SHOMI: The most influential technology vendors in the manufacturing industry
Bob Parker, VP Research, Manufacturing Insights -- Manufacturing Business Technology, 4/15/2008 7:31:00 PM
Those of you that are familiar with our research themes will recognize the SHOMI (pronounced 'show me') acronym which is shorthand for the most influential technology vendors in the manufacturing industry– SAP, HP, Oracle, Microsoft, and IBM. As we progress through a difficult 2008, these vendors continue to extend their reach and provide a wide breath of products, deep sub-vertical expertise, and the ear of executive management.
We thought this would be a good opportunity to see how these vendors are positioned and to provide some guidance to the buying community about how to take advantage of the different strategies. We will look at their overall approach to supporting key domains like supply chain and product lifecycle, specific industry needs, and hot topics like sustainability and RFID.
In more general IT terms, the vendors are providing products to optimize operations through technologies like virtualization, Web service-based integration, collaborative decision making, and business network automation.
This is the first of five part series covering each of the vendors. This installment will cover SAP.
SAP – Answers in the Applications
SAP remains the market share leader for ERP in the manufacturing market with particularly strong numbers in the enterprise class (revenue > $1B). With a significant chunk of license revenue coming from the installed base and fairly low numbers in terms of the percentage of employees using the applications at those customers, SAP has a well motivated incentive for continuing to serve the large manufacturing firm.
SAP may also have the most fidelity to its roots in enterprise applications. They are not interested in being in the hardware business and their services capabilities are of limited utility to the enterprise class company. This focused mission make them natural partners – they are the largest re-seller of Oracle databases in the enterprise segment, they have had successful co-development projects with Microsoft, and both IBM and HP rely on SAP for sell through of services and hardware.
However, SAP's application leadership position is also under attack. Certainly Oracle has been a traditional rival in the ERP market and Microsoft is building its own transaction application business at the mid market. SAP's progress with NetWeaver is disconcerting to IBM from data warehousing to integration to portals. HP, with the least overlap, is going to have to reconcile its desire to grow its Neoware product line with the revenue potential from services related to the SAP platform.
Architecture – Power in the Platform
SAP deserves credit for patiently pursuing its vision of creating an integrated process platform, extended via a service oriented architecture, and allowing independent software vendors into the ecosystem to fill the white space of specific process domain or industry requirements. Their service oriented approach and focus on keeping the core well integrated will translate to great long term success for both SAP and its customers.
However, the sheer size of the platform and upgrade, whether technical, functional, or transformative, can be intimidating. Many customers have taken advantage of previous integration technologies like APIs, iDocs, and even straight ABAP to add functionality around the accounting core with third party applications including several popular options acquired by Oracle. This activity may create some near term concern at SAP, but in the long run Manufacturing Insights expects the customer base to implement upgrades and take full advantage of NetWeaver.
Lining SAP up to our reference model reveals good support for virtualization technology at the physical level with many companies undertaking both data center and ERP instance consolidation efforts. SAP has remained committed to helping its customers lower the cost of ownership and has done an admirable job of tuning its applications to take advantage of the current server, storage, networking, and desktop technologies being used.
At the industry process platform level, SAP sets the standard. The fully integrated nature of the record keeping and broad process support is remarkable. SAP has also consistently delivered on its promise to wrap the platform in a service oriented architecture to maximize the ability to extend those processes. Its service repository approach and the resulting ability to create composite applications is what defines a true platform.
SAP is also getting a better handle on its message for collaborative decision environments. BW stills suffers from performance issues although it has gotten progressively better at supporting data from outside the SAP model. Its recent acquistion of Business Objects will add advanced analytics and BI tools. We were very impressed at the company's recent Influencer Summit with the demonstration of its workspace environment that provides a mechanism for users to create a corrective action process on the fly that allows for both highly structured processes and ad hoc collaboration. Manufacturing Insights believes that this capability could prove to be extremely valuable to SAP customers.
At the multi-enterprise network level, SAP certainly understands that the market is moving toward enabling entire business networks, but hasn't fully come to grips with what SAP can do to support the trend.
Manufacturing Insights suggests that they should look at their Business by Design architecture. Although this product line is geared to the mid market, it could prove to be a valuable basis for offering a "corporate cloud" – the ability to bring key strategic partners together around a specific program (e.g. a defense program, an automotive model year, a consumer brand/retail partnership, a foreign joint venture, etc.). Using this capability –call it Venture by Design – the enterprise company could bring strategic partners together on a common system to operate these specific purpose networks over their useful life.
Supply Chain – Extending the Reach
SAP has continued to broaden their supply chain offering through organic development. We see impressive progress and client gains in APO and SCE. Newer applications like RFID/AII, event management, and supply network collaboration offer intriguing benefits in an increasingly global and extended supply chain environment.
SAP clearly understand the challenges that face their current and prospective clients, and as we move into 2008, appear well positioned to offer applications to address many of these supply chain challenges:
• Continued globalization and outsourcing creates unwieldy, extended supply networks
• Lack of visibility and control
• Rising costs and increasing regulatory complexity
• Struggles with the basics, including concessions in customer service performance.
There has been clear focus on demand and supply planning (APO), along with the recognition that demand sensing technologies are an important part of the future supply chain. While RFID has for the most part shed its hype, to dismiss it now would be as foolish as it was to embrace the hype two years ago. SAP understands this, and are on a path to develop a sensible infrastructure that leverages sensor data (technology agnostic) in the context of supply chain pain-points and alternative solutions.
SAP has remained committed to their SCE suite (Transportation, Warehouse and Event Management) even as the world has focused on planning and demand-driven applications. Both Transportation and Warehouse management continue to offer advancing functionality, while Event Management has emerged as an intriguing application. At Manufacturing Insights we have long believed that event management functionality, built into an enterprise platform, can be revolutionary in managing the globally extended supply chains that characterize many industries and companies.
In the context of extended supply chains, the emergence of supply network collaboration tools is a welcome addition, particularly for businesses who are finding it difficult to effectively manage their networks. The ability to treat myriad suppliers, contract manufacturers, and third-party logisticians as an extension of your organization, while managing to a pre-defined set of KPIs has the potential to significantly enhance the performance of these networks.
Product Lifecycle – Seeking Product Truth
SAP, like most other SHOMI vendors, does not have the deep roots in mechanical CAD that mainstream PLM vendors (Siemens PLM, Dassault, PTC, AutoDesk) have. SAP has a certain level of involvement in manufacturing, which tends to be manufacturing resource management centric, and has less exposure (and credibility) in manufacturing engineering, digital manufacturing, and process simulation.
SAPs view of PLM is that it revolves around product data, primarily bills of material and routings. SAP believes that master data management is the key to overall data organization and governance. The PLM world is seeing an ongoing conversation regarding who can provide and is the custodian of the "single version of the product truth". SAP is able to manage and synchronize multiple views via Master Data Management (MDM): not only design and manufacturing, but also market, customer, financial, logistics, and supplier information.
SAP's MDM and, consequently, its PLM strategy leverages NetWeaver to connect and synchronize multiple data sources and process platform. SAP is showing market leadership in enabling business process platforms to improve existing business flows and composing new ones. SAP's PLM strategy is to identify, define, certify and encapsulate business processes and best practices and make them available to drive innovation in overall product management.
Manufacturing Insights has two concerns here. First, is the buyer community ready to adopt a framework or would it rather take the traditional and comfortable route of defined, albeit siloed, applications? Second, SAP promotes an environment of deep web services, with implied behavior, business rules and semantics. This approach is no longer just "lookup part number X in inventory.", it assumes a high level of semantic definition inside the processes and in the processes interfaces. Is SAP going to drive the effort to define the ontology and semantics of deep services? Is SAP going to become the de-facto custodian of these services and services directories on behalf of an industry?
Emerging Agenda – Driven by Practical Business Needs
SAP's approach to RFID is somewhat conservative but very much in line with SAP's overall strategy in that it is very practically driven by business requirements and not by a specific type of technology because it happens to be in vogue. SAP supports its RFID strategy as part of a larger strategy to collect and analyze serialized data from a number of devices with two fundamental products - the Auto-ID Infrastructure and the Object Event Repository. While SAP isn't necessarily pushing its RFID capabilities, it is well positioned to remain in the platform manager seat if and when customers want to incorporate RFID technology.
SAP's response to growing interest in using IT for Green initiatives or sustainability also has a very practical approach, in that it is woven into the company's existing Governance, Risk, and Compliance Solutions. At this stage, SAP GRC Corporate Sustainability Management is more of a response to corporate social responsibility reporting and compliance, rather than sustainable PLM or supply chain initiatives. SAP has the potential to be very strong when its broad application footprint in ERP, supply chain, and product management is combined with business intelligence. We expect 2008 to be an interesting year for this area of functionality for SAP.
Advice for Users – Upgrade to Lower Costs/Diversify Choices
SAP enterprise class customers are very satisfied that core financial, order management, and resource planning functionality performs to expectations. There is a noticeable sentiment among the customer base that SAP wants to dictate what they should do and there is some resentment towards that arrogance. Customers are hesitant about full version upgrades as even a technical upgrade can demand significant resources particularly if the company has built custom extensions. Many have used instance consolidation projects as the basis for getting on the latest version.
Instance consolidation is a very worthwhile effort given the need for manufacturing firms to become globally integrated. Even if there isn't a need for instance consolidation, Manufacturing Insights recommends that companies pursue a multi-year plan to have their SAP implementation on a current release. The architecture should lower your cost of ownership and provide flexibility in creating collaborative decision environments. A service repository that makes composition and integration more straightforward should also facilitate the implementation of best-of-breed applications, whether they are NetWeaver certified or not, and help you to take some control of your application portfolio in order to increase your negotiating leverage with SAP.
What are your thoughts? Are there additional strengths or weaknesses in the SAP approach? Feel free to e-mail your comments and questions to bparker@manufacturing-insights.com.
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