A review of new software products that can make a big difference to your business

Accounting and ERP survey 2006*

By Michael Burns

*This is an expanded version of a Test Drive column that appeared in the September 2006 issue of CAmagazine.

It’s hard to believe we are now in our eighth year for our annual accounting and ERP vendor survey. Interest continues to grow and most vendors want to be part of the survey. This year, we have new or updated responses for 50 systems as of June 2006. The systems cover the entire spectrum – from QuickBooks and Simply Accounting to mid-market systems from Sage and Microsoft to high-end products from SAP and Oracle.

There is still some confusion about the differences between an accounting system and an enterprise resource planning system. For me, an ERP system is one that automates business processes across most, if not all, departments within a company. Using that definition, even a system like QuickBooks or Simply Accounting can be considered an ERP system for a small company.

Tiers
To make some sense of the huge array of systems, we placed each one in a tier based on customer revenue and employees and product cost. This is a convenient, albeit not perfect, means of differentiation. For example, an organization with low revenue may have a global vision or complex business processes that place it in a higher tier.

On the accompanying chart, we slotted all the products into what we believe are the appropriate tiers based on cost and target market. Be cautious if you’re trying to calculate the costs for a system, since these numbers are just averages. For example, the licence fees for a Tier 3 product should range from a minimum of $50,000 to as much as $150,000. Assuming the licence fees are $100,000, the implementation fees could be anywhere from $125,000 to $150,000, depending on the complexity of the implementation. SAP and Oracle are Tier 1 vendors that initially targeted the Fortune 1,000. Those implementations could cost millions for the larger customers. But since the market is limited to 1,000, SAP and Oracle are now going after much smaller companies.

Trends
The trend toward consolidation of software vendors continues. In November 2005, Infor acquired GEAC. In April 2006, Lawson Software and Intentia merged. In May 2006, Infor acquired SSA. Infor’s systems now include the former BPCS, Baan, Prism, Protean, Infinium, BRAIN, SCT, Lilly, MAPICS, and NxTrend.

What should this mean to a potential buyer? One concern is that your new system will be purchased and gradually phased out, requiring you to convert prematurely to a new one. So do you consider only the bigger companies that can’t be bought out? We think this is a mistake for a number of reasons. First, even some of the largest ERP systems such as PeopleSoft and JD Edwards have been acquired. Second, by focusing on a specific vertical, smaller ERP vendors can compete effectively, partly because the systems are tailored to the needs of the vertical and partly because the vendor’s employees are often extremely knowledgeable about the vertical. Third, some people would prefer to be a big fish in a small pond: they prefer to work with smaller ERP vendors where they think they will have a bigger influence and be able to speak directly to the owners. Finally, although small companies have fewer resources to invest in R&D, they don't have the same baggage as the big vendors that need to worry about all the systems they have acquired. Smaller companies can be more nimble in adapting to new technology.

SYSPRO has seen much higher demand for its ERP software over the past 18 months, according to SYSPRO Canada marketing manager Odete Passingham. That demand, she says, has been fuelled by an improved economy, a need to replace systems that were hastily and inefficiently implemented in response to Y2K, and the favourable exposure SYSPRO received in CAmagazine through the customer survey results published in April 2006 (see http://www.camagazine.com/index.cfm/ci_id/30457/la_id/1.htm.). In comparison to the late 1990s, says Passingham, companies are demanding much greater due diligence, including independent analysis and references, before making their ERP purchasing decisions.

Mark Canes, president of Blue Link, a software developer with about 600 customers, believes there is enough opportunity in the marketplace for smaller software developers. Blue Link would be happy with a small fraction of the new customers that the major ERP vendors need to be successful. By focusing on wholesalers and distributors in the food industry as well as apparel distributors, the company has been able to go up against the major ERP vendors. Canes did mention that Blue Link is getting more competition from vendors that offer an application service provider approach, which indicates that the ASP model is becoming more mainstream.

NetSuite seems to be leading the charge on the ASP front, and you can expect all the major players to follow. In a recent presentation, NetSuite CEO Zach Nelson pointed out that SAP and Oracle dominate in the enterprise marketplace with about 72% market share between them. But the mid-market is fragmented with no leader – an observation we also made in our April 2006 customer survey roundup in CAmagazine (http://www.camagazine.com/index.cfm/ci_id/30457/la_id/1.htm.). Nelson believes that to succeed in the ERP mid-market, a system must be easy to use and implement, have rich and integrated functionality, be easy to customize, and be available at a low cost.

Nelson says the high-end systems don’t meet all these requirements, and will therefore have a difficult time in the mid market.

Another major trend is the merging and linking of ERP with customer relationship management and business intelligence. It doesn’t make a lot of sense to have a CRM system that can’t either place orders or at least have access to all customer transactions. Order processing has typically been considered a back-office function, while CRM has been considered front office. Ideally a lead in the marketing automation system (a CRM component) becomes a prospect in the sales force automation system (a CRM component), which in turn becomes a customer in the ERP system. This should happen with the press of a key. Also, the sales forecast should be updated based on information in both CRM (quotes) and ERP (orders).

Business intelligence has also become a hot topic over the past few years. BI means turning data into information useful in making decisions. The latest trend is to have a dashboard that is role specific. On the dashboard, you see all the essential information with drill-down to details. The dashboard will also contain your key performance indicators, or at least those that are based on data within ERP. Unfortunately, some KPIs (for example, measurements of customer satisfaction) are outside of ERP, and you may need additional software or customization.

Recently I attended the Microsoft Dynamics AX 4.0 Partner Readiness event, and heard Microsoft Canada president Phil Sorgen talk about the company’s vision and opportunity with its business management solutions. Sorgen made it clear Microsoft Dynamics is strategic to Microsoft, and the intention is to win. In just five years, Microsoft Dynamics has reportedly amassed 291,000 customers worldwide through acquisitions and new contracts, and sees a huge opportunity to increase market share. According to AMR Research, the business applications market amounts to US$62 billion, and Microsoft is driving to be a leader.

Sorgen talked about trends leading to opportunity in the Canadian market. One is the rise of third world economies such as China, India and Brazil. Human capital is more expensive in Canada than in these emerging markets, and one way to compete would be to improve productivity through technology. Sorgen also mentioned the strengthening Canadian dollar as another compelling reason for Canadian companies to become more productive in order to compete.

Sorgen also spoke about Microsoft’s strategy to bring together the two distinct worlds of software – business process automation (for example, Microsoft Dynamics AX and GP) and personal productivity (for example, Microsoft Word and Excel). Microsoft Dynamics already looks and works like these productivity solutions, and you will continue to see tighter integration with new versions of Microsoft Office and Microsoft Windows Vista. The company is spending $4 million in Canada this year to promote the Microsoft Dynamics brand through radio, print and the Internet. It is also making huge investments in R&D -- $7.6 billion this year across all of its products.

Added functionality
Each year, we expand the survey to cover more functionality. Our objective is to include functions that differ from one product to another. This year we have added service management, commitment accounting, project accounting, back order fulfillment, forecasting, freight calculations, warehouse management functionality and backflushing. Service management can be a big differentiator when comparing systems for companies that offer repairs or service. Commitment accounting is typically a requirement for not-for-profits, but I don’t know why other companies don’t use it to compare budgets not to just actuals, but also to commitments (open purchase orders).

Project accounting is a must for any company that has projects spanning fiscal years. And why clutter up the general ledger with project details? Back order fulfillment can be an important requirement for companies that take many back orders and then need to fulfill them when the goods are ready, based on customer priority, requested ship date and other factors. I have seen Excel spreadsheets used to sort this out and it’s not pretty.

A lot of companies fall down in forecasting, partly because they don’t have the tools. Forecasting is not easy. It should be based on orders as well as quotes and their probability. It could be based on history, subject to seasonality and regression analysis; or on projections from marketing’s awareness of changes in the environment. There are also minimums, maximums and economic order quantities to consider. Some organizations even include sales directly from their customers to get a sense of what’s moving. For example, some distributors and manufacturers obtain sales data for their products directly from their retail clients.

Freight calculations can often be a differentiator between systems. Some systems will not only calculate shipping costs based on destination and method, weight, volume and dimensions, but will also recommend the shipper based on current rates. Ideally, there is integration with the shipping company’s system, and the tracking number is downloaded so that the status of the shipment can be easily accessed.

Advanced picking and put-away are typically associated with warehouse management systems, which can be very expensive. But there may be some relatively modest requirements that could make the warehouse a lot more efficient. For example, it might make a lot more sense to pick in waves (multiple orders at the same time) so that warehouse employees minimize the time spent walking through the warehouse. Finally, we come to backflushing. For those of you not familiar with this term – it has nothing to do with plumbing. Backflushing is an efficient way to update a system when the manufacturing is complete for a product. Finished goods are increased and all the components that were used to make the product are decreased at the same time.

Customer survey
This year, we are once again posting a customer survey of accounting and ERP systems to be completed by accountants across the country. The survey rates accounting and ERP systems, vendors and implementers, and provides statistics on potential benefits. We will publish the results in a future issue of CAmagazine. See last year’s results at http://www.camagazine.com/index.cfm/ci_id/30457/la_id/1.htm. Last year we received 264 valid surveys, and we hope to have even more responses this year. Please complete the survey at http://www.CAmagazine.com/ERPcustomersurvey06.It can be filled out in a couple of minutes. We can accept only one survey per organization, and it must be completed by an accountant (CA, CMA, or CGA) working for a Canadian company.

Bottom line
The analysis provided in the accompanying charts is based on responses from the vendors to the survey issued to them. Although we have tried to correct any obvious errors, it is impossible for us to validate every line item. However, we believe the vendors are inclined to be honest, especially if the questions are very specific. The vendors do this partly because they realize that trust is the most important factor in the selection of a new system. ERP systems are mission critical, and organizations will not rely on a vendor that can’t be trusted.

Michael Burns, MBA, CA, is president of 180 Systems (http://www.180systems.com/), which provides independent consulting service, including business process review, business case development and system selection. Michael can be reached at 416-485-2200 or mburns@180systems.com.