Xperia Takes on Tier One ERP Vendors in the SMB Market
Published: March 13, 2006
by Dan Burger
Where do small- and mid-sized businesses find ERP systems when they have outgrown the ones they have or can't afford to maintain the ones they have? There are niche ERP software vendors that know the requirements of a specific industry and have applications that are not very modern; there are large ERP application makers with reputations for not being very supportive or very cost effective for midrange shops. Getting the right fit of function and finances is not easy, but a software company called Xperia Solutions thinks it has what OS/400 shops need.
There have always been questions about how well the tier one ERP software vendors can serve small- and mid-sized business (SMB) customers. The criticisms of the major ERP players are not without merit. These companies, and their sales organizations, are geared to making products for Global 2000 companies. At that level, the deals are really big--million and multi-million dollar deals. Their products are complex because the skill levels of their customers are high. Not only do the packaged software costs soar, the installation and then the continued maintenance expenses are substantial.
Every tier one ERP software vendor has emphasized its interest and its ability to serve the SMB. They have products specifically marketed to those businesses. Many have purchased smaller ERP software companies that have always been SMB players in order to gain customers in that demographic. However, it's not uncommon to see those acquired customers sifted so those with the highest revenue potential are designated as keepers while others are left to decide whether to ante up or look for help in other places. It would seem there are good opportunities for a company specializing in the SMB space to do nothing more than clean up the messes that the tier one companies make.
These are more than broad generalizations, and it's not as simple as the big company is guaranteed to treat you bad. That's no truer than bigger is always better. They are real considerations for SMB companies shopping for ERP software, though. Some of these companies are young and growing, and they are acquiring their first true ERP solutions. Others who have ERP software already find themselves, as the situation above describes, beholden to a huge software company intent on up-selling acquired customers rather than providing affordable answers to companies that live, so to speak, on the wrong side of the tracks. Others are struggling to piece their homegrown ERP systems into a much more integrated world than they originally planned.
If you are a discreet manufacturer--where operational efficiencies that apply to production, material handling, packaging, inventory management, distribution, and financial management come together with business plans and objectives unique to the SMB, and then combine with IT realities such as hardware and software technology and the skill sets of the people in the data center--you might want to know what some of the smaller ERP vendors have to offer. You also might want assurances that your company ranks as an important customer. That's why you would look at a company like Xperia.
Xperia is most likely an unfamiliar name to many IT professionals who thought they could name every ERP vendor in existence, but it has a long list of customers that were built over 20 years of service to the apparel industry where it was formerly known as Online Data Systems. Its suite of software products helped companies such as OshKosh B'Gosh, Gloria Vanderbilt, Converse, and a host of smaller apparel manufacturers plan and manage their production and sourcing operations, supply chain activities, and customer service business practices.
Over the past three to four years it has reinvented its corporate mission in order to apply its customer and technical experience to a wider market. And it's ready to go to market with that product. Its target will be the SMB-level discrete manufacturers, which according to Xperia's chief executive officer, Gene Bonett, numbers 100,000 companies in North America. A few of the areas Bonett believes his company is well-suited to serve include consumer products, distributors and wholesalers of durable goods, electronic components, metal fabrication, medical equipment manufacturing, and plastics.
"We will market to companies that have homegrown ERP systems that are very difficult to modernize," Bonett says. "They need a highly integrated suite of applications that are going to support their business direction. There are also small but growing companies that have outgrown their PC solutions--we have replaced some of those over the years on the apparel side of our business--and I think there will be a lot of J.D. Edwards people who are not going to go to Oracle."
As has been the case for 20 years, the Xperia applications--collectively called the Executiv ERP series--run on OS/400. The modules, which include Collaborativ supply chain management, Productiv production management, and Supportiv customer relationship management modules, have a Java front end, make use of WebSphere, and COBOL ties together the back end. "Functionality is the key for end users," Bonett says, "along with the quality of the organization behind the product and the installation. Programming language makes little difference to the end user." Plans are also under way to include IBM's Workplace collaboration software in future product enhancements in order to take advantage of benefits such as a multiplatform service oriented architecture (SOA), Web portals, collaboration services, and content management.
Being prepared for a world in which SOA plays a larger role looks like wise planning. SOA is being widely praised for its potential to solve the IT industry's interoperability issues, and it is receiving a huge push from companies like IBM, where its WebSphere middleware is being established as a vital component in the SOA strategy. An ERP report from the analyst firm AMR Research identifies SOA as having the potential to have "the same kind of disruptive effect that the shift from mainframe computers to minicomputers had in the 1980s or the emergence of client/server systems had in the early 1990s."
Bonett's company has successfully maneuvered through both of the above-mentioned technological shifts.
That AMR report, by the way, points out that the top five ERP vendors are controlling 72 percent of the ERP expenditures, which pretty well fits the old adage that 20 percent of the companies are responsible for 80 percent of the revenues to be made.
With regard to functionality, the Xperia lineup includes manufacturing-related features such as auto-processing, Web applications for order processing, warehouse distribution, a sophisticated costing system, and general ledger. The company partners with EXTOL to provide EDI and T.L. Ashford to provide bar code labeling and RFID capabilities.
IBM has encouraged Bonett. He says the IBM executives have looked at his product and his new business plan and have told him "it fits into a sweet spot for mid-market manufacturers." Because of the acquisition of companies such as J.D. Edwards, Geac, MAPICS, and many others, Bonett figures there's a huge hole being created in the mid market due to the shift in ownership to the tier one ERP vendors. He is likely overstating reality a bit when he says, "there's no one of any consequence around to address the $250 million companies," but those circumstances may, in fact, have put his company in a good position to go after this market at this time.
Mid-level discreet manufacturers are also being sought by ERP vendors that have grown up on the Windows platform. Leading this pack are Sage Group and Microsoft's Business Solutions (MBS) group. Bonett, a guy with both arms wrapped around Big Blue in a huge embrace, also quickly dismisses competition from the Windows side. He is pleased with the renewed emphasis on the iSeries--now the System i5--and believes it gives Xperia a considerable advantage over Windows-based systems. The hardware/software combination his company lays on the bargaining table supports a high transaction volume and e-business applications that are both modern and highly reliable. Beyond that, he notes the low cost of ownership that the hardware/software combo provides as well as the capability to change and apply business rules to match the way individual companies do business, and the long list of integrated solutions that cover production management, the supply chain, customer relations, and "soup-to-nuts" ERP.
Price and performance will play a role in the success of OS/400-based Xperia when it goes head-to-head with Windows-based competitors, and it's too early to tell whether IBM is going to be a help or a hindrance in this regard. A base configuration of the Executiv ERP suite costs $60,000 for 10 concurrent seats. If you de-active certain features, the price goes down. The price of the System i5 will be a factor, even though Bonett is quick to back up the party line that in a total cost of ownership picture, the System i5 shines. Despite that talking point, the SMB would be more receptive to OS/400-based solutions if the hardware was more competitively priced with X86 right out of the box. Adding the functionality of Workplace, without tacking on an expensive premium, would also be welcomed. IBM understands that the SMB is price sensitive, but it needs to do more to show it can follow through, especially with the WebSphere products.
As Bonett is fond of saying when describing his own company, "You have to change to survive."