In May 2001, footwear manufacturer Nike launched a high-profile attack on software supplier i2. Having invested millions of dollars and almost a year implementing i2's supply chain management system, claimed Nike, a 'glitch' in the software had led the company to overestimate demand for some shoes but underestimate demand for others.
The resulting inventory shortages, it said, wiped as much as $100 million off its revenues and forced it to slash earnings estimates for that quarter.
A number of analysts suggested that Nike may have been using i2 as a scapegoat for its financial problems, but many also questioned the suitability of implementing a broad, non-industry specific supply chain management system on such as wide scale.
Enterprise application software companies such as SAP, Siebel and PeopleSoft, all boast versions of their software suites that cater for a number of specific vertical markets. Many organisations, however, prefer to invest in software from a vendor that only serves their particular sector. Who are the key enterprise software vendors in each sector?
Communications: Amdocs, CSG Systems International, Telcordia Technologies
Financial services: Jack Henry and Associates, Fiserv, Misys
Healthcare: Cerner, Eclipsys, IDX Systems, McKesson
Pharmaceuticals/life sciences: Cegedim, Dendrite, Synavant
Process industries/manufacturing: AspenTech, Dassault Systemes, QAD Software
Professional services: Changepoint, Evolve Software, Niku
Public sector/government: EzGov (US), Public Sector Software (UK)
Retail: JDA Software, NSB Retail Systems, Retek
Utilities/Energy: Excelergy, Peace Software
In addition, there are a number of companies that specialise in a small number of key verticals. These include Anite, Geac and Sanderson Group.
Analysts at Giga Information Group, for example, concluded that Nike's problems were down to "the lack of completeness and [lack] of maturity of i2's solution in that area". Even i2's management conceded that the implementation was always going to be challenging because the industry Nike operates in, apparel and footwear, is very complex.
Despite these warning signals, enterprise software suppliers increasingly boast of their expertise in specific vertical industries. Customer relationship management (CRM) software giant Siebel is the latest in a long line of applications vendors to launch industry-specific versions of its applications suite, touting more than 20 'flavours' of Siebel 7. In June 2002, enterprise resource planning vendor PeopleSoft unveiled versions of its PeopleSoft 8 applications suite for eight new verticals. SAP and Oracle, meanwhile, have offered packaged, vertical industry-specific versions of their enterprise applications for a number of years.
All these vendors make similar claims. By deploying industry-tailored versions of their software, they say, organisations can reduce the need for software tailoring and modification, save time and reduce implementation risks.
There are clear cost advantages, says Laurie Orlov, an analyst at Forrester Research. "If you don't buy an application that's set up for your particular industry then you'll have to invest in that customisation yourself. It's your money that goes into tuning the application to the special workflows that may be required for your industry." What companies such as Siebel and PeopleSoft tend to do, says Orlov, is some of that pre-configuration, so customers need to spend less time and money on implementation.
But in the light of Nike's experiences with i2, many are beginning to question whether the major application vendors go far enough in that tailoring, and have enough in-depth industry knowledge, or whether organisations would be better advised to invest in software from a vendor that only serves their specific industry.
Richard Adams, vice president of global business development at pharmaceutical sales software company Dendrite, argues that although vendors such as SAP and Siebel can cater for customers across a number of sectors, they do not have deep expertise in any. "It's bound to be a compromise. Your application comes from a vendor that has to cater to a broad number of verticals," he says. "In terms of research and development, these companies will have to devote R&D expenditure to serve customers in each sector. It calls into question whether they have the resources to deal with all the different nuances of each vertical."
In practice: Selfridges
UK department store Selfridges first opened the doors of its Oxford Street site in London in 1909. It took the company nearly 90 years to open its second store – in Manchester – but now it is expanding quickly, with a further branch set to open in Manchester in September 2002 and a fourth store opening in Birmingham in 2003.
To support this expansion, Selfridges has had to scale up its technology infrastructure. The two existing stores alone handle more than 17 million customers per year and up to 100,000 transactions per day. In addition, they have to deal with more than 1 million stock keeping units (SKUs), all of which have to be tracked from the moment they are sourced by Selfridges' buyers, through the merchandising process, right up to point of sale.
Since 1997, Selfridges has handled the merchandising process using a system from retail software specialist Retek. According to Sudhir Patel, Selfridges' head of IT, the company chose to invest in a retail-specific application because it felt that a broader, cross-industry enterprise resource planning (ERP) system would be too time-consuming and expensive to integrate. To cope with Selfridges' expansion activities, Patel spearheaded an upgrade to the latest version of the Retek system, RMS 9, in September 2001.
The original Retek implementation in 1998 required 132 functional enhancements on top of the base package, but the Retek RMS 9 upgrade covers more than 100 of these. "This meant that the Selfridges-specific functional enhancements were limited to less then 250 man days out of a total project of 5000 man days," explains Patel.
Patel describes Selfridges' technology acquisition strategy as a 'best-of-breed' approach. Alongside the Retek system, Selfridges has also implemented supply chain execution system from Manhattan Associates and is implementing another retail-specific ecommerce application from US-based QRS Corporation.
One company that called on Dendrite to deal with the nuances of the pharmaceutical industry, for example, is database and applications software giant Oracle. Oracle has historically eschewed software partnerships in favour of building its own software for specific niches. However, in 2001, the company signed an agreement with Dendrite to supply its customer relationship management applications to Oracle customers in the pharmaceutical industry. Mark Barrenechea, at that time senior vice president of applications development at Oracle, explained the move by saying: "The needs of the pharmaceutical industry are unique and require specialised functionality."
Oracle did, however, develop a version of its own applications suite for the consumer packaged goods (CPG) sector, which was adopted by a number of leading CPG companies. But for Oracle, the cost of maintaining the product exceeded the revenue it generated, so it stopped supporting it.
Sudhir Patel, IT manager of UK department store Selfridges, says that concerns over a lack of commitment to particular verticals by the broad applications vendors and their lack of industry knowledge are the reasons why he choose to take a 'best-of-breed' approach to deploying software. "Traditional ERP caters for many sectors without being a specialist in any," he says.
But even where organisations choose applications from specialist, industry-specific vendors, there can still be issues surrounding tailoring and modification. In retail, for example, the business processes that lead up to the sale of a pair of shoes will be completely unlike those that influence food retail.
Adrian Thompson, IT director of UK mobile phone retailer T-Mobile Retail (formerly One2One) found this was one of the main challenges when it came to choosing the systems that would manage the company's supply chain. "There are so many aspects of mobile phone retailing that you just don't see in other retail sectors," says Thompson. "We have to validate customer identity, do online credit checking, track serial numbers of phones in case they are stolen."
One of T-Mobile's new products, picture messaging, incorporates four different aspects of T-Mobile's product offering – from choice of network to buying the camera component that takes the pictures – so there are 16 different potential price combinations.
Practice makes perfect
What is clear, however, is that software from industry specialists tends to represent best practices within those industries because they have been implemented time and time again, tuning business processes each time. "Customers will be looking to see which retailers have been influencing the evolution of that product," explains Tom Fischer, sales director for Northern Europe at retail software company Retek. "If you can point to the best companies in a particular industry then that's more influential than if you're PeopleSoft and your main input has been from a consultant." In May 2002, Retek won UK supermarket chain Tesco as a customer in competition against SAP.
The broader vendors of ERP, CRM and supply chain applications argue, however, that their 'one size fits all' approach can ease integration pressures because their systems tend to be deployed horizontally across enterprises anyway. "You have to look at the lifecycle costs," says Sandy Aitken, a partner at systems integrator PwC Consulting. "How much extra should I pay to have something industry-specific? With the economic climate the way it is, many companies are asking whether something that's 30% more expensive delivers 30% more value. Because most companies have ERP elsewhere in their organisation, there are efficiencies from horizontal integration. People are looking aggressively at fast return on investment and how they can take out costs."
Furthermore, where applications have been finely tuned to one specific industry, there is a risk that certain business processes will be locked into it, making it difficult to change. "There is a trade-off between investing in a system that has sufficient mass and representation in the market but is not so highly tailored that you're the only person that's using it," suggests Alastair Middleton, marketing director for Canadian software company Geac, which develops ERP systems across a number of verticals. To avoid getting locked into pre-set functions dictated by their software, advises Middleton, organisations can turn to business process modelling tools and enterprise application integration software to map these processes outside of the application core where possible.
Consultants and systems integrators also play an important role. Their job is to turn what is essentially a template for a particular industry into a system that can add value to an organisation. French consumer products group Danone, for example, chose to deploy an SAP ERP system across more than 30 business units worldwide. For chief information officer Mohamed Marfouk, the vertical expertise of the systems integrator – in this case Accenture – will be the determining factor in whether the SAP system delivers results, rather than the software itself. "Accenture's consumer products industry expertise will help us to achieve the expected business benefits," explains Marfouk.
In order to gain any competitive advantage from enterprise applications, some level of customisation will always be needed. As Laurie Orlov of Forrester points out, there are some companies, such as US supermarket chain Wal-Mart, that would simply never invest in applications tailored to their industries because it would take away their competitive edge. "These companies tend to be leaders in their field, building very bespoke applications in-house," she says. "Smaller, more imitative companies that don't consider software to be a differentiator to their business are more willing to invest in pre-configured industry templates."
Ultimately, it comes down to how much time and money organisations want to spend on making software fit their business, rather than the other way around. Multi-national companies such as Wal-Mart or Danone can afford to fine-tune and customise their enterprise applications to a greater extent. For many organisations, however, there will be a degree of compromise between something that supports the business processes that are common in their industry and that easily integrates with the applications they already have in place.
For Sandra Morris, CIO of semiconductor manufacturer Intel, it's a question of priorities. "Putting customisation into something simple such as a shipping application won't actually make you stand out from your competitors," she concludes. "Those things that do give you competitive advantage are worth building from the ground up if you have to."
In practice: Dairy Crest
For David Batts, business systems director at UK dairy products supplier Dairy Crest, choosing an application tailored to his industry was a speed issue, rather than a functional one.
When Dairy Crest acquired rival Unigate in 2000, it became the largest direct supermarket supplier in the UK, but was burdened by a vast network of disparate IT systems dotted around its manufacturing plants and, to make matters more complex, needed to integrate these systems with the incumbent systems at Unigate. As a result, Batts and his team have spent the past two years rationalising their IT systems as part of a wider consolidation project set to save the company £25 million by 2003.
At the time of the acquisition, Dairy Crest's IT infrastructure consisted of a number of different enterprise applications, with Geac's System21 enterprise resource planning (ERP) software at the centre, which had been tailored to handle food industry-specific requirements such as shelf-life calculation and product traceability. At Unigate meanwhile, the core ERP system was SAP, which had only partially been rolled out, presenting Dairy Crest with some decisions to make about whether to integrate the two systems or standardise on one.
Dairy Crest chose to standardise on System21 because it felt the implementation would be quicker, helping to generate a faster return on investment. "Vertical expertise wasn't really a factor. The decision was based entirely on speed of implementation. I think we'd still be installing SAP across our 12 sites now, whereas we installed System21 in just 11 months," says Batts.
One of the key factors in the choice of system was that System21 integrated easily with a number of other systems within Dairy Crest, such as its warehouse management system, which is used by several hundred employees. And since Dairy Crest receives around 80% of its orders via electronic document interchange (EDI), it was important that these orders could pass directly into the back-office system. This allows Dairy Crest to provide customers with up-to-date information on stock levels and anticipated delivery times.
Batts is keen to stress that the decision to standardise on a vertical-specific application from Geac was based on business drivers rather than technology. "I've no reason to believe the SAP system could not have covered our requirements, but for us it was a speed issue," he concludes.