The new realities
Enterprise apps buyers at Decipher, Cybex International, and Binney & Smith exemplify today's pragmatism
By Paul Mann, contributing editor -- Manufacturing Business Technology, 10/1/2002 6:00:00 AM
Sean Ellis is representative of the oft-burned information technology (IT) executive. "At every company where I've ever worked, I've had vendors over-promise, under-deliver and over-bill," says the vice president of information technology (IT) for Decipher, a Norfolk, Va.-based company that produces board games and other entertainment-related products. "I previously worked at a company that spent years putting in a very expensive Tier 1 ERP [enterprise resources planning] solution at 14 sites in seven states. Five of those sites refused to use it because it didn't work the way it was supposed to.
"Then, prior to my arrival here, the company had gone through four full implementations of the same solution, using four different consulting companies," Ellis continues. "Still, it never worked the way the consultants and account managers promised it would."
Most observers say a number of factors came together to inflate and then deflate the enterprise applications market over the past three years. In the heady boom years of the late 1990s, C-level executives under pressure to instantly turn their companies into e-Businesses receptively met vendor promises. Add in the boost in IT spending attributable to the Year 2000 computer bug, and you have a market that perhaps too willingly jumped into major implementations of enterprise software.
"Before, there was too much hype-buying," says Dwight Klappich, a research director with Stamford, Conn.-based analyst firm META Group. "Manufacturers thought that if they didn't jump to some new technology or new solution immediately, it was going to be too late."
As things turned out, few industries went the way of book-selling and Amazon, and as the dot-com and high-tech sectors quickly cooled, and a slowdown took hold in broader manufacturing verticals, IT spending plummeted. Just how bad was the drop? The overall enterprise applications market—which includes ERP as its largest category—grew rapidly throughout the 1990s, but rose only 7 percent in 2001, and is forecast to grow only 6 percent this year, according to Boston-based analyst firm AMR Research. AMR figures also show that total IT expenditures as a percentage of company revenue actually dropped 1 percent in the past year, from 4 percent in 2001, to 3 percent in 2002.
Zoom in on the software sales component of markets such as ERP, and it's plain that spending isn't spread evenly across all target markets. "Large, Tier 1-focused vendors are doing pretty well because they target large companies that continue to spend money during a recession, and they have huge installed bases to sell to," says Jim Shepherd, senior vice president, AMR Research. "The vendors that sell to the midrange are having a tough time because midrange companies have stopped buying until the economy improves. The vendors that sell to the low-end market are doing pretty well because they have relatively inexpensive solutions, third-party channel partners to sell through, and an enormous potential market."
Skeptical approach
Of course, individual companies often have a compelling need to install a new ERP or other type system, regardless of how sluggish the overall economy is, or what size they are. But those companies that are moving forward are moving cautiously.
"Experience is a great teacher," says Decipher's Ellis. And like many of his peers, Ellis now approaches each purchase decision with a healthy dose of skepticism. Recently, when the company began looking for a replacement ERP solution, it implemented a new selection methodology that took nothing on faith. Vendor/consultant claims about feature/function, implementation times, previous project successes, and long-term financial viability were all scrutinized intensely.
One of the first casualties of this new reality was the slick executive overview. "Instead of having the first demo for the CEO and other senior executives, we had the vendors demo to project teams from various departments, which asked very specific questions about how the system would work in their departments," he says. This intense question-and-answer approach quickly cut through the hype.
Further cuts resulted when the selection team looked beyond the vendor-provided reference lists. "We talked to both current customers and potential customers," Ellis says. "We approached this like a marriage, because we knew we wanted a long-term relationship with our vendor."
But for Decipher, that long-term relationship had to begin with a short-term implementation cycle. The company had experienced enough never-ending implementations and wanted right-now results to business challenges that were thwarting its ambitious growth plans.
After much deliberation, the company chose Best Software, Irvine, Calif., as its technology partner, and the Best Enterprise Suite (recently renamed MAS 500) as its new solution. Just 90 days after the contract was signed, implementation was nearly complete.
Any discussion of results will have to wait, but Ellis is optimistic. "For the first time in a long time, we can stop focusing on technology and focus on driving the business," he says. "That puts us in the position to grow our existing lines of business, and add new lines of business and partners."
Partners wanted
Even companies that haven't been directly burned by past vendor/consultant failings are certainly familiar with the well-publicized horror stories. But many manufacturers continue to face critical business challenges that can't wait until software selection and implementation become a risk-free undertaking. In the interim, manufacturers take little on faith, and strive to develop long-term relationships with technology partners.
CYBEX International, a Medway, Mass.-based exercise equipment manufacturer, is a good example of a company taking this approach. "We've always had the philosophy that we want a long-term relationship with all our vendors," says Brian Lyman, business systems manager. "We look for a commitment and that starts right upfront. We expect more than a 30-minute, canned demo. Tailor the presentation to our world and then make recommendations. If we're killing ourselves over there, and you've got a better approach, we want to hear about it."
The desire for a long-term vendor partnership means CYBEX looks beyond feature/function during every evaluation. "Part of our review process is that we want to know if [the vendor is] viable," he says. "That's always been a part of our review process, but today, it's probably number two on our list of criteria. Number one is still the requirement that the software do what we need it to do."
When CYBEX finds a partner that delivers on its promises, that's the foundation for a long-term relationship. "We don't shop vendors," he says. "If the vendor meets our current needs, and will work with us as those needs change, they're going to be difficult to dislodge."
Four years ago, CYBEX was a $50-million company with 120 employees and one enterprise business system. Thanks to a pair of acquisitions, the company blossomed into a $150-million company with 600 employees and a trio of business systems that didn't communicate effectively.
"In this business, the key thing is that we deliver as promised," he says. "Without visibility into the order process across our plants, it was difficult to manage that process. Typically, we hit the days, but there was a lot of pain involved to get the trucks filled at the right time with the right product."
To end the pain, CYBEX selected PeopleSoft as its enterprise software suite provider. Over the years, CYBEX has implemented virtually every key module offered by the Pleasanton, Calif.-based vendor—including core ERP functions such as financials and human resources, customer relationship management (CRM), and sell-side e-commerce, or "e-store" software. And, as new requirements emerge, PeopleSoft generally gets the first call, based on its prior performance.
"The key benefit we got was the ability to deliver as promised," Lyman says. "Today, we can schedule the production floor efficiently to meet requested delivery dates—without carrying a lot of inventory."
Managing expectations
The concept of delivering on promises also is near and dear to the heart of Glen Appel, managing director at Binney & Smith, an Easton, Pa.-based manufacturer of the well-known Crayola crayons and Silly Putty. This motivation to deliver is based on two clear realities of the market.
Number one is the abbreviated period available to move product. "Back-to-school business peaks during August and September and the shopping cycle for most mothers is only about two weeks, so that's when you have to hit with your product," Appel says.
Number two concerns the expectations of Binney & Smith's large retail partners. Giant chains such as Kroger, Target, and Wal-Mart don't just hope for suppliers to deliver on-time and complete—they demand it.
"There is no doubt that working with retailers like Wal-Mart makes us a better company," says Appel. "They are good at what they do and push their suppliers to get better at what they do. The question, for a mid-size manufacturer like us, is how can we provide what it takes to keep these good customers happy?"
For Binney & Smith, the selection criteria focused on robust consumer packaged goods functionality, strong domain expertise, and long-term partnership potential. The last requirement wasn't prompted by some theoretical concern.
"In Mexico, our current vendor is going out of business and not supporting the software any longer," says Appel. "We've learned that the trick with vendors is to talk directly to the user base. Call them up, and make sure they're comfortable with the software and the company."
When the evaluation team completed its work, Binney & Smith elected to purchase the Prescient XEi supply chain suite from Prescient Systems, based in West Chester, Pa. According to Appel, the implementation took just six months—about three months of which was due to preparations at Binney & Smith.
While a 30-point improvement in on-time and complete delivery performance was certainly welcome, access to Prescient Systems' expertise also was noted. "We like the fact that senior management is always available, along with the best and brightest minds in the development team," Appel says. "That's one of the advantages of dealing with David and not Goliath. Plus, their strong focus on CPG helps us answer the question, 'Is this really what Wal-Mart wants?'"
Users such as Binney & Smith, Cybex, and Decipher are certainly pragmatic, which, when multiplied across entire industry verticals, adds up to diminished expectations for the enterprise applications market. But analysts say the overall enterprise apps market will edge back, with AMR, for instance, predicting that even with tepid growth this year, the market will grow at an compound annual growth rate of 13 percent through 2006 to reach $70 billion—up from $41 billion in 2002.
Longer term, say some analysts, the IT bubble may even result in some positives. "Way too many companies were spending like drunken sailors," Klappich says. "That was a great climate for vendors, but it wasn't so great for the marketplace at large. Now we have manufacturers taking their time and buying for the right business reasons. They're being much more pragmatic about how they approach buying software. As a result, we will have a more sustainable buying climate."
| Who's inside | ||
| Best Software: www.bestsoftware.com | PeopleSoft: www.peoplesoft.com | Prescient Systems: www.prescientsystems.com |
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