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October 12, 1998

ERP: The Corporate Ecosystem

continued...page 2 of 3

Illustration by Matsu

Do It All
ERP's growing importance to business and technology decision-making is partly due to the software's multifunction nature. Sensormatic, a security equipment maker in Boca Raton, Fla., is a poster company: It uses Baan's ERP software to support its manufacturing, human resources, payroll, sales-force, customer-service, and logistics operations.

The software is also reaching more companies, especially small to midsize ones, and is being driven deeper into the existing installed base. AMR Research forecasts a $52.2 billion ERP market in 2002, up from $14.8 billion in 1998.

About 20% of a typical SAP customer's employees touch R/3, according to AMR. SAP's long-term goal is to increase that penetration level to 80%, says AMR, which argues that the vendor will get there only by tweaking its pricing for incremental licenses and pushing its software beyond its manufacturing and financial strongholds. The intended result: Not only will SAP sell more software licenses, but it also will make itself a more indispensable, strategic vendor--creating corporate ecosystems that thrive on R/3.

For example, a purchase entered in an order-entry module passes the order to a manufacturing application, which, in turn, sends a materials request to a supply-chain module, which gets the necessary parts from suppliers and uses a logistics module to get them to the factory. At the same time, the purchase transaction shows up on a general-ledger module as revenue. The myriad interconnections ensure that information in one part of the business can be obtained by any other unit. That makes it simpler to see how the business as a whole is doing, and helps people eliminate redundant actions, analyze data, and make better management decisions.

"Once you have these systems up, their ability to talk to one another is far greater," says Cynthia Spangler, VP of corporate systems at Federal Express Co., a PeopleSoft user. "You don't have these isolated kingdoms."

barchart

Features On Top
While most companies implemented ERP systems to get away from custom development, many are now building custom features on top of their enterprise software platforms. Most ERP applications have their own middleware, development tools, component architectures, and user interfaces. R/3 has more than 1,000 APIs. "People are using our software as a backbone and then building on top of that, rather than building the whole thing from scratch," says Guenther Tolkmit, SAP's senior VP of marketing.

Other vendors also have similar initiatives. Oracle's ERP platform, for instance, benefits from its tight integration with Oracle tools and databases. Impac Hotels, a company in Atlanta that manages Marriott, DoubleTree, and other hotel franchises, is building two Java applications on top of Oracle General Ledger: a time clock app and a financial reporting app for individual hotels.

ERP systems are also influencing the purchase of third-party packaged applications. MetaWave, which is looking for sales-force automation and customer interaction software, decided to wait for its ERP vendor, J.D. Edwards, to deliver those features rather than go with an independent vendor, Lanning says. "I'd rather have less functionality from a J.D. Edwards application than have to build an integration bridge for another product," he adds.

The ability of third-party applications to integrate with ERP packages is driving many product choices. Earthgrains' Brazile says the company's requirement that third-party vendors integrate with its R/3 system whittled down the candidates for a wireless network for the company's factory floors.