State of Cloud Manufacturing ERP - Part 1, change is upon us

Grab your favorite beverage - there's a lot in here to digest as we dive deep into the mega trends occurring in Manufacturing ERP.

A review of recent news/briefings indicates the following:

• End of an era – Kenandy CEO, Chuck Berger, explained how firms are tired of changing their processes and business practices to fit their ERP. Older systems may have triggered some firms to change poor processes but they also forced a lot of companies to adopt processes that vendors designed, not the ones used by (or desired by) those same businesses. More malleable ERP solutions, particularly those built on open and tailorable platforms, are the future. Plex’s Andrew McCarthy echoed these sentiments.
• Single-Tenancy yielding to better cloud technology – For a time, manufacturers found few options out there in the cloud unless one counts hosted solutions. Those hosted solutions were mostly older on-premises products running in single-tenancy on someone’s public cloud. Even these application software quasi-cloud firms have gotten the religion of late and have started to incorporate machine learning, multi-tenancy and more into their product lines. Microsoft has done a lot to facilitate these evolutionary changes. Older product lines are in flux today and their vendors are still trying to catch up to pure-play cloud ERP products from Plex, Kenandy and Rootstock to name a few.
• IoT gaining focus – It seems almost every vendor has an IoT (Internet of Things) story they want to tell you. Some vendors simply have a ‘direction’ with nothing usable yet. Some have built an interface that can accept some IoT data. But, the biggest issue with these functional extensions is that these systems often lack the platform, infrastructure, in-memory database (or Hadoop variant), analytics, etc. needed to identify the anomalous data, process large volumes of data, trigger workflow/actions, etc. And these IoT offerings may be further limited as vendors want to restrict the kind of big data they support to just the sensor data from a few capital assets on the plant floor. These vendors need time, a new strategy and new hardware, software and skills to handle other big data types especially non-structured data (e.g., satellite imagery, emails, video, texts, social sentiment, etc.). So to be clear, these nascent big data solutions are really an incremental or tangential move to big(ger) data with limited sensor-data being the gateway mechanism. It’s not a full-on big data solution yet.

The move by vendors into big data is a currently a study in incrementalism. These are baby steps that may only deliver small chunks of value to the right customer with the exact business need. For now, many vendors are offering customers the “technical underpinnings” for IoT support. For help with the data science, key performance metrics, workflow, etc., customers will need to engage with the vendor’s partners, management consultants, etc. For the most part, IoT solutions are not out-of-box, full solutions yet. For a glimpse into what a fuller solution looks like, check out Uptake.com.

IoT will be worth watching for vendors, integrators and software buyers. While many older estimates suggested there will be 50 billion or so connected devices by the year 2020, a more recent study pegs the device count at over 200 billion and McKinsey Global Institute believes this will generate global economic value approaching $11.1 trillion by 2025. It’s time all of those millions of ERP ‘consultants’ out there get re-trained and re-badged into big data ERP gurus.

Mega trends

• The channel is changing – Several vendors I spoke with are actively recruiting different kinds of partners. Several (e.g., Workday and Plex just to name two) want cloud-natives not re-purposed old-school on-premises resellers, consultants or implementers. Some want management consultants (not integrators) who understand the KPIs and industry metrics of their intended customers (a key skill set in a world becoming more digitally empowered). Management consultants are needed to help identify what data and metrics are needed to make sense of IoT and other big data. One inescapable observation though is that old-school partners like business process outsourcers, offshore firms, old-line on-premises application integrators, etc. are passé.  Neither customers nor vendors need (any)more of these folks, who, in any case, are going away if Phil Fersht is to be believed.
• Infrastructure is front and center - Big data processing power via a cloud service (think Microsoft Azure, Amazon AWS, Oracle, Google, etc.) is becoming an essential ingredient to any new ERP solution. Businesses know they’ll want to pump ever growing volumes of net-new kinds of data into their analytic tools. They’ll need scalable, cheap, utility-style raw computing power to make sense of these new, big data types. Ideally, ERP buyers want their operational, financial, customer, web, sensor, machine, dark, external and other data types in one spot where all of their reporting and analysis can occur. They don’t want some data in one cloud, other data in another cloud, still more data on-premises, etc. This recent NetSuite graphic illustrates the problem.
  
• Rising platform importance – Platforms speed the delivery of many things: software instantiation for new customers; integration with other solutions; and, solution development for vendors, partners and customers. Proprietary or closed platforms are going the way of the Dodo. Platforms need to be open to third parties, customers and channel partners to create new vertical/micro-vertical applications, new solution extensions, new analytics/algorithms, new metrics, new workflows/processes/controls, etc. Any vendor that thinks a closed or proprietary platform is great is guilty of the worst kind of hubris.
• Customer Satisfaction/Experience is a REAL problem in ERP - I wish I could take software CEOs with me when I meet with the executive teams of firms or sit in at CIO venues. These people dread picking a new ERP solution because of the terrible way they’ve been dealt with previously. They’ve been audited (often too frequently and too aggressively), tricked into paying maintenance on unused software, forced to sign new (less favorable) contracts to mitigate some audit slight, and, in some cases litigated. Top executives want to deal with their existing ERP vendor as much as you or I want to be ‘involuntarily re-accommodated’ off a United

This is why ERP providers have poor net promoter scores (NPS). Some ERP vendors would have to become cable television providers to score worse. So, is it any surprise that companies want a different customer experience and a different ERP vendor? They sure do and as new deals unfold, old ERP vendors should expect to see a number of new competitors at the table. Old vendors can expect the sins of their past to revisit them.

• There’s replacement activity going on but buyers are being careful – They don’t want ERP software from vendors that get sold/re-sold. They don’t want rollup ERP vendors who have too many products and product lines to support in a timely fashion. Likewise, they really don’t want private equity funded software companies. These buyers know that the debt load many PE firms foist on these companies takes money away from R&D and innovation.

Today’s ERP buyers want continuity and focus. They do not want a revolving ownership chain and flagging R&D support.

• Business as usual is a drag on new ERP sales – No surprise here. Businesses aren’t going to abandon their old reliable ERP unless someone walks in with a materially better solution at superior economics. The losers in this game may be established ERP vendors that persist in maintaining the same effective pricing as their old on-premises solutions. The economies of scale they derive from multi-tenancy, commodity cloud computing, hardware deflation, etc. are not being passed onto customers. Hmm, I guess those old customers will just have to seek true love elsewhere….

But, the real problem for many vendors is the appalling low value proposition they offer with their single-tenant, private cloud or hosted solutions. These things are cost pigs. They cost too much to instantiate, too much to maintain, trigger additional hardware and/or systems software costs, etc.

So, of the newer entrants into the space, where are they expanding?

New kids on the block

Some are clearly moving upmarket. Plex, a vendor known for its shop floor chops, has materially upgraded their accounting/finance modules.  A number of vendors with strong financial accounting functionality have enhanced their revenue management functionality. Workday, NetSuite, Intacct and FinancialForce have all enhanced their revenue management functionality with some taking it to first-class levels.

The net effect of these upgrades is to permit the software to operate within ever larger firms. If a product started off as a small business solution, it runs well in many mid-market firms now. Likewise, mid-market solutions are clearly looking to displace many large enterprise solutions. However, the complexities of, say, the largest 500-1000 firms globally are still a challenge for all but one or two vendors.

Some vendors are expanding into new verticals and/or creating more depth in the verticals and micro-verticals they have.

Some vendors are continuing to attack the two-tier ERP space. This space is defined as when a conglomerate or multi-divisional firm uses one brand of ERP software at the headquarters level and a different one for the individual plants/divisions. With many of the divisional solutions improving in capability, their use in divisions/plants is becoming commonplace. But now with even back office functionality also improving, some of these divisional solutions can now be considered for headquarters use, too.

Finally, the digital frontier is lining up to be a key R&D focus for software companies. While IoT initiatives are one area of research, other technologies are also getting attention: drones, Alexa, analytics, smart glasses, etc. But the major thing missing from all of these experiments is a real strategy and the kind of leadership that customers and potential customers can rally around.

Many IoT strategies are woefully incomplete and don’t address the bigger big data needs and the consequences of a data-driven world on a traditional company and its employees and processes. Other technologies, like drones, are being examined as a way to add a bit of drone functionality to a pre-existing process (e.g., pipeline inspection). That’s the problem with most of these innovation efforts from ERP vendors: they’re incremental and represent a bolt-on approach to new ideas on old processes. There’s a palpable lack of big picture vision with these R&D approaches.

Conclusions

So, as we end part one, what can be concluded? Well, this much is clear:

• The transition to a fully digital ERP world is still nascent with some companies using IoT as a test bed of innovation. Unfortunately, bolting IoT capabilities to old-school ERP won’t work as a big data solution because it lacks the raw computing power, in-memory speed, scalable storage/memory, etc.
• The transition will be hard for old-line vendors who are still trying to have their cake and eat it too. They’re still trying to support and maintain old versions of on-premises solutions (some offer ‘unlimited’ support for these drains on R&D). Some are trying to postpone the inevitable re-platforming and re-creation of their software to work in digital world where the data dictionary contains more than internal transaction fields. All of this stalling may help short-term earnings but it’s not helping customers with real and modern business needs today.
• Newer vendors may be smaller but if they act fairly towards new customers, they should have no problem taking material market share away from poorly behaving old school firms.
• The (ERP) times are a changing….

Check back Wednesday when we profile Kenandy.