ERP software vendors of late find small and mid-sized markets lucrative:

The small and mid-sized businesses (SMBs), once grossly overlooked by the Enterprise Resource Planning (ERP) vendors, have suddenly started appearing on their radar screens. In the past, these vendors ignored manufacturing companies with revenues below USD 100 million, since they didnt want to deal with companies possessing poor network infrastructure and semi-skilled IT managers. But, recently, with the economy turning buoyant and also with the emergence of new feature-rich and inexpensive products, the ERP vendors are increasingly venturing into this once neglected but lucrative market segment.

Dave Stout of Miniature Precision Components (MPC) Inc., says, this is a huge event for us. The huge event is the companys rollout of a new ERP programme. The company manufactures moulded plastic auto parts at its five factories. MPC believes that this new software would help the company generate accurate price quotes abruptly. The software would also reduce administrative costs and improve profitability, observes Stout. These benefits mean a lot to MPC, with annual revenues just around USD 150 million. However, deployment of the ERP software would cost the company approximately USD 500,000, which is a sizeable investment for a small company like this.

Bullish trend:

In view of the large investments required for deployment of the ERP software, its no surprise that small and mid-sized businesses, in the past, held off replacing their ERP systems. But, with the economy booming and customers demanding for automated order and inventory systems, SMBs spend on ERP packages have experienced a rebound.

The data provided by AMR Research, showed that more than 70 percent of companies surveyed, plan to increase their ERP spend in 2006. Also, the ERP budget growth in 2006 is projected to increase by a shocking 14.6 percent. On an average, the companies surveyed expect to spend around USD 5.1 million on all ERP related activities in 2006.

Key Players:

In 2002, the then market leader, SAP AG exhibited its growing interest in the small and mid-sized businesses, by launching its main mid-market initiative called mySAP All in One. A few months later, its rival PeopleSoft, had come out with 13 new mid-market applications devised for businesses with USD 50 million to USD 500 million in revenues. On the other hand, Oracle launched its E-Business Suite Special Edition. This stripped down ERP solution was meant for companies with as few as five users.

However, for the year 2006, the IT decision makers from over 271 companies surveyed, have chose Microsoft Business Solutions for ERP software purchases. The other favoured companies for ERP purchases are Oracle Corp. and SAP AG.

Lobbying buyers:

The ERP software vendors offered deep discounts after the enterprise software market tanked in mid 2000. Tom Westerlund of Mapics Inc., says, The period of deep discounts is over. However, analysts emphasise that savvy shoppers could still grab some great deals from ERP vendors. Typically, the list price for ERP applications designed exclusively for small business range between USD 100,000 and USD 500,000, including the core licence fee and per-seat charges.

Industry analysts point out that small customers could even bag discounts. This is still very much a buyers market, insists senior vice president of AMR Research, Jim Shepherd. The potential buyers could use this to their advantage. For instance, analysts say that a customer should not cut down on the short list of vendors immediately. Similarly, he should be shrewd enough to keep mum about the vendor; he is willing to contract with. In other words, play vendors off against one another. Austin of the beauty pageant at MPC says, we kept three vendors in it right to the end.

The result: the company paid less than the list price for the IQMS software. Stout emphasises that ERP vendors could be made to come down by 20 to 30 percent of the list price without much effort. However, if you take the other side of the deal, the king-sized discounts could mean king-sized troubles. A company that quotes too good a price could have serious cash flow issues, says John Moore, vice president and general manager for enterprise advisory services at industry analyst ARC Advisory Group.

The sell side:

ERP software vendors often spend too time convincing potential buyers, that, they will remain in the market for a long haul, nearly 10 years from now. Troy Edgar, CEO of Global Conductor Solutions Group, says, A misstep on an ERP investment could cost somebody their job. Stephen Galliker, CFO of Dyax Corp., came across the issue of vendor stability when he was looking to replace the companys accounting and project-tracking software. Finally, he chose iRenaissance, an ERP package provided by Ross Systems.

Consultants say that it is generally advisable to consider only niche vendors who possess a reasonably large installed base. Because, even if the vendor is bought out, the acquired company would continue to support the software. Some small ERP vendors offer customers, access to their application source code, as an added protection, whereas, large ERP vendors seldom offer their source code to customers. This could prove to be a minor obstacle, especially when they sell to smaller businesses. Theres real scepticism among small businesses about big ERP vendors, notes Edgar.

The buy side:

These snares could make purchasing software a perilous duty. Even vendors admit that customers are alarmed of hidden traps in implementing ERP solutions. The ERP implementation fee, which covers training and software deployment, could sometimes go out of hand. Grove of Berner Foods says, while the base application prices charged by all ERP vendors almost remain the same, the implementation cost usually differ.

The solution:

To counter these worries, the ERP vendors should offer close-ended contracts. Also, they should design specific applications that are easy to deploy. As Moore rightly says, They take out a little bit of the functionality of the software, then make it a package solution that doesnt require a lot of integration.