Small Business Growth
SMBs The Emerging Market for ERP Solutions:
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 that the rollout of a new ERP programme is a huge event for them. He 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. According to the AMR Research report, more than 70 percent of the companies that were surveyed, expressed plan to increase their ERP spend in 2006. When compared to last year, the ERP spend by companies is projected to increase by a shocking 14.6 percent this year. On an average, the companies surveyed expect to spend around USD 5.1 million on their ERP purchases 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. Similarly, Oracle launched its E-Business Suite to provide ERP solutions exclusively for small sized businesses.
In the year 2006, the small and mid-sized businesses plan to purchase ERP software from Microsoft Business Solutions as per the AMR Research survey. The other favoured companies for ERP purchases are Oracle Corp. and SAP AG.
Lobbying buyers:
As the enterprise software market was dull in mid 2000, the ERP software vendors offered huge discounts to entice customers. Now, with the software market flourishing as always, Tom Westerlund of Mapics Inc., says, The period of deep discounts is almost over. However, analysts emphasize that savvy shoppers could still grab some great deals from ERP vendors. Typically, the list price for ERP applications designed exclusively for small businesses range between USD 100,000 and USD 500,000, including the core license fee and per-seat charges.
Moreover, industry analysts point out that small customer could even bag big discounts. Jim Shepherd, senior vice president of AMR Research notes that the buyer still has an upper hand in bargaining for the reasonable price. The potential buyers could use this to their advantage. For instance, analysts say that a buyer 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. This would facilitate him in going for the lowest bid price. 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. The buyer should understand that a company that quotes the lowest price on its ERP software should be facing some serious cash flow issues. This might bring in uninvited trouble to the buyer if the ERP vendor goes out of business.
The sell side:
The ERP software vendors often had to battle hard in finding potential buyers. This is because the buyers consider only the niche vendors who are sure to stay in the market for long haul of 10 years from now. Troy Edgar, CEO of Global Conductor Solutions Group, warns the buyers, that a misstep on an ERP investment could cost them their business.
For instance, Stephen Galliker, CFO of Dyax Corp., had a tough time choosing the vendor when he was looking to replace the companys accounting and project-tracking software. Finally, he went for 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. However, this is not always true. Sometimes, even a small ERP vendor offers greater protection to the software when compared to large vendors. But there is a strong belief among the small businesses that it is always safer to shop for ERP solutions from a large vendor. As Edgar rightly says, Theres real skepticism among small businesseses about big ERP vendors.
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 software applications that could be deployed easily without need for training. As Moore rightly says, They take out a little bit of the functionality of the software, and then make it a package solution that doesnt require a lot of integration.
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