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Innovations in electronic ordering and other "sell-side" technologies raise the question: "How much are you willing to risk for incremental improvements in power and flexibility?"
Until recently, enterprise resource planning (ERP) vendors owned order management. But they have been slow to adapt to market conditions that demand more order-entry flexibility. The gaps in ERP order management have fueled the emergence of specialty firms such as OrderFusion, SpaceWorks, and Yantra. These companies have designed solutions for online order entry that use the adaptability of object-oriented design and messaging technologies (notably XML). Although these tools offer enhanced capabilities and flexibility, many companies recoil at cutting into the heart of their ERP systems to gain this power.
Through next year, businesses will seek to make ordering more flexible and extend their ERP order management to the Web in order to provide "one face" to the customer (despite multiple back-end ERP systems). This will marginally drive investment in specialized, Web-based e-order entry products; however, growth will remain slow.
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Later next year, we expect new software vendors such as i2 and Siebel to extend their footprints into the e-order entry space. These companies lack experience in complex transaction processing, especially in order management, and will require several years to develop applications with the breadth and depth to realistically compete with the ERP vendors.
By 2004, as ERP firms improve their Web ordering packages, few of the original specialty firms will survive. (As a precursor, SpaceWorks recently ceased operating, and Manugistics bought its assets.) ERP vendors will continue to dominate the complex areas of order processing (pricing, billing, inventory sourcing and allocation, credit authorization) and order fulfillment (production, picking, packing, shipping).
Beyond 2004, specialty e-order entry products (from both first-generation e-order entry vendors and new entrants) will be relegated to the largest and most complex companies. Penetration will be virtually nonexistent outside this space, as ERP companies offer reasonable solutions fully integrated with the back end at much lower prices than specialty firms can match.
New technologies often emerge to fill gaps in existing products. Whether these innovations are sustainable hinges on how rapidly new products are brought to market; how quickly a company can gain market share; and what barriers to entry exist. For e-order entry, we see numerous new vendors emerging that look to address perceived gaps in ERP order management. But these firms will struggle to gain traction, and we question their long-term viability as independent operators.
The following are valid buyer concerns slowing adoption of these online ordering:
- The Web and object-based architectures of the new e-order entry tools offer enhanced flexibility; however, they augment rather than replace core ERP functionality. At the tools' prices (greater than $100,000), customers struggle to justify the cost, especially given lower IT spending. Because of recent, large-scale investments in ERP for order management, companies would need large and obvious problems to warrant significant expenditures in e-order entry.
- A key driver behind ERP investment was an integrated application suite. Regardless of the new e-order entry tool flexibility, companies remain reluctant to introduce products they know require complex integration with their backbone. Because order entry is tightly linked to order processing (which will remain on the ERP backbone for the foreseeable future), these tools are viewed as risky and complex integration problems. Regardless of the e-order entry vendors' claims that their solutions implement quickly at low cost, most companies, having invested significant time and money in their ERP implementations, remain skeptical.
- Given the critical nature of order management, many companies view changes in sell-side applications as risky, and regardless of the perceived need, they will be judicious in their evaluations. This pragmatism extends sales cycles, further putting vendor businesses at risk.
Although the e-order entry market should be considered risky, evaluating these technologies can be warranted. An area of potential need is when companies have multiple ERP backbones (e.g., multiple instances of the same ERP or multiple ERP products) and want to provide a "single face" to customers. The obvious solution would be migrating to a single instance of ERP, but this is costly, time-consuming, and fraught with its own risks. Layering e-order entry above multiple back-end systems is one viable way to solve the problem.
Less compelling, but also a problem for some companies, is when customers demand flexibility in their interaction methods (through a Web store, customer portal, marketplace, inter-enterprise integration, or electronic data interchange). ERP systems have been less accommodating of such multiple methods than have e-order entry tools. Companies with a significant problem in this area could benefit from an e-order entry solution, though prices need to be significantly lower to make it worthwhile.
Business Impact:Order management is critical, and any investment in e-order entry must consider the risks of altering this important link with the customer.
Bottom Line:Due to concerns about the survivability of specialty vendors, as well as the costs and complexities of layering a separate e-order entry application atop the ERP backbone, companies should exercise extreme caution when evaluating e-order entry investments. Only firms with immediate and significant needs should consider investing now; all others would be better served by waiting to assess how the market evolves during the next year to 18 months.
Dwight Klappich is a consultant with META Group, an IT consulting firm based in Stamford, Conn.