Supply Chain Management Software Options
In the past, organizations typically developed their own software using their own in-house programmers and staff. This led to development of many useful but diverse and unconnected legacy systems. During the past few decades, many software vendors have focused on developing software for specific applications, creating many specific software products, to include materials requirements planning (MRP) systems, advanced planning systems (APS), and enterprise requirements planning (ERP) systems. Thus the software field has evolved from each organization creating its own software to a vendor system selling off-the-shelf packages. An even later development has been open-source software products.
Options
There are many approaches to provide information systems to support supply chains. The most well-known are SAP and Oracle. There are many other commercial vendors as well. And commercial vendor software is by no means the only source of software to manage supply chains. There are application service providers, and organizations can develop their own systems in-house (although as we will stress, this involves a lot of work). The primary categories of options to obtain supply chain support are the following:
• A custom system developed in-house
• A stand-alone advanced planning system
• A full vendor ERP system
• Selected vendor modules
• A customized vendor ERP system
• A best-of-breed approach
• Application service providers
• An open-source system
Customized Systems Developed In-House
The traditional (and very much outdated) approach is to develop software using only in-house assets. This approach does offer the greatest opportunity to gain competitive advantage. However, creating in-house software on this scale is a very difficult information systems project. Developing a strong advanced planning system in-house calls for hiring a great deal of expertise that cannot hope to compete with vendors specializing in a particular software product. The ideal way to develop an integrated system is to combine it with extensive business process reengineering (which we will discuss in chapter 4), identify the best way to do everything, and then build the computer system to accomplish this. This is a very slow and expensive way to obtain supply chain software. Yet this approach is the most flexible and responsive to organizational needs.
Stand-Alone Advanced Planning Systems (APSs)
Stand-alone APS software was presented in chapter 2 and is widely available. This will be quite a bit less costly than a vendor ERP system but will only provide specific planning support for supply chain operations. It would make a great deal of sense to integrate an APS with financial, accounting, and other organizational computing. This integration is the essence of an ERP system.
The simplest option (and by far the most expensive) is to adopt a full vendor ERP product. This is the option that vendors will suggest, and it has some strong advantages, especially with respect to relative time and installation.
Full Vendor ERP Systems
SAP and Oracle have become world leaders in software, both offering very powerful systems capable of supporting multinational organizations. But they are expensive. While SAP and Oracle contend to offer products suitable to small business organizations, they really aren’t interested in talking to organizations without multimillion-dollar annual information system budgets. There also are many hidden costs, including heavy consulting fees, annual maintenance contracts, unexpectedly large training costs, and complications from changing how employees do their jobs.
There are many competitive vendors to SAP and Oracle. One notable vendor is Microsoft, offering Great Plains ERP software at a price clearly targeted to reach intermediate-sized organizations (with annual information system budgets around a million dollars). Additionally, there are many other smaller vendors, making the vendor choice for small- to intermediate-sized organizations very interesting (and complicated). Generally, you pay for what you get. But not everyone needs the computing power suitable for Exxon.
Selected Vendor Modules
Compromise systems are available. Most firms adopt only a few modules of vendor software. This is a partial form of an ERP system, which has the relative advantages of minimizing organizational risk and expenditure in the short run and minimizing the trauma of incorporating the ERP system into organizational operations. The disadvantage is that the full functionality of the vendor system is not obtained, and users still must conform to the procedures that the vendor programmed into the system.
Customized Vendor ERP Systems
Many companies adopt another hybrid approach, customizing a vendor software product. This gains flexibility over simply adopting the vendor system but risks loss of the efficiencies built into the system through best practices. This approach has the advantage of retaining core company competencies, or methods that the organization does very well, along with some of the advantages of integrated systems. There is much less negative impact on how employees do their jobs. However, it makes the IT staff work much harder and spend a great deal more money.
Best-of-Breed Approaches
The best-of-breed approach is similar to selecting a few vendor modules. Each vendor has developed a reputation for some specific ERP function. Modules considered to be competitively strong are selected from multiple vendors. Dial, a manufacturer of soap and other products, at one time had a mix of applications from Siebel, Oracle, Manugistics, and other sources.1 Using the best-of-breed approach, custom interfaces can be developed using in-house information system development assets. Overall, however, it usually creates more trouble than it’s worth.
Application Service Providers (ASPs)
You can in effect rent an ERP system through an application service provider (ASP). This is a form of outsourcing. Dial reorganized its IT and installed an SAP suite run by Electronic Data Systems (EDS) to replace Dial’s 50 IT employees, who were to be transferred to EDS after an 18-month, $35 million project. Only a small governance team was retained by Dial, with the purpose of dealing with IT strategy, architecture, and industry applications. Overall expenses for the transfer were expected to be $110 million. Outsourcing is attractive to many types of organizations but especially to those that have small IT staffs, without expertise in enterprise systems. The primary benefit of an ASP is that the using organization doesn’t have to worry about system development, nor about being at the mercy of vendors when they make changes to their software. Some organizations, such as General Motors, have outsourced all their IT operations.2 However, the risk is simply transferred, because the user is now subject to the mercy of the ASP. The decision is very similar to that of deciding to buy or rent housing. In the long run, you are usually better off buying a house. However, the cash flow impact and risk avoidance of renting is much better than buying.
Open-Source ERP Systems
Another major development in ERP has been open software systems. The open software idea was made famous by the Linux operating system. There are many nuances to definitions, but we will use the term open source for software distributed without charge. A related idea is software as a service (SaaS), involving web distribution of bits of software capable of doing particular functions, at a fee. Open-source software provides the opportunity to utilize more service-oriented systems, strongly supported by organizations such as IBM with their on-demand computing initiative and an industry focus on SaaS, where vendors develop software posted to the web and made available for customer use. Web delivery has been selected as a means to distribute a number of interesting enterprise system software, led by Compiere from France. Compiere and many similar products are not open source in the sense that users can modify the code. They are open in the sense that they are downloadable for free. The business model is based on collecting fees for service and support.
The first six means of obtaining supply chain software support listed so far are fairly traditional. We will elaborate a bit on two relatively unique approaches: outsourcing and open source.
Outsourcing Supply Chain Management Software
There are risks in outsourcing. In many cases, costs rise precipitously after the outsourcing firm has become committed to the relationship. These tradeoffs are recapitulated in Table 3.1.
| Table 3.1. Factors for and Against Outsourcing | |
| Reasons to outsource | Reasons against outsourcing |
| Reduced capital expenditure for software and updates | Security and privacy concerns |
| Lower costs gained through ASP and economies of scale (efficiency) | Concern about vendor dependency and lock-in |
| More flexible and agile IT capability | Availability, performance, and reliability concerns |
| Increased service levels at reasonable cost | High migration costs |
| Expertise availability unaffordable in-house (eliminate the need to recruit IT personnel) | Expertise is a competency critical to organizational success |
| Allowing the organization to focus on their core business. | Systems are inextricably tied to IT infrastructure |
| Continuous access to the latest technology | Some key applications may be in-house and critical |
| Reduced risk of infrastructure failure | Operations are currently as efficient as the ASPs |
| Manage IT workload variability | Corporate culture doesn’t deal well with working with partners. |
| Replace obsolete systems | |
| Source: Bryson and Sullivan (2003); “ERP outsourcing” (2003); Clymer (2004); Olson (2004). | |
One risk is that an ASP might shirk its commitments due to bankruptcy or for other reasons. ASP sites might also be attacked and vandalized, or destroyed by natural disaster. Each organization must balance these factors and make their own decisions. The case studies in this chapter demonstrate how two organizations reached different conclusions.
ERP is only one service offered through ASPs. Acquisition of supply chain management systems such as an advanced planning system through an application service provider often makes sense.
Open-Source Supply Chain Software
Open-source development has proven highly successful in general software product development. Red Hat claims that open-source software (OSS) can save businesses money by
1. Enabling use of commodity hardware rather than proprietary machines
2. Avoiding expensive maintenance contracts
3. Obtaining greater functionality, reliability, and performance
4. Increasing productivity through a faster learning curve and availability of support tools
5. Avoiding vendor lock-in
6. Reducing the need for specialized security consultants and tools
Open-source software is thus becoming a viable alternative to proprietary software, with an obvious cost advantage. There are risks, in that one cannot expect the same level of service with OSS as with proprietary alternatives. However, support for many OSS products is available, from such organizations as IBM and Red Hat. Contemporary software selection thus requires considering the tradeoffs between open-source and proprietary software. Open-source ERP products include Compiere, OpenMFG, Open For Business Project, Tiny ERP, Open Office, and OpenPro, each providing various levels of enterprise information system functionality in various forms of open-source relationships. The open-source project center Sourceforge.net had over 1,000 ERP projects ongoing as of May 7, 2009.
ERP systems have evolved to expansion of functionality, especially in the form of customer relationship management (CRM) and supply chain support, to a transformed product often referred to as enterprise information systems (EISs) as discussed in chapter 1. Recently, ERP vendors have realized that open-source systems have capabilities, both as a source of content for vendors and as a threat to the proprietary enterprise system market share from competitors based on OSS development or delivery. Open-source ERP products can provide flexibility and of course have the advantage of free software access. As ERPs are commonly implemented by organizations, it is hard to attain competitive advantage through implementation of an ERP product. OSS ERP systems can be an answer for competitive advantages since organizations are able to customize their information systems by modifying the open software codes. Three potential benefits in using OSS ERP systems are increased adaptability, decreased reliance on a single supplier, and reduced costs.
Comparison of Supply Chain Management Software Sources
Table 3.2 compares advantages and disadvantages of some representative points on a continuum.
| Table 3.2. Advantages and Disadvantages of Alternative Software Sources | ||
| Method | Advantages | Disadvantages |
| Customized systems developed in-house | Best fit with organizational needs | Most difficult to develop Most expensive Slowest |
| Stand-alone APSs | Less expenditure Much simpler installation | Harder to integrate with other applications |
| Full vendor ERP products | Relatively fast Less expensive than customization Efficient from an IT perspective Easier to upgrade | Inflexible Make employees change work methods |
| Selected vendor modules | Less risk Relatively fast Least expensive vendor approach | If expanding, long run time and higher costs |
| Customized vendor ERP systems | Retain flexibility while keeping vendor expertise | Slower Usually more expensive |
| Best-of-breed approach | Theoretically gain best of all systems | Difficult to link modules Slow Need middleware |
| Application service providers | Least risk Least cost Fastest Least subject to vendor change | At the mercy of ASP No control Subject to price increases |
| Open-source systems | COST! (acquisition is free) Flexible | Greatest risk (other than in-house) Need employees with ability to link open-source systems |
We will conclude this chapter with a case study of a small organization’s experience in obtaining inexpensive software support for their made-to-order planning operation.
Conclusion
There are many ways to obtain supply chain software support. Specialty products such as advanced planning systems are available. However, this functionality is available in almost every ERP vendor system, with the added benefit of integrating organizational computing. The amount of money required to obtain software licenses is considerable, making it very important for organizations to conduct a sound business case analysis. This isn’t easy, as there are so many options available. That is undoubtedly why consultants are so often used (which by no means reduces expense!).
Two interesting options to avoid many of these pitfalls are outsourcing to ASPs or using open-source software. Outsourcing has its own risks, although a major benefit in up-front cash flow. However, outsourcing hasn’t been all that popular for smaller organizations. It appears more often for major organizations such as General Motors, Xerox, or U.S. government agencies who wish to get out of the information system business and to focus on their key business operations. Open-source software has proven quite popular in Europe and South America, as well as for small organizations in the United States (especially state and local governments). These systems cannot be expected to provide all the functionality of well-tested commercial vendor products, but they offer sufficient functionality for many organizations. Installing an open-source ERP calls for a new type of information system specialist, and this market is still under development.
In chapter 4, we will look at the key task of business process reengineering, followed by a closer look at business cases in chapter 5 and software installation project management in chapter 6.