Punch, counterpunch in ERP for manufacturing

UK: Warren Wilson, Research Director at leading global advisory and consulting firm, Ovum, on Netsuite's recent release of Netsuite for Manufacturers aimed at challenging SAP's Business ByDesign ERP solution with an on demand ERP offering for "light" manufacturers.

"Who would have guessed that prosaic manufacturing would suddenly be a hot sector in ERP? Last week, NetSuite released a new on-demand solution, NetSuite for Manufacturers, taking direct aim at SAP and explicitly seeking, its press release said, to “exploit the prolonged delay of SAP's Business ByDesign product roll-out.”

This week, SAP in effect served notice that it is still the category kingpin when it announced it would acquire Visiprise, whose software provides greater visibility into and control over manufacturing operations. (SAP had made a minority investment about 18 months ago in Visiprise, which is one of a relative handful of partners to earn the 'SAP Endorsed Business Solution' label.)

In other words, while NetSuite is just roughing out a position in this market, SAP is polishing its solution for a sector it pioneered years ago.

Taken together, the moves also signify that while manufacturing may not be glamorous, it's still attractive for ERP vendors – particularly because of the thousands of mid-size companies that have yet to adopt an ERP solution and are still up for grabs.

Yet, the competition isn't as nose-to-nose as it might appear.

NetSuite, rather than target the sector as a whole, is leveraging its existing wholesale/distribution edition and adding new functionality in assembly, work order, inventory and bill of materials management in order to target 'light' manufacturers in a variety of verticals, from apparel to electronics. As with its other offerings, NetSuite positions its integrated software as a service offering as a replacement for multiple on-premise applications for accounting, warehouse management, inventory, and so on. The new offering is priced at $999 per month and $99 per user per month.

In fact, NetSuite competes for small to medium-sized businesses (SMBs) more directly with Microsoft and several smaller ERP vendors than with SAP itself. In fact, NetSuite can be an effective complement to SAP – for example, large companies can deploy NetSuite in regional or divisional offices and tie it to their existing SAP backbone.

Even so, NetSuite has targeted SAP directly in an effort to capitalize on the recent, much-publicized announcement that SAP was slowing its rollout of Business ByDesign, an all-new, integrated on-demand offering that was launched in September 2007 but today is used by only about 150 customers. SAP announced the slowdown in May, saying the new suite needed some tinkering because it was still too expensive to operate at its stated price of $149 per user month.

As we've noted before, delay doesn't equal failure. SAP has a lot riding on Business ByDesign, but its existing offerings for small and mid-size enterprises – Business One and Business All in One – are growing nicely, so it is under no real financial pressure to rush Business ByDesign to market.

The bigger risk is that, because Business ByDesign is such a high-profile venture, its delay creates an opening for vendors such as NetSuite and salesforce.com to exploit, as both have done. That's only fitting though, given that both have been instrumental in validating both the technology and the business model of on-demand.

(Showing its sensitivity to the delay issue – and its willingness to play the perception-management game – SAP on Wednesday reached back six weeks and issued a press release about a Business ByDesign customer win actually signed in early May, at its SAPPHIRE user conference in Orlando. The new customer, planning and performance-management solutions provider OutPerformance, said ease of use and TCO prompted its choice of Business ByDesign over salesforce.com, QuickBooks and other niche applications.)

Still, NetSuite, salesforce.com or anyone else has not yet mounted a serious threat to SAP's reputation as the pre-eminent ERP vendor, the one with the greatest depth of expertise in a range of vertical industries, including manufacturing. The Visiprise acquisition serves only to cement that reputation."