Ray Richards is founder of Mindspan Consultants and a technology journalist hailing from Ottawa, Canada

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The 800 pound Gorilla of ERP: SAP R/3

Last month we began our examination of Enterprise Resource Planning software with an overview of the technology and a brief discussion of the major players in the ERP arena. This time around we will take a closer look at industry leader SAP and it's revolutionary System R/3 suite of products. While certainly not immune to market volatility, SAP continues to march well ahead of the pack and has been rapidly stealing market share from competitors such as PeopleSoft. Despite a nearly 50% drop off  in its stock price over the July zenith of 62 ¼, SAP is still posting in excess of 15% gains over last year and appears well positioned to expand its market domination in coming months.

What does it do?

This question is more appropriately posed "what doesn't it do?". While enticing to large enterprise, the daunting array of features has until very recently unfortunately proved far too complex for many small and midsized firms to consider SAP's ERP juggernaut as a viable option. R/3 is an integrated system which is composed of modules addressing: accounting and controlling, production and materials management, quality management, plant maintenance, sales and distribution, human resources and project management... and these are just the core components!

R/3 automates workflow across all areas of the enterprise and does not consider geographical distance between business units any obstacle whatever. Perhaps the most attractive feature of SAP's R/3 is it's ability to integrate with business partner (including suppliers, resellers, banks, investors etc.) systems in order to effectively manage supply chains from end to end. Additional components provide data warehousing, decision support, advanced supply chain management and logistics execution tools for (non-data) warehouse management... including modules for freight cost management, human resource task authorization and process monitoring. The system is remarkably extensible and may be customized to specification if required, albeit often with significant effort.

Is it right for my organization?

When deciding between R/3 and midtier solutions from the likes of Dataworks, Great Plains and QAD, the above poses a very difficult question indeed. Erstwhile the decision was dictated in large by the size of the organization in question; however, SAP has been aggressively targeting small ($10-20 million in annual revenues and over) to mid-sized industry of late with new products, decreased implementation cycles, and significantly reduced pricing alternatives. They have even been providing "turnkey" solutions, preconfigured to service vertical markets including cable (wire - not television) producers, apparel and footwear manufacturers as well as textile concerns. Fully 50% of all SAP R/3 installations are now to be found in small to medium sized business.

So what are the deciding factors? Customer support is certainly key to the majority of organizations. While SAP and the other ERP behemoths have in past been infamous for their lengthy implementation cycles and exorbitant consulting fees, they are also renowned for providing an excellent level of service to their client base... as long as you are of sufficient size to merit their attention! This reality has steered many midsized  concerns away from large ERP solution providers in favor of midmarket vendors, a situation that SAP has taken definite action on to remedy perhaps accounting for the growth surge in this segment. Another advantage to choosing SAP R/3 is the system's ability to grow with an organization.

Often an enterprise's IT requirements eclipse inherent midtier ERP application functionality and can result in significant reengineering efforts or the premature retirement of entire business application suites. As this represents not only huge capital expenditure but typically a high degree of user resistance and dissatisfaction, accurate projections of future requirements and their alignment with available product features are paramount should midtier solutions be considered. Obviously this is never an easy task. Clearly SAP is gaining ground as a result and appears poised to acquire even more significant midtier market share.

What's next for SAP?

Due for release before year end, SAP will introduce it's Sales Force Automation component for R/3, which by all accounts will surely be one of the most comprehensive packages ever conceived to address this business unit. The module will feature customer/prospect administration, activity management, opportunity tracking, quotation and order processing components, a marketing encyclopedia, and a sales campaign manager among many other innovations. In 1999 SAP intends to deliver it's Field Service Automation component and a host of other highly targeted applications.

Success Stories

While it seems that SAP has enjoyed the bulk of its success in the private sector, R/3 implementations are springing up all over the public sector including several within the federal system, as well as regional and municipal jurisdictions. In an upcoming issue we will present an interview with the key architects of a live R/3 implementation within the federal public service, while next month we will examine SAP's main competitor PeopleSoft.

Originally published in Government Computer magazine, November, 1998, by technology columnist, Ray Richards.


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