SAP users don't come much more committed than Delta Air Lines. The Atlanta, Georgia-based carrier not only operates SAP right across its business but, explains Bob Currey, general manager of sourcing information and supply management, goes as far as operating a single company-wide installation, in contrast to the collection of separate versions and implementations that bedevils so many large organisations.
"Having a single instance helps cut down the complexity of getting visibility into spend," notes Currey. The information can be extracted from a single repository as opposed to being merged from separate systems. Yet if running a single instance of SAP helps to provide a purer source of data, it turns out that in Delta's case, at least, the data is not analysed using an SAP application. Instead, Delta runs e-sourcing and spend visibility software from Verticalnet.
"ERP systems are excellent at what they were originally designed for - accounting and transaction processing - but when areas of the business such as the supply function want to extract information from that accounting and transaction data, it can be difficult for them to locate and access the right numbers," Currey says. "In terms of procurement, the information on spend is there alright, but not in a user-friendly format. The 'canned' reports don't meet all our requirements, and custom-developed reports take time and programmer effort."
It was concern over quite how much time and effort might be involved that ultimately led Delta to consider an alternative approach, explains Currey. "In any business, programming resources are often at a premium," he says. "You can build a business case and wait in line - and then carry on waiting, perhaps indefinitely, for the resources that you need to be made available. Or you can go to a 'best-of-breed' vendor, and buy what you need, off the shelf. For us, the time-to-benefit of the Verticalnet solution made a lot of sense."
Welcome to the resurgence of a debate that some had thought died away five or more years ago: the question of whether it's better to buy procurement and supply chain software from an application vendor specialising in that area - a best-of-breed software company, in IT jargon - or from an ERP vendor whose applications are already running within the organisation.
From an IT perspective, the ERP solution has obvious merits: better integration, an existing commercial relationship, simpler implementation - and, as the Americans say, "one throat to choke" if something doesn't work as it should. In contrast, a best-of-breed vendor may offer software that proves troublesome to integrate, might be difficult to deal with, and can lack long-term commercial viability.
Yet best-of-breed vendors refuse to go away. Their argument: especially in an application area such as procurement, a better mousetrap may well yield big enough returns to the business to warrant any extra risk, uncertainty and implementation effort. So it proved at Delta, where attempts to stay within the confines of the SAP framework had produced a "make-do" spend visibility system lashed together from Excel spreadsheets, Access databases and ad hoc reports, says Currey.
"It just wasn't effective, and it became difficult to resist a vendor that said, in effect, we can help you get the data you need on who you spend money with, and what you spend it on. And you'll know that when two people pull two sets of numbers off the system a few days apart, the numbers are going to be consistent," he says.
To some, Delta's espousal of best-of-breed is increasingly an aberration. The broad trend, insists John Leffler, a partner in IBM Business Consulting Services' ERP practice, is away from best-of-breed and towards ERP. Nearly all of the "ERP v best-of-breed" evaluations that the firm has undertaken in recent months, he says, have come down in favour of ERP.
Even IBM's own $45 billion Integrated Supply Chain manufacturing and procurement organisation, he hints, may in time review its long-standing commitment to best-of-breed supply chain management vendor i2. Although a head-to-head comparison with SAP's Advanced Planning and Optimisation module came out decisively in favour of i2, the imminent need now to licence the module in order to provide an "available to promise" capability to certain customers may in time prompt a rethink.
"There would have to be a dollar benefit to justify changing," he stresses. But making that change, if the numbers added up, would not be ruled out on other grounds. If businesses seem newly receptive to the charms of ERP-based solutions, it's not too difficult to determine why. Burned by high-profile defections to the best-of-breed camp, the ERP vendors have been fighting back. Their products, for one thing, now arguably offer enough depth of functionality to be a genuine option, even for a demanding user.
While the early versions of SAP's SRM module left something to be desired, for example, versions 4.0 and 5.0 have done much to close the gap, observes Don Valentine, operations director at SAP systems integrator Absoft. "The value proposition has increased hugely," he says.
"Multi-round auctioning, reverse auctions, lotting and bundling, collaborating with suppliers during the bidding process, weighting line items according to importance - even the nuts and bolts of translating winning bids into purchase orders and notifying losing bidders: all of these aspects have improved manifestly in the most recent versions."
And it's not just the software developers who have been leading the charge either: ERP vendors' salesforces have played their part, too. Increasingly, says Chris Sawchuk, leader of the procurement and supply chain research practice at benchmarking firm the Hackett Group, "if a company has a reasonably extensive ERP system from a particular vendor, and that vendor gets to hear that a best-of-breed offering is under consideration, it will throw the purchasing functionality in at a very attractive price - if any price at all, in fact".
Weakened, the best-of-breed camp has undeniably experienced some recent consolidation - although not, to date, among the major sourcing specialists. Instead, it is companies in the broader mainstream of supply chain management that have fallen: Manugistics, for example, bought by JDA Software Group; RiverOne, acquired by i2; or SeeCommerce, acquired by Teradata. (The ERP market has been experiencing its own wave of consolidation, of course, with Oracle's acquisition of PeopleSoft and JD Edwards just one example.)
Yet if best-of-breed vendors are weakened, they are far from out for the count. Faced with competitors that have at last developed functionality that is roughly comparable, they have found new ways of differentiating themselves.
The first tactic is to stress the cost-effectiveness of a solution that does just what it says on the packaging. Niche applications focused on a particular task, it turns out, often prove not only quicker and easier to implement - integration notwithstanding - but also substantially cheaper.
Take US computer printer manufacturer Printronix. Wanting to cut its inventory of spare parts and externally sourced consumables, it realised that its buyers needed a better forecasting tool. But its standard SAP system did not incorporate a forecasting capability: this would require the Advanced Planning and Optimisation module. The company quickly realised the cost was beyond its means.
"We figured that it would cost us six figures minimum to implement, when we added everything up: it's a very high-cost package," says Gary Inscore, Printronix's director of master scheduling. "I was looking for a tool where we didn't have to spend a lot of money, but where we would still get the functionality that we required."
The answer: Smart Software's SmartForecasts package, which offered the same capabilities but at a fraction of the price - typically between 10 and 20 per cent of what SAP charges for its Advanced Planning and Optimisation module, according to Charles Smart, the company's president. The typical payback time is "a matter of months in most cases", he asserts.
' Data agnostic'
Another tactic that is proving fruitful for best-of-breed vendors is to stress their "data agnostic" credentials. "A surprising number of large companies don't have a single ERP vendor; or if they do, don't have a single ERP instance," observes Paul Hampton, Ariba's marketing director for northern Europe, the Middle East, and Africa.
The major ERP platforms, he points out, are orientated towards capturing and consolidating data from their own databases, not those of competitors. In contrast, best-of-breed solutions - almost by definition - are designed from the ground up to work with a wide variety of data sources.
Consider the European operations of US food giant HJ Heinz, which, says Rob Hemsley, the company's UK and Ireland procurement director, must extract purchasing information from no fewer than 36 ERP or equivalent systems. Heinz's strategy of building up a portfolio of brand-based businesses, he explains, has resulted not only in a wide variety of second-tier or legacy systems in operation (BPCS, Prism or MFG/Pro, for example), but also systems possessing varying degrees of sophistication. The company's Polish operation, for instance, runs a basic MRP1 package.
In the longer term, a Europe-wide SAP installation is in the offing - but the business wanted to benefit from a consolidated spend picture far sooner, recognising that SAP would be, in Hemsley's words, "a multi-year project". In fact, he explains, Heinz had been contemplating developing an in-house solution, before realising that implementing Ariba would not only pay for itself through savings on indirect procurement, but also make its direct materials procurement more efficient.
To maximise purchase leverage, these have been traditionally sourced through the ERP system of a particular "lead" country. This leaves vital information such as contract or order balances invisible to purchasers in another country and so without access to that system.
"The ERP systems gave us control over direct spend, but no European visibility of it," says Hemsley. "From the savings we made on indirect procurement - which were outside the scope of the ERP systems - we've been able to extend the technology into direct materials, effectively at no cost." If Heinz's Italian operation, for instance, places an order for tomato purŽe, buyers in other countries can now monitor it on their own Ariba system, without going through colleagues in Italy.
Yet if best-of-breed vendors first came to prominence as purveyors of better mousetraps, that same approach still delivers the goods today. At healthcare giant Bayer Corporation, for example, advanced technology from SmartOps, in the form of its Multistage Inventory Management Planning and Optimisation solution, is battling the bugbear of many a supply chain: the so-called "bullwhip" effect, in which the magnitude of changes in demand level are amplified as successive tiers of buyers alert their suppliers to fresh requirements.
Based on research by founder and CEO Dr Sridhar Tayur, a professor in operations research and management at the Tepper School of Business at Carnegie Mellon University, the SmartOps solution embodies advanced algorithms to better manage inventory in multi-tier supply chains.
"SmartOps is a clear example of a superior technology adding value to an ERP backbone," notes Robert Rudski, president of Greybeard Advisors, who as Bayer's chief procurement officer was closely involved in the assessment and evaluation process that led to the decision to go with SmartOps to supplement its SAP system.
More than ever, he insists, businesses' drive for superior performance impels them to evaluate such tools. "Waiting three or four years for the required functionality to evolve within their chosen underlying ERP infrastructure isn't an option," he says.
If it does evolve, that is. As Khalid Khan, European director of consulting at Verticalnet, points out, ERP vendors have a history of promising to match the best-of-breed providers, only to eventually deliver solutions that are shallow or too generic to be of real value. "ERP vendors' promises that ultimately they would deliver everything haven't come to pass. What's needed is a less adversarial approach to evaluating new supply chain functionality, rather than automatically saying that either it isn't needed, or it's soon going to be part of the standard solution."
A combined approach
Perhaps surprisingly, the major ERP vendors concede there's some truth in this. SAP's own "functionality gap" has shrunk enormously over the past two or three years, says Simon Pollard, its vice-president for discrete manufacturing. But the company has also accepted the need to complement its software with third-party solutions for certain specialised aspects of supply chain and procurement practice - route planning, load planning and similar optimisation tasks, for instance.
"Although we believe customers much prefer to buy a suite of software built around a single platform, our assumption going forward is that we will cohabit with specialised best-of-breed vendors," he says. "We can't do absolutely everything, and wouldn't want to."
Indeed, adds Pollard, SAP's recently announced Business Process Platform offers a way for both SAP users and best-of-breed vendors to add complementary functionality, building applications using SAP's Netweaver technology.
While it's too soon to predict the impact of this on the ERP v best-of-breed debate, it does at least represent movement. And if a halfway house can exist in such a polarised debate, some such "approved umbrella" solution is probably what it will look like.
In the meantime, companies still face the same stark choice: if the functionality they want isn't offered by their ERP vendor of choice - or isn't offered at an affordable price - then they have little choice but to deal with a separate best-of-breed vendor.
Case study: Arthrocare
When PLM is the right treatment
Product lifecycle management (PLM) systems, such as those from Agile Software, aren't conventionally seen as a core procurement IT application. This isn't a view necessarily shared by John Pustell, director of materials management at ArthroCare, a California-based manufacturer of medical devices.
"We installed Agile when we realised that we were changing from a business that was located in one building here in Sunnyvale to one with manufacturing, engineering and sales operations spread around the world," he explains.
Research and development takes place in the UK; manufacturing is shared between Costa Rica, the UK and California; while the worldwide sales headquarters is in Stockholm, Sweden. In such circumstances, the potential for confusion is rife - and, in ArthroCare's line of business, not permissible.
Co-located in a single building, ArthroCare's traditional paper and PC-based document system could just about cope: design, purchasing and manufacturing shared a joint view of the precise specification of what needed to be purchased. "But when you're geographically distributed," Pustell says, "it doesn't work as well."
PLM provides a common point of contact for functions such as manufacturing, engineering and R&D, not only accelerating development and communication but also making sure that everyone is working from the latest versions of design documents. And these days, "everyone" increasingly includes procurement. "In environments with rapid innovation, it's very difficult for purchasing people to use ERP systems to form a view of requirements, because the bills of materials are so fluid," says Gayle Sherwood, product marketing manager at Agile.
At ArthroCare, PLM provides that visibility. "Our vendors and contract manufacturers have full access to the system, and also get notified of any changes to drawings or designs that affect them," says Pustell. "It also has the ability to include relevant files: Word documents, spreadsheets, computer-aided design drawings, PDFs and so on. Again, ERP systems just don't do this."
Malcolm Wheatley ( malcolm_wheatley@compuserve.com ) is a freelance business and technology journalist who writes for a range of leading UK and US publications
