NetSuite is taking an important step in its evolution. Founded in 1998, with an exclusively SaaS-based offering, it has long been a contender in the ERP market for service providers and distributors. In its early days it primarily served small companies, but as SaaS became more well-accepted and as its solution footprint broadened and deepened, the average customer has grown in size. But compared to some other ERP solution providers, those that evolved from the world of more traditional MRP, it is a relative newcomer to manufacturing. Can NetSuite “catch up” or even pull ahead in the game?
When NetSuite began its foray into manufacturing, it started out by describing its target market as “light manufacturing.” To those steeped in manufacturing tradition, this implied a simplistic assembly process. But over time, NetSuite refined its target to be “contract manufacturing,” defined as “you design, others manufacture.” As more and more actual manufacturing became outsourced and moved off-shore, this class of manufacturers became more common. Many manufacturers turned to low-cost country sourcing for not only components and subassemblies, but for the entire manufacturing process.
This transition removed some of the complexities that first MRP and then ERP needed to contend with. Manufacturing can be a delicate and complicated juggling act: having the right amount of inventory (enough but not too much) at the right time, effectively utilizing labor and machine resources while scheduling potentially long and complex processes. If a contract manufacturer didn’t actually manage the production, much of the complexity of managing this delicate balance is removed, eliminating the need for some of the feature functions at the very core of traditional MRP solutions. However, the trade-off was to introduce more supply chain complexity as multiple companies, often with conflicting goals, needed to effectively interoperate to optimize the process from raw materials to finished product.
The need for this elevated level of interoperability is something I have been writing about since before NetSuite was even in business. Back in the mid-90’s I talked about the concept of virtually vertical manufacturing (VVM): Multiple companies working cooperatively and collaboratively to produce and distribute a product as if it were a single, vertically integrated enterprise. But back in the 90’s the concept of virtual integration was still ahead of its time. The Internet was still relatively “new.” While folks could appreciate collaboration, interoperability between companies still required more traditional buy/sell instruments like purchase orders, sales orders, shipment notices and payments. Paper documents were being replaced by electronic documents, but very, very slowly and often at an arm’s length.
Today the need for technology-enabled integrated business networks is something that any progressive manufacturer understands. But many are still running older legacy solutions without the technological infrastructure to support this level of interoperability. Hence they are not well equipped to participate effectively.
This puts NetSuite at an interesting juncture. As many manufacturers are re-evaluating their previous outsourcing and off-shoring decisions, NetSuite in its latest release is now adding functionality that older manufacturing solutions have supported for decades: features like effectivity dates on bills of materials, component where-used visibility, detailed operational routings and capacity requirements planning. But those older solutions were developed on legacy architectures that limit the solutions’ ability to support the level of interoperability, collaboration and coordination required today… interoperability that is built into NetSuite. So while many of those solutions are busy “modernizing” for secure web-based access and adding functionality such as integration with CRM and sales forecasts, building web-based store-fronts, those features are already supported through NetSuite’s native core.
Meanwhile NetSuite is playing “catch-up,” adding these as fully integrated, technology-enabled features and has the potential of leap-frogging the established solutions. At the same time NetSuite, is extending the Suite, adding many complementary capabilities such as payment gateways, support for electronic tax preparation and electronic filing in eight new countries, and adding even more features for collaboration and visibility that many today refer to as “social.” And it is continuing to develop the underlying platform and development environment, which helps it grow its ecosystem. It is through this ecosystem that it is able to extend the footprint of its solution much faster than if it were to rely exclusively on its own development efforts… think manufacturing execution systems (MES), quality, product lifecycle management (PLM) and asset maintenance.
This is an opportune time for NetSuite to be at this crossroad, not only in order to expand its addressable market, but also because we are seeing new dynamics in terms of globalization. While for several decades we have seen manufacturing moving off-shore, with the instability of oil prices, currency fluctuations, and the rising cost of transportation, rising costs in previously low-cost source countries and continued concern over quality and compliance from emerging markets, we are now seeing an increasing trend back to near-shoring or even on-shoring. This could easily cause those contract manufacturers to bring some of that manufacturing complexity back in house. If so, they will require more of these traditional features. But it is unlikely their supply chains and global operations will be simplified.
This puts NetSuite in a competitive position because it is far easier to build new features and functions on a technology-enabled infrastructure than to try to modernize outdated technology. In answer to our initial question, it is looking more and more likely NetSuite can indeed catch up and maybe even pull ahead of those “mature” solutions for manufacturing.