its sails, one should look for more effervescent activities in these matters.

As for potential Great Plains discrete manufacturing users our advice would be:

• Evaluate eEnterprise if you are a small to medium, North American single-site discrete manufacturing company or division, with a limited IT budget and a timid IT strategy.
  
  
• Bear in mind that if the non-manufacturing modules (e.g., HR/payroll, CRM, e-commerce, etc.) are also critical to you, then Great Plains brings added value to the table, although the integration should be validated during the technical review sessions as a part of a thorough selection process.
  
  
• Companies that require complex engineer to order (ETO) functionality, multi-site and/or more intricate multi-national capability may benefit from evaluating other offerings.
  
  
• During the selection process, question the company's executives about the positioning of its manufacturing offering within the total business strategy of Great Plains/Microsoft.
  
  
• Talk to or visit existing users with a profile similar to yours to assess their past experiences and confidence in the future of Great Plains' manufacturing product and its track record relative to meeting the industry needs.

The SCT User Conference, held in Toronto featured industry analysts from Gartner Group, AMR Research and Meta Group each sharing their vision for the future of enterprise systems with the audience. Customers, in special interest groups and in presentations discussed their success with SCT's products. SCT showed both their existing product set plus their vision for the future with a series of product announcements and prototypes of future products.

For the opening session of each day's conference, SCT invited key industry analysts to present their vision of the future of enterprise systems. This gave the SCT customers a view of the future from the point of view of the analyst. Each focused on a different aspect of systems, with the overall message blending to give a comprehensive picture of what will be required to compete in the not so distant future. The key message was collaboration with trading partners and how the ERP market and vendors will evolve to meet these challenges.

SCT concurred with the collaboration message, painting a picture of its vision of the future for process companies with a series of collaboration announcements. For example, the iOrder product is being enhanced to permit live, interactive customer assistance. Central to the SCT vision is further evolution of its component vision that allows its products to co-exist with products from other vendors. All three analysts voiced an endorsement of SCT's direction.

A prototype of SCT's upcoming entry into relationship network management revealed a partner network modeling capability that is absent from alternative products. More importantly, the approach allows the modeling of the complex, multi-tiered relationships faced by many of the companies in SCT's target markets, for example food and CPG. These relationships include distributors, brokers, agents, channel partners, logistics providers and retailers. The product in question will be later this year.

An array of customers presented their experience with SCT products, including Coca Cola, Safeway, Miller Brewing, Cargill, Basic American Foods and others. These presentations covered ERP, SCM and e-business success stories. Some customers use the entire SCT product suite, but many use portions, coexisting with other solutions. For example, SCT has shown success with integrating its SCM products with the SAP backbone.

For example, Coca Cola uses SAP for many functions and SCT's iProcess.sct Supply Chain Planning (the product "Fygir") for supply chain management within its fountain syrup business unit. In a series of sessions, Coca Cola presented how they manage the fountain syrup business' complex, worldwide, multi-plant supply chain with Fygir. At headquarters, Coca Cola does multi-plant strategic sourcing, production, capacity and distribution decisions. At each plant, optimal production sequences are determined considering production constraints, operational efficiencies, manufacturing preferences, run rates, change over/setup times, as well as labor and space utilization.

Cargill Latin America discussed the management of multiple business units in grains, flour, oils, citrus and other agricultural areas. The complexity of its management challenges included dynamic freight rates, grain elevator movements, variable quality, customer blending requirements, etc. Cargill uses the Fygir product and claimed significant gains.

A presentation by New Balance Shoes on its success in forecasting, production, and capacity planning was especially interesting given the recent press on competitor Nike's difficulties in a similar area. The New Balance presentation demonstrated key functional elements required for success by the consumer packaged goods company.
The customer speakers demonstrate that SCT continues to show great customer success. However, the company is not fully exploiting its name brand customers to its marketing benefit.

Special Interest Groups by company type (food, chemical, etc.) and functional area (supply chain, etc.) allowed customers and SCT field and product management to share experiences. The tone of these sessions revealed that the user community is attacking in-depth business issues and getting results. The users also identified additional requirements that remain to be addressed. For example, the CPG and food customers need additional functionality from SCT to deal with deals, promotions and the associated collection issues.

The user conference points out a consistent problem with SCT's marketing. The conference combined all SCT divisions (education, government plus process manufacturing) and therefore, the messages became very confusing. Under the SCT approach of lumping together all its business segments under one name, user conference, etc, each suffers in the competition for mind share within its individual target market.

The four part series titled "Where is ERP Headed (Or Better, Where Should It Be Headed?)" introduces a number of key issues about the future. But everyone starts his or her individual journey to the future from somewhere - the place they are today. If the place you are today is with an "old ERP" system, many questions exist about how to get to the future.

First, what is an old ERP system? If your system has green screens, you have an old ERP system. If your system has a GUI (Graphical User Interface) but not something that looks like most Windows applications, you have an old ERP system. If the system was introduced in the 80's, you have an old ERP system. If your vendor is no longer enhancing the system in "new areas", you have an old ERP system. If your vendor is becoming a "have not" of the ERP industry, maybe old age is approaching.

If you have an old ERP system and you need some of the business functionality offered by Supply Chain Planning (SCP), Business Intelligence (BI), Customer Resource Management (CRM), New Product Development (NPD) or e-commerce � you have a dilemma. Do you replace what you have first and then add these new functions or do you keep what you have and add these functions around your existing ERP system? Every vendor of ERP or any of the functions listed above will have advice for you. But you can rest assured the advice is what is best for the vendor in almost every case. (To be sure, there are some conscientious sales reps out there that will give you honest advice.)

The Realities of Replacement : Why are you thinking about getting rid of your existing ERP system? What ever your answers, they must be compared to some of the realities of replacing the old system. Those realities include cost and time, but these two issues go much deeper. You have to pay the cost of buying and installing a replacement ERP system. You have to suffer the cost of disruption, typically a dip in operational efficiency and effectiveness, before, during and after the implementation. You will have to suffer the pain of ripping out the existing system and putting in its replacement. Will the replacement of the existing system be more or less painful that what you experienced the first time? This is a good question, which has no standard answer.

Once the replacement system is installed, will it give you adequate ROI on the replacement investment? The time involved in implementing the replacement ERP system means that the ROI on the added function you are seeking is delayed. Yes, you could try to implement both the replacement ERP system and your shiny new SCP or e-commerce system at the same time, but are you willing to accept the risk and even greater disruption in doing so. The "big bang" horror stories of the late 90's should make you very adverse to this approach.

An ERP system is the backbone of your operations. You need to make absolutely certain that any replacement system functions as well as or better than what you have. The word old means mature. Will the replacement system offer all the function that your old, mature system has today? Your people may not like the existing ERP, but they know it. Can you guarantee that the new system will really be an improvement for these people? Maybe the most important thing that can be said about the old system, which may not be true of the replacement system is, "It works!"

If you are looking for a replacement ERP system as a way to get to some of the newer functions like BI, SCP or NPD, you need to pick a system that is both better than your existing ERP system and provides the best functionality in the new areas you are seeking. You will have to pick a single vendor who is up to both tasks. Although the offerings from the integrated ERP vendors have improved to the level of functionality of the best of breed vendors specializing in a single area for many situations, the exact function you want and the specifics of your industry may mean that the integrated vendor is not up to the challenge.
Why Are You Replacing Your Existing ERP System?: So, why are you thinking about getting rid of your existing ERP system? If the answer is simply your need for some of these newer and more advanced applications, you have not thought through your options - you can reach these objectives with or without replacing your existing system.

If the answers have to do with technology, you need to look deeper. A CIO recently told me that he was going to replace his old ERP system because, "My users think it is old and ugly." Unhappy users are always an issue. How much you weigh this issue versus the cost, time and disruption issues is part of the trade-offs involved in making this decision.

Maybe the existing technology itself is old and ugly. If the underlying hardware and systems software is creating frequent disruptions or have become very expensive to maintain, you have another issue to trade-off. But if the existing hardware or systems software puts you at risk of a lengthy or permanent disruption of service, you have no choice but to go to a replacement system.
The Realities of Additions :

Why would you add the new function around your existing ERP system? If you add the function you require on to the existing system, you should get the benefits you seek faster. You can proceed directly to implementing the functions that will deliver the ROI. That project will have to include some consideration of integration of the new function to the existing ERP system, but the overall schedule is typically shorter.

In many cases, the functionality provided by a specialist or best of breed vendor will be better than that offered by many integrated vendors. As the above-mentioned article discusses, the future of ERP means sharper vertical focus. For many industries or verticals, significant operational advantage can be gained by going with a vendor who focuses in their industry. The best of these focused vendors typically limit their target market to a few, closely related industries. Note, industry focus means application function, not industry specific brochures.

Additions Involve Integration : But what is the true cost of going the best of breed route? Integration is one of the answers. It is not free. It is another issue that must be traded off. The reality is that the integrated vendor should have better integration and they will bear the cost of maintaining that integration. This is almost always true if the vendor wrote all the pieces themselves. If they acquired some or all of the pieces, this should be true, but you should test the vendor's commitments in this area. If the components come from a "strategic partnership", it means that as long as the relationship makes money for both parties and they do not evolve into a competitive situation, the integration will continue to exist.

Part of the integration trade-off has to do with the quality of the integration. A single vendor, integrated solution should have better integration. The question for the best of breed option is, "Can these products be integrated in a practical way." Practical does not mean best, it means acceptable given all the other trade-offs that will always have to be made. You will have to live with extra code, the integration code that needs maintenance. You will have to live with duplicate files that may get out of synch. You will be the one who deals with the finger pointing between the two vendors when one or both of the two systems are not working correctly. You will have to deal with the new release cycles that will prove to be always perfectly out of synch.

The selection of an add-on product must include the ability of the product to integrate with the existing systems. Was it built to be integrated? What integration technology does it support? What will be the cost and risk of maintaining the integration?