2 tier ERP

Post-Modern ERP Meets #CommerceCloud: Infor to Acquire GT Nexus

Earlier today Infor announced it would acquire GT Nexus and its cloud-based, global commerce platform for $675 million. Pending regulatory approval, expect the deal to close within 45 days.

While at first glance this might seem to be a “me too” move following in the footsteps of SAP’s acquisition of Ariba, this is actually different in that it is all about direct (versus indirect) procurement, which is inherently more complicated because it must tie back to the sale of goods and the production process.

This is something Infor CEO Charles Phillips says he and Infor President Duncan Angove have been looking to do since coming on board in late 2010, pointing to the continued shift to contract manufacturing that moves much of the production process outside the four walls of the traditional factory. “Continued” is indeed the right adjective to use here.

This shift started decades ago when low-cost country sources made “outsourcing” very appealing. As companies have tended to become less vertically integrated, reducing costs and focusing instead on their core competencies, this necessitates new ways of doing business with each other. Through the purchase of subassemblies or finished products, the contracting of manufacturing or distribution services or the outsourcing of customer service or information technology, the value chain has lengthened and become more complicated. Yet expectations of response time and delivery performance have risen dramatically.

This is actually a topic that is near and dear to my heart. I went back and dug up something I wrote previously back in the day, before the digital age, when we talked about “E-business.” Here is what I wrote:

These new business models involve multiple companies working cooperatively and collaboratively together, in a seemingly seamless manner, as if they were a single virtually vertical enterprise. A company that can successfully interoperate in this way can claim to have reached the goal of full E-business integration.

As a result of this push toward full E-business integration, businesses face challenges that force them to push the envelope of business information systems. ERP grew from its predecessors of MRP and MRP II, constantly expanding its solution footprint to address more and more needs of the enterprise. Yet ERP was not conceived to look beyond the “four walls” of the enterprise, regardless of how expansive those walls would become, simply because the concepts of MRP and ERP were born in a time when companies were run as independent enterprises with arm’s length relationships with customers and suppliers.”

Mr. Phillips and Mr. Angove both acknowledged this situation today in announcing the proposed acquisition. They talked about “post-modern ERP” that (with the addition of GT Nexus) would push beyond those “four walls” and “provide customers with unprecedented visibility into their supply chains to manage production and monitor goods in transit and at rest.”

But none of this is really new news. That excerpt above is from my book, ERP Optimization, which was released in December 2002. Has it really taken more than a decade to deliver on this promise? Yes and no. First of all, when I look back on where we were when I wrote ERP Optimization, I realize just how far we have come. Back then “trading exchanges” weren’t much more than online dating sites for buyers and sellers, and very few offered value-added services like trade financing, logistics, electronic payment and settlement. Connecting these functions back to your ERP was difficult at best. Internet procurement was in its infancy. Most companies were still struggling with all the non-standard versions of “standardized” EDI. And the smart phone and other mobile devices (apart from the cell phone) had yet to be invented, so most of us couldn’t even dream of being as “connected” as we are today.

So yes, we have come a very long way. But through that progression, our expectations have also risen. We no longer simply “outsource.” We participate in a networked economy and we look to the cloud to keep us all connected. We also deal in a much more global economy, including emerging economies in countries that were hardly industrialized a short decade ago. The speed of business, as well as the speed of change has accelerated beyond anyone’s expectations.

So it is no wonder that the executives of Infor have wanted to fill this need since coming on board. They actually thought about building their own network. But I think they were smart in acquiring one. After all, the value of the network is largely measured by its size, scope and strength. And let’s face it, you don’t build one that is 25,000 businesses strong (like GT Nexus) overnight. And once networks like these are established and mature, it becomes harder and harder to build a brand new one. Once companies like adidas Group, Caterpillar, Columbia Sportswear, DHL, Home Depot, Levi Strauss & Co., Maersk, Pfizer, Procter & Gamble and UPS have joined, that network becomes that much more attractive with each new major brand added – hence the attraction to Infor.

GT Nexus is also a good choice because it is unique in that it includes supply chain financing partners that add even more value. Buyers and financial institutions offer pre and post export financing and payment protection. Infor admits that many of its own customers in manufacturing and retail aren’t even aware of financing options available, even though they might be struggling to finance procurement of materials and services in advance of collection of revenue. And who doesn’t want to get paid faster? Infor therefore sees a lot of opportunity to expand these offering even further. And the fact that Infor, GT Nexus and many top banks are all in Manhattan doesn’t hurt either.

The integration of GT Nexus and the Infor CloudSuites (there are several for different industries, including retail and fashion, which represents about 60% of current GT Nexus business) should be quite straightforward because both use standardized object models (Infor uses OAGIS). This is in fact one of GT Nexus’ strengths in being able to easily connect to back office solutions. Unlike traditional EDI where each connection is unique, this data model mapping allows suppliers to join the network once and talk to all buyers, avoiding custom maps and portals and invasive code development. So this leaves open the question of how the combined company will continue to work with other solution providers, including existing partners like Kinaxis.

Infor will continue to run the GT Nexus operation as a dedicated business unit. The entire management team is joining the larger corporation, a further testament to the cooperative and friendly nature of the acquisition.

All told this appears to be a win-win-win for Infor, GT Nexus and its customers. If not a match made in heaven, at least it is in the cloud.

 

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Enterprise Odd Couple: Plex Systems Partners with Workday

Pre-Packaging 2-Tier ERP for Manufacturers

Last week at its annual PowerPlex user conference, Plex Systems announced Plex Connect, along with several new partnerships and packaged connections. The goal of this new open integration framework is to “make it easier for manufacturers to connect people, things and applications to the Plex Manufacturing Cloud.” One of these partnerships stands out as being somewhat unique in that it is forged with another Enterprise Resource Planning (ERP) solution provider… Workday.

At first glance these two might seem like the proverbial odd couple. As another ERP vendor, Workday would appear to be a competitor. But it is not, because Workday is not a solution that is focused on the needs of manufacturers. And companies that “make things” are the only targets for Plex Systems. So if Workday isn’t for manufacturers, why would any Plex customer be interested in connecting to it? Because typically corporate headquarters doesn’t make anything, but might have sophisticated accounting requirements to support global operations. This partnership is all about delivering a pre-packaged 2-tier ERP.

Making the Case for 2-Tier ERP

Operating across a distributed environment has become a way of life for a large percentage of manufacturers today, even smaller ones. In fact 77% of all manufacturers that participated in the 2015 Mint Jutras Enterprise Solution Study had more than one operating location served by ERP (Figure 1). And 67% operate as a multi-national company. Even those with annual revenues under $25 million average just over 2 operating locations and that average grows steadily as revenues grow. This means very few companies today are able to conduct business as a single monolithic corporation.

Each operating division will have operational needs and must then feed to corporate financials for consolidation and reporting.

Figure 1: Environments Are More Distributed and Remote

Plex WDAY Fig 1Source: Mint Jutras 2015 Enterprise Solution Study

Note In Figure 1 company size is determined by annual revenue.

  • Small: annual revenues under $25 million
  • Lower-Mid: $25 million to $250 million
  • Upper-Mid: $250 million to $1 billion
  • Large: revenues over $1 billion

In years gone by all the different operating locations depicted in Figure 1 were likely to be left on their own to evaluate, select and implement a solution to run their operations. However, that scenario is quite rare today. The vast majority (90%) has established corporate standards for enterprise applications (Figure 2).

Figure 2: Have you established corporate standards for enterprise solutions?

Plex WDAY Fig 2Source: Mint Jutras 2015 Enterprise Solution Study

But this doesn’t necessarily mean a single solution runs the whole enterprise. Very often the ERP solution installed at corporate was selected for its ability to report and consolidate across multiple divisions. Very often these corporate accounting solutions (like Workday) don’t have the necessary functionality to run the operations of its divisions, especially if those divisions are manufacturing sites. In these cases, the standard solution for these manufacturing operations is a different solution – one like the Plex Manufacturing Cloud. Hence…

The Emergence of 2-tier ERP

In fact this 2-tier standard has become quite commonplace. Of those that have established corporate standards, less than half (47%) uses a single standard where all units, including corporate headquarters, use the same solution (Figure 3). At the same time, 31% have established a 2-tier standard and another 22% have a multi-tier standard. This latter category is most typical in a diversified corporation where you might see different types of businesses at the divisional level – you might have distribution warehouses or sales and service locations in addition to manufacturing sites.

Figure 3: Is this a single, two or multi-tier standard?

Plex WDAY Fig 3Source: Mint Jutras 2015 Enterprise Solution Study

It is this middle 31% that is targeted by the Plex Systems/Workday alliance, although it might work equally well in the multi-tier scenario. In fact if the non-manufacturing sites are sales and service operations, Workday itself might be the chosen standard for those divisions, eliminating the need for more than two different ERP solutions.

Plex Systems acknowledges that its solution is not the best for non-manufacturers. In fact Plex makes that point in its bold move to implement Workday for its own operations. The initial knee-jerk reaction might be, “What? They don’t sip their own champagne?” (An analogy I much prefer to eating one’s own dog food!) But while Plex knows and serves manufacturing very well, it isn’t a manufacturer. It makes software. While software companies that deliver on-premise solutions might burn CD’s, package them with documentation and ship a physical product to a customer, as a pure cloud provider, Plex sells software only as a service. The accounting for software, services and subscriptions is very different than accounting for shipping and delivering a physical product. But at the same time, this decision also underscores the fact that Plex is not afraid to make the right business decision in managing its own business.

But getting back to the 2-tier scenario, in the past we have seen solutions from SAP and Oracle dominate the corporate scene. Yet solutions like Workday, born in the cloud, are starting to chip away at the dominance of these two major players. And an alliance like this will only serve to accelerate this erosion. Very often a decision for SAP and Oracle might have been influenced by the efforts involved in integrating and rolling up financials from the distributed sites. While these have typically not been “out of the box” in the past, popular sentiment is that if you go with one of these “giants,” you will likely find systems integrators and other service partners who have done it before. That means they have a lot of experience with SAP and Oracle. You still pay for the connection, but you are at least dealing with a higher level of expertise.

With pre-packaged connectors, the need for this prior experience goes away and the expense of forging the connection drops dramatically.

Impact on Roadmap

So after hearing about this and other partnerships (with Salesforce and DemandCaster) the first question I posed to Plex was regarding the impact these might have on their own road maps. In terms of Workday, my specific concern was over enhancements planned to make its ERP more “global.”

Plex already has customers running the Plex Manufacturing Cloud from more than 20 countries, but it has let its customers essentially “pull” them into those countries and doesn’t necessarily support all the localizations and legislative regulations required in each… or all the complexities of growing multi-national companies. About a year ago Plex Enterprise Edition made its debut at PowerPlex 2014 along with an aggressive roadmap to support complex, global, multi-plant manufacturing organizations with multi-entity financial and supply chain management requirements.

In answer to my question, Plex has assured me none of these partnerships will result in taking planned innovation off the table. It will continue to invest in these globalization efforts. Similarly, other solutions such as DemandCaster will not prevent Plex from developing its own forecasting / demand and supply planning software. The alliance with Adaptive Insights will not prevent Plex from developing more robust financial planning and budgeting offerings. But I am thinking Plex doesn’t really need to compete against Salesforce for CRM.

 Conclusion

In the meantime and well into the future, Plex Connect should indeed make it easier for manufacturers to connect people, things and applications to the Plex Manufacturing Cloud. And in today’s connected, digital economy, isn’t that what it’s all about?

A Side Note: Is Workday ERP?

In the past I have posed the question about Workday: Is it ERP? Does it Matter? Many refer to Workday as ERP, but by my definition (an integrated suite of modules that provides the operational and transactional system of record of a business) an integrated finance and accounting solution that does not manage the “order” falls a bit short, But it does manage a contract, which for “talent intensive organizations” including software and Internet service companies like Plex) is equally, if not more important. Feel free to read my full analysis in the highlighted link above but for purposes of our discussion here in terms of 2-tier ERP, I am comfortable in referring to Workday as ERP.

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