Teradyne Inc., a leading supplier of electronics test equipment, has long leveraged high-tech planning tools to manage volatile demand in its supply chain. But back in 2000, when the company was looking to upgrade its core Oracle ERP platform, Teradyne hoped it would be able to shelve its best-of-breed supply chain management (SCM) system in favor of a single-vendor solution by extending the Oracle suite.
Just a few years into the deployment, reality struck. With a full-blown outsourcing strategy in play, Teradyne determined the single-platform approach would not be able to meet its needs and kept its original best-of-breed implementation: Oracle Manufacturing as its core enterprise system with Kinaxis RapidResponse for additional supply chain functionality. "Integration was not a concern because we'd already done the work as part of the conversion to Oracle," says Jim Wood, director of supply chain information systems at Teradyne.
New SCM technologies make ERP integration easier
Not every company is as confident about integration when it comes to plugging best-of-breed SCM systems into a core ERP platform. ERP vendors have continued to build out their SCM capabilities over the last few years, and manufacturers have been favoring such packaged suites, lured by the convenience of having a single vendor for all of their support and licensing needs -- not to mention the promise of avoiding the challenge of integrating disparate applications.
Yet with the advent of new technologies such as Web portals, on-demand SCM applications and Web services like Service Oriented Architecture (SOA), the pendulum looks to be shifting once again. Integration is becoming less of an issue and best-of-breed is re-emerging as a viable option.
"A large number of companies are realizing that the classic, back-office ERP system is good for managing inside their four walls, but when they're looking to extend to the supply chain, these systems fall short," said Joshua Greenbaum, principal, Enterprise Applications Consulting, a consulting company specializing in enterprise software. "The best-of-breed vendors are also working hard at making the integration and on-boarding of new suppliers much, much easier than it is in the classic ERP suite world."
By opening up their platforms with support for Web services and new SOA architectures, major ERP vendors like Oracle and SAP are taking a somewhat calculated risk that could end up with them ceding ground to best-of-breed SCM makers. "They're hoping that very large manufacturing customers who are channel masters will dictate a certain amount of their software as the glue that pulls the supply chain together," Greenbaum said. "Once a suite vendor's integration technology gets established in a given supply chain, it gives that vendor a hunting license to move downstream and get more suppliers. The tradeoff is a (best-of-breed) provider could do that as well."
Best-of-breed SCM vendors like Kinaxis contend that the SOA environments now offered by ERP suite vendors reduce the burden of integration. Not surprisingly, the suite vendors maintain they are no panacea. "SOA provides a framework in which the integration issue can be addressed, but it's not magic -- there is still work to be done on both sides," says Jon Chorley, vice president, supply chain management strategy, at Oracle.
Moreover, Chorley points out that larger companies like Oracle have a leg up on smaller suppliers in terms of having the resources and in-house technical expertise to exploit emerging technologies like SOA to fully reap the benefits of integration and modularity for application development.
Chorley says as long as Oracle and other enterprise suite vendors provide best-in-class functionality and offer their products in a "consumable" fashion that doesn't require a full-scale upgrade to access the new capabilities, they will be formidable competitors. "Do customers want best-of-breed capabilities? Yes they do," he says. "Do they want to buy from multiple vendors if they don't have to? The answer is no they don't."
According to Chorley, the drivers pushing manufacturers to minimize their vendor partnerships whenever possible are single-vendor support, lower total cost of ownership and a preferred relationship.
User chose Oracle to help move into SCM
For Pella Corp., a manufacturer of doors and windows, it is the preferred relationship status that keeps them a one-vendor enterprise software shop. When Pella was choosing an enterprise platform, it specifically looked for a vendor it could grow with into ancillary areas like SCM, according to Rick Hassman, director of corporate applications for Pella. As a result, Pella aligned with Oracle and today uses the full complement of Oracle manufacturing applications, including the advanced planning and other SCM components.
"We predetermined to have a core platform when we went down this route," Hassman explains. "When we choose a vendor, we want to partner with them and help build the applications. It's part of our continuous improvement (and lean manufacturing) mentality."
By having a single vendor, Pella is able to have input into the application feature set and it is also protected from losing core knowledge and skill sets if people move on. Because the company often does customization work to fill in capability gaps in its software, Hassman envisions few instances when he would bring in a non-Oracle component -- even with the open nature of SOA.
"We're starting to learn that we're really much better taking Oracle applications and filling in gaps because of our relationship with Oracle," he said. "There would have to be a fairly big disconnect or gain that we'd get in the functionality of a third-party application to overcome those other benefits."
Beth Stackpole is a freelance writer who specializes in manufacturing-related technology.