Rootstock's Momentum in Cloud ERP

Rootstock Software is an up-and-coming cloud manufacturing ERP provider, built on the Salesforce.com platform. Last year, I covered Rootstock in a post about four ERP systems in the Salesforce ecosystem. This year, the annual Dreamforce conference gave me the opportunity to interview Rootstock executives and customers about the progress the firm has made over the past year.

In short, Rootstock is showing good momentum, nearly doubling its publicly announced customer count over the past 18 months. It is also building out its product offerings by developing its own native accounting applications and extending its business intelligence capabilities utilizing Salesforce Wave Analytics.

Read the full post on the Strativa website: Rootstock Rounding Out Its Cloud ERP Offerings.

The Maturing of ERP on the Salesforce Platform

Salesforce.com held its monster user conference, Dreamforce, last month in San Francisco, and there were plenty of new announcements. For example:

• A new analytics cloud, dubbed Wave, which fills out Salesforce.com's offerings to include native business intelligence and analytical capabilities
   
• A new version of the Salesforce1 platform, Lightning, for developing mobile apps
   
• An expanded partnership with Microsoft for Windows mobile devices and new integrations with Microsoft Office, Office 365, Power BI, and Excel

But Dreamforce is not just about Salesforce. It's about the Salesforce ecosystem—hundreds of partners building complementary and in many cases completely independent solutions on the Salesforce platform.

For those that follow ERP, this post outlines the latest developments with four ERP providers building on the Salesforce platform: Kenandy, FinancialForce, Rootstock, and AscentERP along with my takeaways from each of them. I'll end with one small caveat for buyers.

Kenandy Goes Up-Market

I first wrote about Kenandy after its introduction on stage at Dreamforce in 2011, and I’ve kept in touch with its management team for regular updates. The big news this year is the success Kenandy has had in selling into large companies.

Exhibit 1 in Kenandy’s march up-market is Big Heart Pet Brands, a distributor of pet food and pet supplies, which was formed by the carve-out of the pet food business from Del Monte Foods earlier this year. Milk Bone, Kibbles, Gravy Train, and 9Lives, are just a few of its well-known brands.

I had an opportunity to interview Dave McLain, the firm’s CIO, who made it clear that this is no two-tier ERP configuration. Apart from a handful of point solutions and an on-premises warehouse management system (Red Prairie), a single instance of Kenandy will be providing all ERP functionality when fully rolled out. With $2 billion in annual revenue, this may well be the largest company running a cloud-only system as its only ERP system.

(If readers have heard of a larger example, please let me know--but before responding, please reread the preceding sentence slowly and note the words “cloud only.”)

Why would McLain trust a young vendor such as Kenandy with such a tall order? First, McLain was attracted to the Salesforce platform and its promise of rapid development. In other words, he was sold on the platform and then looked for an ERP provider that was leveraging it. In my view, it helps that McClain is not your typical CIO. He’s worked in the enterprise software industry, with stints at Aspect Development, back around the turn of the century, and at i2. He is not only comfortable working with a young vendor, but he viewed Kenandy’s youth as an advantage, as he felt he would have more influence over the product roadmap. So far, he’s happy with his choice.

Big Heart Pet Brands is only the first and most visible example of Kenandy’s move into larger companies. In a briefing, Kenandy executives shared with me several large deals they have in implementation and several that are in the pipeline. Although the names are still confidential, they are large and in some cases very large, well-known, global companies.

One point that may keep SAP executives awake at night: some of these prospects are reportedly approaching Kenandy because of a determination to halt further implementation of SAP’s Business Suite in new regions of the world.

My takeaway from Kenandy is that cloud ERP is not just for small and midsize businesses.

FinancialForce Goes Deeper

FinancialForce is another young ERP vendor, founded in 2009 as a joint venture between UNIT4 and Salesforce (UNIT4 is the majority shareholder). I wrote about FinancialForce last year and commented on its acquisition of Vana Workforce and Less Software. These acquisitions expanded FinancialForce from financial systems and professional services automation into HR systems, order processing, inventory control, cost accounting, and functionality for product-based businesses.

This year, in a briefing with FinancialForce executives, I heard about the firm’s work to embed HR activities within operational transactions. Users can give other employees feedback on their performance right within the context of a project in the professional services system, for example. The feedback is then recorded in the HR system so that employee performance data is gathered throughout the year instead of during an annual performance review only. FinancialForce refers to this approach as “Everyday HCM.”

The firm also reports good uptake of the “supply chain management (SCM)” capabilities that it acquired from Less Software, tripling its number of customers for this functionality. As I pointed out last year, the term supply chain management is something of a misnomer. There is no real warehouse management, transportation management, or supply chain planning. Rather, SCM in this context really refers to the detailed tracking of physical and intangible products from supplier, through inventory, to customers.

This can best be seen with the large percentage of deals that Less Software, and now FinancialForce, have done with VARs, resellers, and other tech industry channel partners. FinancialForce can now track and process OEM rebates (a long-standing practice in channel businesses). Product costing allows costs to be accumulated by serial number (specific identification) and can include landed cost (i.e. allocated inbound freight cost). This is a huge need for solution providers that import OEM products. Filling out the needs of today’s channel partners, FinancialForce also has a full professional services automation system, and it supports subscription billing along with management of recurring revenue.

These are not trivial product features. It is a testimony to the rapid development capabilities of the Salesforce platform that FinancialForce has been able to build out these features in such a short time.

Like Kenandy, FinancialForce is also getting into larger deals, although the names are not yet public.

My takeaway from FinancialForce is that in some cases the functionality of these young cloud-only vendors now rivals that of the traditional vendors.

Rootstock Expanding Its Footprint and Presence

The founders of Rootstock have the advantage of having developed a cloud ERP system twice. The firm first developed its manufacturing system in 2008 on the NetSuite platform. In 2010, however, Rootstock disengaged from this partnership and rewrote its ERP system on the Salesforce platform. As a result of the replatforming, Rootstock developed its own customer order management product and partnered with FinancialForce for its accounting systems.

Rootstock scales well to larger companies. It claims to be the largest system on the Salesforce.com platform in terms of the number of objects,pushing the boundaries of what the platform can do. All Salesforce partners, of course, benefit from the scale-out capabilities that Salesforce is building into the platform.

In terms of functionality, Rootstock has good capabilities for purchasing, production engineering, lot and serial tracking, MRP, MPS, and capacity planning, shop floor control, manufacturing costing, and PLM/PDM integration. The system can support multiple companies, multiple divisions, and multiple sites, all within a single tenant on the Salesforce platform. It also announced this year the development of a product configurator, a module where most cloud ERP systems are still relying on third-party solutions.

The build out of functionality is making Rootstock more attractive to larger companies as well as the midsize organizations it has appealed to in the past. In a briefing with Rootstock senior leadership, they pointed to their win at CSG, a provider of print and managed services, and enterprise solutions in Australia and New Zealand. In New Zealand, it is the exclusive distributor for Konica Minolta. When fully deployed, Rootstock will be serving “hundreds” of users at CSG.

Other wins this year include Northeast Lantern, a maker of high quality brass and copper lighting fixtures; Wilshire Coin Mints, a retailer and wholesale distributor of coins for collectors and investors; Proveris Scientific, a manufacturer of test instrumentation for the pharmaceutical industry; Pioneer Motor Bearing, a maker of high performance industrial bearings; Pacer Group, a wire and electrical cable manufacturer; Plumb Sign, a job shop producing signage for businesses across the US; and Oberfield Architectural Precast, a manufacturer of precast concrete and other custom-built precast products.

In another development, Rootstock added some muscle to its advisory board this year with the addition of Jan Baan, the former founder and CEO of Baan Software, Jim Bensman, former president of SAP North America, Bill Happel, former VP of General Motors, and Lee Wylie, former CIO of Gartner.

My takeaway from Rootstock is similar to that for FinancialForce: the functionality gap in some areas is closing between the cloud-only ERP providers and traditional vendors.

AscentERP Raises Its Profile

I was not able to meet with AscentERP during Dreamforce, so I arranged a call after the show with Shaun McInerney, its co-founder and President. McInerney was positively excited about his firm’s latest developments:

• The launch of Ascent Rental, a native Force.com application for companies that rent or loan out equipment. He’s already seeing interest from current customers in the construction industries. Event organizers and medical equipment rental businesses are also targets.
   
• An iTunes app that turns Apple iOS devices (iPod Touch 5th Gen, iPhone 5, and iPad Mini) into true high-speed bar code scanners, through use of a scanner sled available from Honeywell. This plays well with AscentERP’s roots in warehouse data collection and is a key element in the case study I highlight below.
   
• Integration with Magento for e-commerce, allowing customers to take orders from the web, fulfill them and push shipment information back to customers. McInerney claims over 15 customers already for this functionality, which was only launched two or three months before Dreamforce.

McInerney reports an increase in new opportunities coming from Salesforce, with about half from outside the US. The system supports multiple currencies and base languages of English and Chinese. Like the other three vendors outlined in this post, AscentERP is also seeing its share of larger deals, which includes several in the range of 200 users, a jump from its typical user count in the past.

In my opinion, AscentERP gets the award for the most inspiring customer story. It put together a short video about its client Bosma Industries, a $55 million non-profit distributor of medical supplies, which also happens to be Indiana’s largest employer of people who are blind or have vision loss. AscentERP worked with Bosma to customize its system and to make it fully accessible to Bosma’s visually impaired workforce. This is where that iTunes app for warehouse data collection comes into play.

The best quote is from Bosma’s Adam Rodenbeck, who says, "If Siri can look at Facebook and help us get around on Twitter, why can't it help get us around the warehouse?"

Click the image below to watch the 3-minute customer story.

My takeaway from AscentERP: don't underestimate the marketing value of being part of the Salesforce ecosystem.

Buyers Should Ensure Adequate Implementation Support

One thing that none of these four vendors mentioned: a lack of new sales opportunities. In fact, they all indicated that they were awash in new prospects. This is in contrast to some of the traditional ERP vendors who periodically call me to check whether I’ve “heard of anyone looking for software.” It’s always a good sign when a vendor can afford to be picky about the opportunities it chases—it lessens the likelihood that the vendor will get into situations where it cannot compete and improves the chances of success.

But the the flip side of all these new deals can lead to problems if vendors are not adequately staffed to support them. Generally speaking, I caution clients to be sure they get adequate consulting help when they are considering these vendors. True, these new cloud-only systems are generally easier to implement, but still, they don’t implement themselves. You don't need system admins or DBAs. But you do need consultants who understand how to configure the system and help you implement your processes within it. In some cases, these vendors may have consulting partners that can assist, but they can be stretched as well. It is not an insurmountable problem, but buyers should be sure they get the help they need to have a successful implementation.

Note: Salesforce paid my travel expenses to attend Dreamforce.

Related Posts

Four Cloud ERP Providers on the Salesforce Platform
Kenandy: A New Cloud ERP Provider Emerges from Stealth Mode

ERP Customer Deployment and License Preferences

As we all know, a major transition in the ERP market is underway, from traditional sales of perpetual licenses deployed on-premises to subscription services deployed in the cloud. But not all buyers are ready to make the switch. Some prefer to stick with the traditional model, while others are going whole hog to the new model. Others still, are somewhere in the middle, sticking with a traditional vendor offering but having the system hosted by the vendor or a third-party partner.

Customer preferences are complicated by what is offered by their chosen vendor. When a new customer selects a cloud ERP vendor, such as NetSuite, Plex, or Rootstock, are they doing so because of the cloud subscription model, or in spite of it? Likewise, when a customer selects a traditional vendor with on-premises or hosted deployment, is it because they are opposed to the cloud model, or is it because the functionality of the traditional vendor was a better fit?

Acumatica as a Test Bed

As it turns out, there is one vendor’s experience that can help us answer these questions: Acumatica. Acumatica is a newer cloud ERP vendor, and it has some interesting characteristics that make it a good laboratory for testing customer preferences.

• It is a fairly new provider, founded in 2008, that built its product from the ground up as a multi-tenant cloud system. It now has about 1,000 customers--a good sized sample--in manufacturing, professional services, and a variety of other industries. Moreover, there is no legacy installed base to influence the numbers.
   
• The system is sold exclusively by partners, and—this is the key point—partners have flexibility in how they deploy the system. They can deploy it as a multi-tenant cloud system, with multiple customers on the same system instance, or they can deploy it in the customer’s data center or a hosting data center as a single tenant deployment.
   
• The licensing model is also flexible: customers can buy Acumatica as a subscription service, or they can buy it as a perpetual license.

The combination of deployment flexibility and licensing flexibility yield three main groups of customers that I’ll refer to as follows: 

1. Perpetual License Customers: these are customers choosing the traditional license model with on-premises deployment or hosting by a partner. (Acumatica refers to these as “private cloud.” I think that term is confusing, however, as when deployed for a single customer, the system loses its cloud characteristics, such as pooled resources and elasticity.) 
    
2. SaaS Customers: these are customers choosing cloud deployment along with a subscription agreement.
    
3. Subscription On-Premises Customers: these are customers that choose traditional on-premises or hosted deployment but pay according to a subscription agreement.

In theory, according to Acumatica, there could be a fourth category: a customer could choose cloud deployment with a perpetual license. In practice, however, no customer has asked for this. If a customer were to choose this option, they would pay the license fee up-front, plus traditional maintenance fees, plus a hosting or cloud services charge on a monthly basis.

What Deployment and Licensing Options Do Customers Prefer?

Richard Duffy at Acumatica was kind enough to share with me the customer counts for each of these three categories for the years 2013 and 2014. This allowed me to calculate on a percentage basis what options customers are choosing and—just as importantly—how those preferences are changing.

As shown in Figure 1, perpetual licenses (either on-premises or hosted) form the largest category of customers. This group accounted for 63% of new Acumatica sales in 2013, but it is falling dramatically to 42% of new customers in 2014. The SaaS customer group is picking up some of the difference: 29% in 2013 rising to 33% in 2014. But the largest increase is coming from the so-called “Subscription On-Premises” group, which accounted for only 8% of sales in 2013, rising to 25% this year.

A Trend to Cloud, But Even More to Subscription

Although I am an advocate for cloud ERP, these results indicate that—at least for some customers today—the attraction of cloud ERP is more in the subscription option than it is in cloud deployment itself. Acumatica’s experience shows from 2013 to 214, the majority of Acumatica’s sales shifted from perpetual licenses to subscription agreements. But a significant percentage of those did not deploy in the cloud: they chose the subscription agreement with on-premises (or hosted) deployment.

Duffy is quick to point out that the choice of licensing and deployment options are influenced by Acumatica’s partners. Some are accustomed to selling perpetual licenses and appreciate the up-front cash that comes from license sales. Others are accustomed to on-premises deployments or hosting in their own data centers and unless challenged by the customer may steer them toward those options. But if this is the case, the trend in Figure 1 is conservative. Without partner bias toward perpetual licenses and on-premises/hosted deployment, the trend toward subscription and cloud would be even greater.

What Does This Mean for Buyers and Vendors?

As outlined in other research from Computer Economics, the benefits of cloud ERP are clear: speed of implementation, ease of upgrades and support, agility, and scalability. But do not underestimate the benefits that come from subscription pricing—whether or not it comes with cloud deployment:

• Up-front cash savings. Unlike perpetual licenses, subscription agreements give customers pay-as-you-go pricing. Some vendors may require customers to commit to an initial contract term (e.g. one year) and pay for that up front. But even so, this is significantly less than customers would pay up-front under a perpetual license.
   
• Risk mitigation. Under a perpetual license, if the implementation fails, or the customer decides to switch systems after two or three years, the customer loses its entire investment in the software. With a subscription agreement, the customer only loses subscription fees paid prior to cancellation.
   
• Alignment of vendor’s interest with customer’s. Closely following the previous point, under a perpetual license, a failed implementation does not cost the vendor anything (assuming there is no legal action requiring vendor concessions). With a subscription agreement, in contrast, vendors must continually satisfy customers, lest they lose the ongoing subscription fees. This tends to focus the vendor’s attention more closely on customer success. 

The combination of cloud deployment and subscription agreements is, no doubt, a powerful combination. But notice that the three benefits outlined above are the same, regardless of whether the system is deployed as a cloud system.

Does this mean that all customers should go for subscription pricing? Based on interviews with some Acumatica customers that chose perpetual licenses, it seems the answer is no. Some customers do not like the idea that they will be paying subscription fees for as long as they use the system. They like the thought that, if they implement successfully, they have lower out-of-pocket costs for the long run.

Personally, I think such customers are underestimating their ongoing costs, including maintenance fees and the cost of money. I also think they are under-appreciating the risk mitigation and alignment benefits of subscription agreements.

Nevertheless, Acumatica’s experience shows where customer preferences are today and where they are heading. Cloud deployment is the future of ERP, and subscription agreements are attractive, even without cloud deployment.

These findings also suggest that traditional vendors that are slow to adapt to cloud deployment may be able to benefit in the short term simply by offering and promoting subscription agreements.

A Guide for Cloud ERP Buyers

In working with clients over the last decade, I've watched as cloud ERP vendors have been steadily encroaching on the territory of traditional ERP providers. As a result, ERP selection projects today are more and more becoming evaluations of cloud ERP providers.

However, buyers need to realize not all ERP systems that are labeled “cloud” are the same. To help buyers better understand these differences, I've just completed a new report for my research firm, Computer Economics, entitled Understanding Cloud ERP Buyers and Providers, based on my experience in selection deals as well as extensive analysis of vendor offerings over the years.

Figure 2 from that report sums up the differences:

In brief:

• Cloud-Only Providers: These are the “born-in-the-cloud” ERP vendors that do not have an on-premises offering and include such companies as NetSuite, Plex, Workday, Rootstock, Kenandy, FinancialForce, Intacct, and several others. These tend to be newer, smaller vendors (although Workday and NetSuite are each in the range of $500 million in annual revenue). Because cloud-only vendors have a single deployment option, they each can focus their entire business—from product development to sales to implementation and ongoing support—on the cloud. As a result, they make fewer compromises and tend to deliver the maximum benefits of cloud solutions in speed, agility, and scalability.
   
• Traditional ERP Vendors: These are larger, more established providers such as SAP, Oracle, Infor, Microsoft, and a number of others. They are growing more slowly than cloud-only providers. They have more complex businesses as they have to support their on-premises customers as well as their hosted or cloud customers. Because they have developed their solutions over many years or even decades, their functional footprint tends to be more complete than those of cloud-only providers.

There is much more in our analysis of the cloud ERP market, which describes these two major categories of cloud ERP providers in more detail. In addition, the report also segments cloud ERP buyers into two categories: first-time buyers looking for their first ERP systems and established companies replacing their legacy systems. As it turns out, generally speaking, these two categories of buyers have different pain points and different criteria driving their decision-making. 

At this stage of cloud ERP market maturity, each of these provider categories has its advantages and disadvantages, and there is no one right answer for a given buyer. Organizations considering cloud ERP need to carefully consider their requirements, their choices, and what tradeoffs they are willing to make. We, therefore, conclude with recommendations for buyers looking at cloud ERP. We also have some advice for providers that seek to serve these two types of buyers.

As a practical aid to buyers, the full report includes two lengthy appendices, which provide profiles of the key ERP vendors of hosted and cloud solutions today, along with an assessment of their market presence. Cloud-only ERP providers profiled include Acumatica, AscentERP, FinancialForce, Intacct, Kenandy, NetSuite, Plex Systems, Rootstock, and Workday. Traditional ERP providers with cloud/hosted solutions include Epicor, IFS, Infor, Microsoft Dynamics, Oracle, QAD, Sage, SAP, Syspro, and UNIT4.

Related posts

The Cloud ERP Land Rush
Computer Economics: Choosing Between Cloud and Hosted ERP, and Why It Matters

The Cloud ERP Land Rush

Oklahoma Land Rush

For those unfamiliar with US history, in 1889 the US government opened unoccupied lands in Oklahoma to settlement. Settlers could claim up to 160 acres, live on and improve the land, and then legally obtain title to it. Such an opportunity led to a land rush, in which thousands of settlers raced into Oklahoma to make their claims.

Today, cloud ERP is like Oklahoma in 1889, mostly unoccupied land, and there is a race as cloud vendors rush in. NetSuite and Plex were two early settlers. Today NetSuite has more acreage (number of customers), while Plex has fewer acres but more development of those acres (functionality)--at least in manufacturing. Cloud-only providers such as Rootstock, Kenandy, AscentERP, Acumatica, Intacct, and SAP (ByDesign) are also in the race. Traditional providers such as Microsoft Dynamics, Infor, Epicor, Oracle, UNIT4, and QAD have also entered the land rush, although they are moving more slowly, as they need to pull wagons full of their traditional on-premises software along with them.

In the larger suite of enterprise applications, such as CRM and HCM, the land rush is further along.  Salesforce for CRM and Workday for HCM have already staked out large claims and are rapidly developing them. But Microsoft with Dynamics CRM, SAP with SuccessFactors, and Oracle with its Fusion HCM are also adding to their acreage. Core ERP functionality, on the other hand, is earlier in the land rush. There is still a lot of open territory with a lot of unclaimed land.

FinancialForce Staking Its Claim

One provider that is clearly in the land rush is FinancialForce, which today announced new branding to signal its claim in cloud ERP.

The company is now referring to its suite of enterprise applications as FinancialForce ERP. The new branding is necessary because FinancialForce long ago ceased to be a provider only of financial management systems.

FinancialForce previously added professional services automation to its portfolio and late last year acquired Less Software, which provides inventory management and order. Vana Workforce is another acquisition from last year, which adds human capital management (HCM) functionality.  FinancialForce also added its own functionality in areas outside of financials, such as advanced quoting and revenue recognition. With this broader footprint, FinancialForce now qualifies as a cloud ERP provider.

Building on the Salesforce.com platform, FinancialForce has direct integration to the Salesforce cloud applications as well as to all of the other providers in Salesforce's AppExchange marketplace. The recent evolution of this platform to Salesforce1 gives FinancialForce additional capabilities for building out its mobile deployment options.

How many acres will FinancialForce claim? The signs are hopeful. The company is reporting strong results: 80% growth in its revenue run rate, and 62% growth in headcount year-over-year, bringing it to over 260 employees globally.  FinancialForce now has customers in 27 countries with users in 45 nations worldwide. By all accounts, the company is on a strong growth trajectory.

Plenty of Land for Everyone

The economic and strategic benefits of cloud computing accrue to end-user organization that completely or at least largely eliminate their on-premises IT infrastructure.  Our research at Computer Economics shows that cloud user companies save more than 15% in terms of their total IT spending, and the money that they do spend goes more toward innovation and less towards on-going support. But it is difficult to move away from on-premises infrastructure if an organization's core ERP system is still on-premises. Therefore, the move to cloud ERP is essential if organizations are to fully realize the benefits of cloud computing. You can move your CRM and HCM systems to the cloud--but if you are still running on-premises ERP, you still have one large foot stuck in the old paradigm.

In my view, there does not need to be one clear winner in cloud ERP. Just as there were dozens of on-premises ERP vendors in the 1990s, especially when sliced by industry sector, there is plenty of room for many more cloud ERP providers. There is plenty of land for everyone.

Related Posts

Computer Economics: Cloud Users Spend Less, Spend Smarter on IT
Four Cloud ERP Providers on the Salesforce Platform
NetSuite Manufacturing Moves on Down the Highway
Kenandy: A New Cloud ERP Provider Emerges from Stealth Mode
The Simplicity and Agility of Zero-Upgrades in Cloud ERP (Plex)
Plex Online: Pure SaaS for Manufacturing
Computer Economics: Cloud Players Storm the Gates of ERP
Key success factor for SaaS suites: functional parity

Four Cloud ERP Providers on the Salesforce Platform

As cloud ERP solutions mature, they are becoming viable alternatives to traditional on-premises and hosted ERP systems. Dreamforce 2013, the annual conference of Salesforce.com users in San Francisco last November, offered a good opportunity to review the progress of four such cloud ERP systems—all built on the Salesforce.com platform.

Salesforce1: The Next Generation Salesforce Platform

During the conference, Salesforce unveiled the latest iteration of its platform, now dubbed Salesforce1, as shown in Figure 1.  The platform has a lot going for it.

• It provides a complete applications development environment (a platform-as-a-service, or PaaS) running on Salesforce.com’s cloud infrastructure. Developers building on Salesforce1 can interoperate with any of Salesforce.com’s applications, such as its Sales Cloud, Service Cloud, Marketing Cloud, as well as other third party applications built on the platform. 
• It includes social business capabilities. Developers can incorporate Salesforce.com’s social business application, Chatter, as part of their systems. 
• The platform puts mobile deployment at the center, allowing apps to be written once and be deployed simultaneously on a variety of user platforms, including desktop browsers, tablet computers, and smart phones. In support of the so-called "Internet of Things," Salesforce1 can even be deployed on connected devices. 
• Finally, the platform provides a way for developers to market and sell their applications, by means of Salesforce.com’s AppExchange marketplace. 

For a detailed view of Salesforce1, see this review by Doug Henschen over at Information Week.

With Salesforce.com now the market leader in CRM, it is no wonder that its platform has become more and more attractive to developers. Building on this platform, third-party developers become, in essence, an ecosystem around Salesforce.com, with strong network effects. The more popular the platform becomes, the more it attracts developers. In return, the more developers build on the platform, the more attractive it becomes to other developers. It is a virtuous cycle.

In our consulting work at Strativa over the past three to five years, I’ve seen several cases where organizations first implemented Salesforce.com’s CRM system, then based on that success started looking to see whether they could replace their existing on-premises ERP system with a cloud-based solution. And, when they search the AppExchange, they find four cloud ERP providers: FinancialForce, Kenandy, Rootstock, and AscentERP.

I’ve been following these four providers for several years, and this post serves as an overview and update, based on briefings and interviews I conducted with these four vendors during the Dreamforce user conference.

FinancialForce

As the name implies, FinancialForce started in 2009 as an accounting and billing system. It was formed as a joint venture between UNIT4 and Salesforce.com. The company expanded into professional services automation in 2010 with the acquisition of a PSA system from Appirio, built on the Salesforce platform, and by building out its own services resource planning (SRP) functionality. More recently, Financialforce developed offerings for revenue recognition and credit control on the new Salesforce1 platform for revenue recognition, pushing these functions out to sales and services users in the field.

The company lists 50 customer case-studies on its website, an impressive number for a vendor that is only four or five years old.

At Dreamforce 2013, FinancialForce took two more steps to expand its ERP footprint. First, it announced acquisition of another AppExchange partner, Less Software, which provides configure-price-quote (CPQ), order fulfillment, service contracts, inventory management, and supplier management modules. Founded just two years ago, Less Software was already partnering and doing joint deals with FinancialForce, so the acquisition does not appear to acquire much if any integration work. FinancialForce refers to Less Software as having supply chain management (SCM) capabilities, but I would view that as somewhat of an exaggeration. There are some light warehouse management capabilities, but no transportation management or supply chain planning functionality that I can see. Less Software has had particular success in selling to value-added resellers, such as Cisco resellers, as well as to industrial distribution organizations and one manufacturer of children’s furniture.

The second step, announced during the conference, was the acquisition of Vana Workforce, a human capital management (HCM) software provider—which is also built on the Salesforce platform. Vana's HCM functionality includes core HR, talent management, recruitment compensation, time management, and absence management. Payroll is not provided, but the system can connect with a number of popular payroll systems. As with Less Software, Vana Workforce was already partnering with FinancialForce, so the integration effort, again, would appear to be minimal.

Organizations in the professional and technical services sector should take a look at FinancialForce, as well as anyone needing a financial management solution. With its acquisition of Less Software and Vana Workforce, FinancialForce now qualifies for the short list for distribution and light manufacturing companies. There were hints during my briefings that FinancialForce may continue with an acquisition strategy, so it is likely that additional industry sectors may become potential targets for this solution provider.

Kenandy

I covered the launch of Kenandy back in 2011, when I interviewed its CEO Sandra Kurtzig. Sandy was the original founder and CEO of ASK Group, the developer of the well-known ManMan ERP system. Her coming out of retirement to launch a new ERP system made a big splash at Dreamforce 2011, where she appeared on stage with Salesforce CEO Mark Benioff and Ray Lane, former Oracle President and now Kenandy board member representing investor firm, Kleiner Perkins. Salesforce.com is also an investor in Kenandy.

Since that launch, Kenandy has been rapidly adding functionality. It has its own financial systems, including general ledger, invoicing, accounts receivables, and accounts payables. Multi-company and multi-currency support were added earlier this year, with up to three reporting currencies. According to Kenandy executives I interviewed, the system also supports multiple plants with multiple locations in a single tenant. There is a full MRP explosion. Lot tracking and serial tracking allow Kenandy to sell into foods and other industries that require track and trace. Item revision levels are tracked with multiple revisions allowed in inventory.

Only three years in existence, the installed customer base is small but growing, with some impressive wins. During Dreamforce, Kenandy touted its recent win with Del Monte Foods, which implemented Kenandy for its acquisition of Natural Balance, a pet food manufacturer. I spent some time one-on-one with the Del Monte project leader, who provided quite a bit of insight into the dynamics of the implementation. Del Monte was able to implement Kenandy’s full suite—financials, customer order management, and distribution—in just three months. This included integrations with third-party systems for EDI, warehouse management, and transportation scheduling.

He also shared with me that he wrote a trade promotion management (TPM) system on the Salesforce platform, integrated with Kenandy, in just six weeks—and he did it by himself. He had previously built a similar system integrated with Del Monte’s legacy system, but that effort took seven months with a team of seven developers. Even discounting the fact that his previous experience might have made development of the second system easier, by my calculations this is about a 50 to 1 improvement in productivity, illustrating the power of the Salesforce platform.

Del Monte is not finished with Kenandy. The firm reportedly plans to eventually move all of Del Monte’s ERP processing from something like 60 internal systems to Kenandy.

More information Del Monte’s experience can be found in a case study on Kenandy’s website.

Rootstock

Rootstock Software is another manufacturing ERP provider with an interesting history. The management team, headed by CEO Pat Gerehy and COO Chuck Olinger, has decades of experience building manufacturing ERP, most recently at Relevant. Following the sale of Relevant to Consona (now Aptean), the team embarked on a new venture to build a manufacturing cloud ERP system from scratch. They developed their first iteration of Rootstock on the NetSuite platform in 2008, interoperating with NetSuite for financials and customer order processing. In 2010, however, they disengaged from their NetSuite partnership and rewrote Rootstock on the Salesforce platform. (That the Roostock developers could build a complete system so quickly on the NetSuite platform and then again on the Salesforce platform speaks to the power of these modern cloud platforms for rapid software development.)

As a result of the replatforming on Salesforce, Rootstock developed its own customer order management product and now partners with FinancialForce for its accounting systems. It also has good functionality for purchasing, production engineering, lot and serial tracking, MRP, MPS, and capacity planning, shop floor control, manufacturing costing, and PLM/PDM integration. The system can support multiple companies, multiple divisions, and multiple sites, all within a single tenant on the Salesforce platform.

On its website, Rootstock highlights an impressive list of 25 customers. These include Astrum Solar, a residential solar provider with operations in a dozen states in the US. EBARA International, a manufacturer of pumps and turbine expanders in the energy industry, with 77 subsidiaries and 11 affiliated companies worldwide.

Over the past year, Rootstock has been gaining traction. After the Dreamforce conference, it announced four more wins in the month of November: Microtherm, a business unit of ProMat International; Proveris, which provides testing protocols for drug developers; Source Outdoor, an outdoor furniture manufacturer; and Wilshire Coin, a coin dealer.

Buyers looking for strong manufacturing functionality, including hybrid modes of manufacturing, should consider Rootstock. Project-based manufacturing is also a sweet spot.

AscentERP

AscentERP approaches manufacturing ERP from the execution side of the business. Its co-founders, Michael Trent and Shaun McInerney, have a long history in warehouse management and data collection, and it shows in the capabilities of the product. Built from the start on the Salesforce platform, AscentERP supports production modes of build-to-order, assemble-to-order, and configure-to-order along with repetitive manufacturing capabilities. It can take opportunities from Salesforce.com and convert them into sales quotes and into sales orders in the production system. The system supports the complete manufacturing process from master planning, purchasing, production, and shipping. Reverse logistics is also supported through an RMA process.

Like Rootstock, AscentERP supports the accounting function through partnership with FinancialForce. In addition, the system also integrates with Intacct, another SaaS financials system. For smaller companies, Ascent created an integration with Quickbooks.

During Dreamforce, AscentERP announced advanced manufacturing functionality, including workflow and alerts, multi-plant and multi-location support, production scheduling and tablet computer data collection using the new Salesforce1 platform.

Reference accounts include Chambers Gasket in Chicago and All Traffic Solutions, a manufacturer of electronic roadside signs. Both of these customers use FinancialForce for financials. Other reference accounts include The Chia Company in Australia, the world’s largest grower of Chia seed and products, so familiar during holiday season, and SolarAid, an international charity that provides access to solar lighting.

Buyers may want to short list AscentERP if they are looking for a nuts-and-bolts production system with good support for warehouse management and data collection. Smaller companies may find the Quickbooks integration an interesting option, allowing them to implement ERP without having to give up Quickbooks.

One sales strategy I wish more enterprise SaaS providers would follow: AscentERP offers a free 30 day free trial on its website.

Cast a Wide Net

All ERP systems have their strengths and weaknesses, and these four are no exception. For example, all of these systems are relatively new. Although they are rapidly building out their functional footprints, there are still gaps in their functionality. Buyers that insist on having every box checked on their RFPs may not like this, but those buyers who are willing to do some system enhancements on the Salesforce platform may find that the advantages of speed and flexibility outweigh any short-term gaps. It all depends on whether buyers are viewing pure cloud deployment as a strategic advantage.

The four vendors outlined in this post are not the only cloud ERP providers in the market. Buyers should also consider other providers, not built on the Salesforce platform. These include established cloud players such as NetSuite and Plex, as well as newer entrants, such as Acumatica. Finally, some of the traditional providers of on-premises ERP systems, such as SAP, Oracle, Microsoft, Infor, and Epicor, offer hybrid cloud deployment options that may be alternative to these cloud-only providers.

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Choosing the right ERP system—whether cloud, hosted, or on-premises—can be challenging. Those looking for more in-depth analysis and independent advice in navigating the process should consider our software selection consulting services at Strativa.

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Plex Software and Its Mandate for Growth

As the first cloud-only manufacturing ERP system, Plex Systems has a wide footprint of functionality, going beyond what is offered by newer cloud vendors.

Nevertheless, after more than a decade of development, Plex has fewer than 1000 customers and its presence is limited mostly to smaller manufacturing companies in a few sub-sectors.

As evidence, there were about 700 attendees at last year's PowerPlex conference. This year's PowerPlex, which I attended this week in Columbus, Ohio, saw about 750 Plex users in attendance.  Granted, overall, these are highly satisfied and enthusiastic customers. There just needs to be more of them.

On the one hand, Plex claims a compound annual growth rate of nearly 30% over the past three years--an impressive number. But as the first fully multi-tenant manufacturing cloud vendor, Plex could have, and should have, been growing at a faster pace. Now, there are several other cloud vendors taking aim at Plex's market, such as NetSuite, Acumatica, Rootstock, and Kenandy. 

Plex must grow more aggressively, for two reasons. First, the company was acquired last year by two private equity firms. Private equity is not known for patience. Second, as CEO Jason Blessing pointed out in his keynote, growth protects the investments of existing Plex customers. Software companies that do not grow do not have the resources for continued innovation. Eventually, they only provide enough support to keep current customers--at best. They become, in effect, "zombie vendors," to use Blessing's term.

So, what does Plex need to do to grow at a more substantial pace in the coming years? I see six mandates. Some of these are fully embraced by Plex, while others, in my view, could use more emphasis.

1. Get Noticed

If some cloud vendors need to tone down their marketing hype, Plex needs to kick it up a notch. Plex was not only the first truly multi-tenant cloud manufacturing systems, it was also one of the first cloud providers period. Yet still the majority of manufacturing systems buyers have not heard of Plex. Reflecting Plex's home turf in Michigan, discussions with Plex insiders about this often includes the phrase, "midwestern values"--in other words, not blowing one's own horn. However admirable this humility may be on a personal basis, it is not useful from a business perspective.

Hopefully, this is about to change with the hiring of Heidi Melin as Chief Marketing Officer. Melin worked with CEO Blessing at Taleo, and more recently she was CMO at Eloqua, which was acquired by Oracle. In my one-on-one interview, Blessing was high on Melin's arrival, and indicated that she would be especially focused on digital marketing to reach the many thousands of companies in Plex's target market.

2. Put More Feet on the Street

Blessing also indicated that he intends to beef up Plex's sales efforts, which to date have been concentrated largely in the Great Lakes region. This has left many sales opportunities poorly supported in other US geographies, such as the southern states (home to many automotive suppliers), Southern California (home to many aerospace suppliers), and other parts of the country that are home to many food and beverage companies. Increased sales presence in international markets is also needed.

This is a step long overdue. When my firm Strativa short lists Plex in ERP selection deals, Plex is often flying in resources from across the country, which does not sit well with most prospects. Opening regional sales offices, like Plex has now done in Southern California, will help put more feet on the streets of prospects.

3. Move Up-Market

Historically, Plex's system architecture is oriented toward single-plant operations. There is some logic to this approach. As Jim Shepherd, VP of Strategy, points out, most of the information needed by a user is local to the plant he or she is working in. However, even small manufacturers often have needs that include multiple plants, cross-plant dependencies, and central shared services. Plex does have some multi-billion dollar customers, but these are primarily companies with collections of plants that are relatively independent of one another.

In response, Plex is building out its cross-site and multi-site capabilities while keeping its primary orientation around the single plant. In my view, this will be a key requirement in Plex moving up-market and serving larger organizations.

4. Build Out the International Footprint

The bulk of Plex's sales are to US companies, but if Plex is to grow more aggressively it will need to better support the international operations of these companies. It will also need to sell directly to companies outside of the US.

In his keynote, Shepherd pointed to the new ability for Plex to print reports on A4-size paper, commonly used in parts of the world outside North America. The fact that Plex is just now getting around to formatting reports on A4-sized paper shows just how US-centric Plex has been. To be fair, Plex does support multiple currencies and has support some international tax requirements, such as in Brazil, India and China, although some of this is done through partners. Nevertheless, Plex has much it could do to improve its appeal to multinational businesses. In this day and age, even small companies--like those Plex targets today--have international operations. Building out its international footprint is another prerequisite for Plex to achieve more rapid growth.

5. Venture Outside of Traditional Subsectors

Plex sees its current customer base primarly as three manufacturing subsectors today: motor vehicle suppliers, aerospace and defense, and food and beverage. Blessing indicates that by Plex's calculations, these three sub-sectors account for about 25-30% of the manufacturing ERP market. Surprisingly, however, Plex currently has no plans to expand outside of these sub-sectors. Blessing believes that simply by increasing Plex's sales execution in its current markets it can continue its compound annual growth rate of nearly 30% for the next several years.

Count me skeptical. First, as indicated above, Plex no longer has exclusive claim to the cloud manufacturing ERP market. Plex is going to have to fight a lot harder than it has in the past for new customers. Second, why is 30% growth the benchmark? I understand that there are risks in more aggressive growth. But aiming higher might be needed in order to meet the 30% goal.

In my view, Plex is not far off from being able to address the needs of manufacturers that are adjacent to its existing markets. These would include industrial electronics, medical devices, and industrial equipment. Plex already has some customers in these sub-sectors, so it's not like the company is starting from scratch. Hopefully Plex will formally target these industries, sooner rather than later.

6. Target the Customers You Want Not Just Those You Have

Over the past 10+ years , Plex has let customer requests drive its product roadmap. In fact, much of Plex's development has been funded directly by customers or groups of customers who desired certain new features. This worked well to minimize Plex's up-front costs of new development and also led to high levels of customer satisfaction. However, it had one major drawback: if you only have customer-driven development, everything you build will by definition only be of interest to the type of customers you have today. In addition, a single customer or group of customers are not able to fund major new development that are more strategic in nature.

Here Plex is on the right track. Recognizing this need, Plex is now allocating product development funds for strategic initiatives, including a revamp of its user interface, cross-browser access, business intelligence and reporting capabilities (Inteliplex), as well as other major initiatives. In conversations with customers at PowerPlex they expressed these as welcome developments, although they have, apparently, diverted Plex resources from some of the customer-requested enhancements they also wanted.

The Way Forward

There's plenty that I admire about Plex: its zero-upgrades approach, its broad functionality, and the fact that it proves manufacturing companies have been ready for cloud computing for many years, contrary to the claims of on-premise ERP providers. Most of all, Plex allows me to roam around its user conference and speak informally with customers. Nearly without exception, everything I hear is positive. Not a single customer has told me they made the wrong choice with Plex, although with any ERP implementation there are always bumps in the road. 

But none of this guarantees that Plex will thrive in the future. Like proverbial sharks, software vendors must continue to move forward, lest they die. The management team at Plex has some new blood, including the CEO, and a new perspective. They understand the opportunities ahead, but will they fully rise to the challenges? We'll be watching.

Note: Plex Software covered some of my travel expenses to their annual user conference. 

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NetSuite Manufacturing Moves on Down the Highway

NetSuite held its annual user conference, Suiteworld, last week, and in his day one keynote, CEO Zach Nelson highlighted "NetSuite for Manufacturing."

I wrote about NetSuite's manufacturing functionality last year in my post, NetSuite Manufacturing: Right Direction, Long Road Ahead. Returning to this subject one year later, it is encouraging to see the progress that NetSuite has made. At the same time, there will be twists and turns that NetSuite will face in continuing down this highway.

If NetSuite is going to continue its growth, reported at 28% last year in its core business, it really has no choice but to pursue manufacturing customers. Manufacturers are the largest market for ERP systems and therefore an attractive target for NetSuite's development efforts. Although manufacturers have been slower to embrace cloud computing than many other sectors have, the situation is rapidly changing. In our ERP vendor selection services at Strativa, we find manufacturing companies increasingly open to cloud ERP. Sometimes, in fact, they only want to look at cloud solutions. In other words, NetSuite is at the right place at the right time.

Balancing New Functionality with Need for Simplicity

To more fully address the needs of manufacturing, NetSuite continues to build out its core functionality, with basic must-have features such as available to promise (ATP) calculations, routings, production orders, and standard costing. In some of the breakout sessions, there were indications of that NetSuite is also exploring functionality that goes well beyond the basics: for example, supply chain management (SCM) and demand-driven MRP (DDMRP).

This leads to the first twist and turn that NetSuite will need to navigate: filling out gaps in manufacturing functionality while not over-engineering the system. Oracle and SAP are famous for having manufacturing systems that are feature-rich, requiring significant time and effort from new customers to decide which features to configure and to implement them. Part of the attraction of NetSuite is its relative simplicity and ease of implementation. If NetSuite wants to remain an attractive option for the likes of small and midsize manufacturers, or small divisions of large companies, it will be wise to pick and choose where to build out the the sophistication of the product.

For example, the availability of multi-books accounting (which I discuss briefly in the video at the top of this post) is a good move, as it has widespread applicability to both small and large companies in the manufacturing industries as well as other sectors. But does DDMRP fall into the same category? Moreover, how much SCM functionality do prospects expect from NetSuite, and where does it make sense to partner with best-of-breed specialists, who can better bridge a variety of SCM data sources?

Netsuite's recent success with manufacturers such as Qualcomm, Memjet (discussed later in this post), and others give it real-world customers to validate its product roadmap. It will do well to prioritize new development efforts to the areas where those customers deem most needed. NetSuite may choose, ultimately, to fully move up-market, to become the manufacturing cloud equivalent of SAP or Oracle. But if it does so, there are already a number of other cloud ERP providers, such as Plex, Rootstock, Kenandy, Acumatica, and Keyed-In Solutions, that will be ready to take NetSuite's place serving small and midsize manufacturers.

NetSuite's PLM/PDM Strategy Needs Openness

NetSuite also announced a new alliance with Autodesk to integrate its PLM 360 offering for product lifecycle management with NetSuite's ERP. This is in addition to NetSuite's existing partnership with Arena Solutions.

By way of background, PLM systems manage the entire life-cycle of product development, from ideation and requirements gathering, through design and development, to release to manufacturing, service, engineering change, and retirement. PLM systems take an engineering view of the product and are generally under the domain of the client's product engineering function. PLM systems generally include product data management (PDM) systems as a subset, to manage all of the product data, such as drawings, specifications, and documentation, which form the definitions of the company's products.

Over the past 20+ years, the integration of PLM and PDM systems with ERP has been a difficult subject. In organizations where engineering and manufacturing work well together, basic roles and responsibilities can be defined and proper integration of data can be accomplished. In organizations where such cross-functional processes are weak, PLM/PDM and ERP often form separate silos.

Autodesk's PLM 360 shows very well, and the story about its cloud deployment matches well with NetSuite. However, it is my observation that the majority of manufacturers would do well simply to establish simple integration between their engineering bills of material (within their PLM/PDM systems) and their manufacturing bills of material (within their ERP systems). Making engineering documentation within the PLM/PDM system available to manufacturing ERP users is also highly desired. Furthermore, there are few engineering organizations that have not already standardized on a PLM/PDM system (e.g PTC's Windchill, Solidworks, and others), and they will seldom be willing to migrate to Autodesk just because the company is implementing NetSuite's ERP.

This is another turn of the highway that NetSuite must navigate: will it offer standard integration to a variety of PLM/PDM systems, or will its answer to engineering integration be, "Go with Autodesk or Arena?" I do not believe that an Autodesk- or Arena-preferred, strategy is the best.

Case Studies Encouraging

To validate its progress in the manufacturing sector, NetSuite reported on several case studies.

• At the large end of the spectrum there was Qualcomm, the $19 billion manufacturer of semiconductors and other communications products. Although Qualcomm has Oracle E-Business Suite running throughout much of its operations worldwide, in 2011 CIO Norm Fjeldheim chose NetSuite for use in smaller divisions, based on the need for implementation speed and agility. As part of that strategy, Qualcomm  has now gone live with NetSuite in a newly launched division in Mexico. This is a nice "existence proof" for a two-tier ERP strategy in a very large company.

• At the smaller end of the spectrum there was Memjet, a manufacturer if high-speed color printer engines. Martin Hambalek, the IT director at Memjet, did a short on-stage interview during Nelson's day one keynote. Although the company has just 350 employees, it has engineering and manufacturing operations in five countries. Unlike Qualcomm, Memjet runs NetSuite as its only ERP system worldwide, showing NetSuite's capabilities for multinational businesses. Notably, Memjet is also a customer of Autodesk for its PLM 360 system, mentioned earlier. In my one-on-one interview with Hambalek later during the conference, I learned that he is the only full-time IT employee at Memjet: evidence that a full or largely cloud-based IT infrastructure requires many fewer IT resources to maintain.

Customer stories are the best way to communicate success, and these two NetSuite customers substantiate NetSuite's progress.

Rethinking the Services and Support Strategy

As much as ERP functionality is important to manufacturers, there is another element of success that is even more important: the quality of a vendor's services and support. It struck me during the keynotes that, apart from an announcement of Capgemini as a new partner, there were no announcements about NetSuite's professional services. 

More ERP implementations fail due to problems with implementation services than because of gaps in functionality. Functional gaps can be identified during the selection process: but problems with the vendor's implementation services are more difficult to discern before the deal is signed. Furthermore, functional gaps can often be remedied through procedural workarounds. But once the implementation is underway, failures in implementation services are difficult to remedy. Sometimes, such failures wind up in litigation.

In this regard, NetSuite's rapid growth has a downside: it stretches and strains the ability of NetSuite's professional services group to spend adequate time and attention on its customers' implementation success. In advising prospective ERP buyers, I have much more concern about what their implementation experience will be than I do about any potential gaps in NetSuite functionality.

One solution is to build a strong partner channel of VARs, resellers, and implementation service providers to complement or even take over responsibility for post-sales service and support.

During the analyst press conference, I asked Zach Nelson about this point. NetSuite is building its partner channel, but how does it decide what work should go to its implementation partners and what part should be retained for NetSuite's own professional services group?  Nelson's answer reflected a traditional view, that whoever brings the sales lead to NetSuite should get the services. In other words, if a lead comes through NetSuite's own sales team, NetSuite should get the services work. If the lead comes through a partner, the partner should get the services.

As an advisor to prospective buyers, my own view is that NetSuite should rethink this strategy. The party that happens to find the prospect may not be the best party to deliver the services. In fact, NetSuite may be better served by passing off implementation services to local partners that are willing to spend more time with the customer on-site than NetSuite's own professional services group may be able to provide.

At the end of his answer, Nelson indicated that he would actually prefer that NetSuite not be in the professional services business. If so, this is good news. Let NetSuite focus on developing and delivering cloud ERP, and let a well-developed partner channel compete to provide hands-on implementation services. What professional services NetSuite does provide would be better focused on providing support to those partners. 

Just before leaving the conference, I gave Dennis Howlett my initial thoughts in this video interview on NetSuite Manufacturing and multi-book accounting.

Disclosure: NetSuite paid my travel expenses to attend its user conference. They also gave me a swag bag.

Update: in an email exchange, Roman Bukary, NetSuite's head of manufacturing and distribution industries, comments on NetSuite's PLM strategy:

The fact that today we have a partnership with Arena and Autodesk is not a matter of “just” these two, it’s a matter of those vendors who have a smart, complementary cloud strategy and our own bandwidth to recruit and enable partners. For my $.02, we have an open strategy with the goal to change the kind of solution modern manufacturing can leverage today

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NetSuite Manufacturing: Right Direction, Long Road Ahead.

NetSuite Manufacturing: Right Direction, Long Road Ahead

As one of the first cloud ERP providers, NetSuite is looking to grow its customer base across multiple industries and up-market to larger customers. Those efforts include NetSuite’s renewed focus on the manufacturing sector, as unveiled at NetSuite’s annual user conference, which I attended this week.

Bottom Line: NetSuite is making the right decision and good progress to build out manufacturing functionality as part of its core system, but there is still much work to be done to achieve functional parity with other cloud and on-premises solutions in the marketplace. Nevertheless, the rapid development capabilities of NetSuite's platform offer hope that it will get there quickly.

From Partner Solutions to a Core Offering

Until recently, NetSuite’s approach to serving manufacturers was to provide what it called “light manufacturing,” coupled with customer-specific customizations, supplemented by partner solutions such as Rootstock when heavier manufacturing functionality was required. But this approach could only take NetSuite only so far.

• Support for manufacturers is essential in light of NetSuite’s product strategy. As explained by Zach Nelson in a small group briefing, the customer order is central entity in NetSuite, and NetSuite wants to “own” anything that is input into, or output from, the customer order. In the manufacturing sector, this would include production work orders. It makes no sense, therefore, for NetSuite to hand off these business processes to partners.
• At the same time, the manufacturing sector represents a large potential market for NetSuite. There are more manufacturing companies—especially small manufacturers—in the US than in any other sector. Inadequately serving such a large potential market made no sense as NetSuite looked to accelerate its growth.
• However, some basic features for manufacturers have been missing. For example, standard costing were not addressed in the core product, and few prospects would be willing to customize their implementations for such a fundamental need.

As a result of this realization, NetSuite in 2011 began work in earnest to build out its manufacturing functionality. In a briefing during NetSuite's conference I met the key players hired for this mission. They include:

• Roman Bukary, Head of Manufacturing and Distribution Industries. Roman previously worked for SAP, Baan, and other software companies. Earlier in his career, he was a manufacturing engineer.
• Ranga Bodla, Director, Industry Marketing. Ranga held product management positions at SAP and Pilot Software.
• Thad Johnson, Sr. Product Manager for Wholesale Distribution and Manufacturing Verticals. Earlier in his career, Thad was a product manager at QAD and also held several materials management positions in industry.
• Frank Vettese, Practice Manager. Frank has manufacturing software experience with IFS and Effective Management Systems.
• Gavin Davidson, Vertical Market Expert, Manufacturing. Gavin’s experience includes implementation work with manufacturing systems from Baan, Epicor, Microsoft Dynamics, and Visual.

I’m pointing out the experience of these individuals to show that NetSuite’s push into manufacturing is more than a marketing campaign. It has put together a serious team of individuals to lead the product development effort for this vertical.

An Expanding Footprint

In terms of manufacturing methods, NetSuite is primarily targeting discrete manufacturers although it intends to provide some support for process manufacturing down the road. An ideal prospect would be a discrete manufacturer that does a mix of in-house and contract production.

Let’s take a look at some of the manufacturing functionality that NetSuite has recently added or will be adding. From these few points we can get a sense for where NetSuite is in its current and near-term ability to better support manufacturing customers.

• Standard costing. As mentioned above, the lack of this capability in the past was a showstopper for many manufacturing prospects. But NetSuite reports that it added this capability in 2011, along with standard cost rollups.
• Bills of material. NetSuite has had BOM capabilities for some time, and it will soon support revision levels on BOMs along with effectivity dates. Users can also set a default scrap percentage on BOM components. Support for alternate BOMs is not in the roadmap.
• Routings. NetSuite added production routings to the standard system in 2011. These, of course, are used to create production work orders. Alternate routings will not be provided. .
• Cycle counting. Standard NetSuite code will now support cycle counting of inventory by ABC code.
• Material Requirements Planning (MRP). NetSuite now does a BOM explosion, but it does not generate reschedule messages for purchase orders or production work orders. Neither does it support all types of lot-sizing methods.
• Unit of measure conversions for purchasing, receiving, and inventory management have been part of the standard system for some time.
• Multi-facility planning. It appears that NetSuite will allow customers to maintain separate material plans for multiple facilities while still providing a global view of inventory. If so, this would go beyond what is typically offered in most Tier III on-premises manufacturing systems.
• Labor reporting. The team demonstrated a basic clock-in, clock out process using a tablet computer that can be used to report production completions and labor from the shop floor. This capability is currently in proof-of-concept.
• Capacity Planning will be supported, based on the NetSuite’s “demand plan,” but it does not appear that it will highlight capacity constraints as it will not track available work center capacity.
• Inventory Allocations and Available-to-Promise (ATP). This basic capability—to allocate available inventory and scheduled receipts against customer orders, and to provide visibility into projected inventory availability—is also scheduled as part of standard NetSuite functionality. (Kudos to NetSuite CTO Evan Goldberg for providing a layman’s explanation of ATP during his keynote.)
• Lot and serial number traceability. The team claims capabilities in tracing lot numbers and serial numbers from receipt through production into finished goods. I did not have a chance to verify this functionality, but if present, it would be of interest for a number of manufacturing sub-sectors such as high tech electronics and medical devices.

I believe that NetSuite means business in pursuing the manufacturing sector. However, as can be seen, many of these capabilities (e.g. routings, cycle counting, labor reporting) are very basic manufacturing requirements, things that have been present in systems such as ManMan, AMAPS, BPCS, and others back into the 1980s. Furthermore, some of the planned capabilities will lack key things that a manufacturing prospect would expect. For example, the team characterized NetSuite’s material planning system as a “lean manufacturing system,” which to me is a polite way of saying, “minimal.”

Contrast this with NetSuite’s current capabilities and roadmap for eCommerce (SuiteCommerce) or support for back-office processes of software vendors, which go far beyond what most other ERP providers offer.

Now, it may be that the major opportunities for NetSuite will not be in the hard-core job shops or industrial manufacturing companies. Inasmuch as many manufacturing companies in the United States and elsewhere in the world are outsourcing much of their heavy production processes, it might be that the feature set in NetSuite’s roadmap will be enough to satisfy the majority of its target manufacturing market.

The Time and Place for Customization

One thing that I do not think will satisfy such prospects, however, is the use of customization to fill basic functionality gaps. NetSuite promotes its ability to augment its standard processing with customer-developed or partner-developed customizations, without modifying standard NetSuite code. During his keynote, Evan Goldberg gave an impressive demonstration of the latest version of NetSuite’s development platform, SuiteCloud. I continue to be impressed with the ease-of-use that providers such as NetSuite and Salesforce.com are delivering with their Platform-as-a-Service offerings.

However, the ability to customize and extend the solution should not be taken as an excuse for not offering expected features/functions in the standard product. When prospects need full-blown work center capacity planning, for example, the last thing they want to hear is, “Oh, we can use SuiteCloud to build whatever you need.” For customer-unique requirements, SuiteCloud is a powerful attraction. For what should be standard functionality, no.

Rapid Progress Possible

I’m encouraged by NetSuite’s renewed interest in serving the needs of the manufacturing sector. However the feature set currently in the roadmap does not go as far as I would like to see in building comprehensive functionality for manufacturers. Nevertheless, I believe NetSuite will see success with its product strategy for two reasons. First, as mentioned earlier, it may be that a comprehensive footprint is really not needed to serve the majority of prospects. Second, NetSuite’s cloud platform—like other PaaS systems—offers a rapid development environment. NetSuite will certainly make more rapid progress in filling out its feature set than it would if it were a traditional on-premises vendor.

Compared to the services industries, the number of cloud ERP providers for manufacturers has been limited. But with NetSuite’s renewed focus, the list is now getting a little longer.

Disclosure: NetSuite paid for my travel expenses for its user conference in San Francisco

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