Breaking down the ERP barrier

The Enterprise Resource Planning (ERP) market was on a tear in 2006, growing its revenues to over $28 billion, with total revenue growing by 14 percent and license revenue up 18 percent over 2005, according to AMR Research Inc.’s ERP Market Sizing Report, 2006–2011. And while sales of traditional ERP applications were up in 2006, many of the key players realized revenue growth from the acquisition of other software companies that allowed them to go from offering a single, internally-developed product line to a broader portfolio of products and services.

More ERP providers are adding “logistics and supply chain management software” to their lineups. More commonly known as SCM, this software is used to reduce inventory, increase transaction velocity through real-time utilities, and grow sales through efficient customer service. Led by the top five vendors SAP, Oracle, Infor, Microsoft, and Sage, the push into SCM is largely centered on helping shippers manage the entire value-added chain—from supplier, to manufacturer, and right through to the retailer and final consumer.

It all makes sense to Jim Shepherd, senior vice president at AMR and co-author of the recent report. “Fundamentally, a key part of the ERP players’ growth strategy involves broadening their offerings everywhere,” says Shepherd. “The next most mature, and attractive, market for them to expand into is SCM. In fact, they’ve been moving in that direction for a long time through a combination of internal development and acquisition.”

Over the last few years companies like SAP and Oracle have not only moved into the space, says Shepherd, but they’ve also convinced shippers that it’s not only acceptable and logical to buy SCM software from their ERP provider, but it’s probably unavoidable. “The ERP vendors have broken down the barrier that says you need to purchase SCM from a best-of-breed specialist,” says Shepherd, who points out that while there are still situations where the latter is warranted, for the most part the ERPs get in with their finance, order management and inventory control solutions. From there, they can “successfully expand their footprints to include SCP (supply chain planning), SCE (supply chain execution) and logistics,” he adds.

In doing so, the ERPs have been able to maintain their core software licensing revenue while boosting profits through “complementary” functionalities, such as SCM. According to AMR, the most significant growth for most of those vendors is being generated from add-on functionalities like CRM, human capital management (HCM) and SCM, with the last two boosting ERP revenues at a rate of over 40 percent in 2006.

Source: Logistics Management