TGI - ERP Software Solution

Main Menu

ERP Insights



Continually Realizing ERP System ROI – The Importance of Routine Dialogue with Your Software Vendor

September 10th, 2009 by admin

An organization’s return on investment (ROI) for its purchase of an ERP system can be achieved in a number of ways. ERP software systems can allow organizations to streamline business processes, eliminate the need for duplicate data entry, improve access to information across the enterprise, provide the analytical and business intelligence software tools that are necessary to make informed business decisions, reduce inventory levels while simultaneously improving order and line item fill rates, speed up the order entry process through e-Commerce and EDI – the list can go on and on. Much of the ROI that is achieved through ERP system implementation and deployment, however, tends to occur in the first 18 to 24 months following initial system go-live. Given that a typical ERP system’s lifecycle within a given business can last as long as 20 years, organizations and software vendors should make it a point to work together on a routine basis to develop new methods and strategies that will enable the organization to achieve further return on investment long after the initial deployment of the software.

At TGI, we stress the importance of routine dialogue and bi-annual ROI strategy sessions with our customers. These ROI sessions allow customer personnel to speak directly with their software developer, express existing issues they are having, and communicate to TGI the various ways in which they see their business evolving. We, in turn, analyze these needs and recommend processes that can be deployed throughout the organization by leveraging various functional features in Enterprise 21 to meet such requirements. Many times, it is as simple as “turning on” a certain process in Enterprise 21 that already existed but was not enabled during implementation because the need to do so didn’t exist at that time.

Other times, it may be that the customer is ready to upgrade to the latest release of Enterprise 21. I have talked to a number of new business prospects in the past who were using software that they purchased 15 to 20 years ago, and a common comment I have heard from them is, “We didn’t really take advantage of upgrades while the software was still supported [by the developer].” Enterprise software solutions are updated, enhanced, and finely-tuned on a daily basis. Technology in general is rapidly evolving, and the ERP software industry is no exception. It is important for manufacturers and distributors to take advantage of software upgrades from their supplier to ensure they don’t find themselves in a technologically archaic business state. Furthermore, companies do not want to find themselves in a situation in which they suddenly learn one day that their 15 year-old business software will no longer be supported by their software developer and must purchase new software altogether.

By engaging in routine dialogue with their software provider, communicating evolving business needs, and taking advantage of software upgrades, manufacturers and distributors can continually achieve a return on investment long after the first few years following initial go-live with their ERP system.

Follow TGI on Twitter Follow TGI

Become a fan TGI on Facebook Like TGI on Facebook


Real Production Scheduling in ERP Systems: Servicing Short-cycle Demand in a Mixed Make-to-Stock and Make-to-Order Environment

September 9th, 2009 by admin

Most of the manufacturing entities with which we come into contact want to use their new ERP system for production scheduling purposes.  One of the first questions that people tend to ask us regarding this topic is, “Can you change production schedules via drag and drop?”  While this feature demos well, there are far more sophisticated questions that should be asked of ERP software vendors relative to production scheduling functionality.

Almost all manufacturing companies with whom we talk share the following characteristics:
•    They are capacity constrained in at least some portion of their production environment.
•    They run a mix of make-to-stock and make-to-order production.
•    There are certain products that may be produced on a very short lead time (as hot orders) that could be thrown into the production schedule the same day they’re ordered by customers.
•    There are complexities to process changeover in such a manner that producing all products of a given family or with certain shared characteristics (i.e., all products of the same color in a painting operation) is imperative to maximize production throughput and minimize off-spec production and process changeovers.

One of the first questions that a manufacturer should ask potential software vendors is whether their system performs finite capacity scheduling or infinite capacity scheduling.  With finite capacity scheduling, one can establish process and machine capacities which can be taken into account.  By doing so, the manufacturer who is capacity constrained can establish a realistic tentative production schedule by not allowing the system to produce a scenario that couldn’t possibly be performed.  If, for example, you only have production capacity within a given work center or have associated labor availability to produce 300 units of a given item per hour, it makes absolutely no sense to have your ERP system generate an unconstrained production schedule with 3-4 fold that amount of production per hour being assumed to run through that work center or with the given number of laborers.

Next, what capabilities does the given ERP system have to manage both make-to-stock and make-to-order production?  Make-to-stock production would generally be scheduled based on a signal – either traditional time-phased inventory management processes like MRP or via an electronic signal of similar nature.  Make-to-order production would be done by enabling business rules within the system to evaluate the given finished good’s bill of materials or formula, determine whether or not all required raw materials and ingredients were available, and if not, when they could be available via supply chain management, what available production capacity exists to produce the given item, and having the system schedule the production while concurrently generating any required purchase requisitions.  Within Enterprise 21, this description of capabilities embodies the collective functionality of Available and Capable to Promise plus Make-to-Order and Automated Supply Chain processing.

Assuming your organization runs with make-to-order processing and allows customers to place such orders on short cycle times (i.e., produced the same day they’re ordered), then it is imperative to leave production capacity available for the placement of these make-to-order items on the same day’s production schedule.  For example, if your organization runs two, eight-hour production shifts, and typically has four hours of short-cycle make-to-order production to perform each day, then it makes sense to set up your finite capacity scheduling processes to assume a maximum of twelve hours for make-to-stock production for the given day.

Finally, ERP systems like Enterprise 21 enable scheduling using schedule groups.  In this case, products with like scheduling characteristics can be placed in the same scheduling group and these items would be placed in the production schedule consecutively.  As well, one can establish scheduling group rules such that certain scheduling groups would follow the completion of other scheduling groups. As an example, in a painting operation where products being produced were white, red, and blue respectively, this would be a likely ordering of production to try to minimize the production of pinks and purples as color changeover occurred.

Similarly, where applicable, manufacturers should be able to build machine “clean out” or “wash down” time into the production schedule between the production of two different schedule groups. For example, a food manufacturer who produces certain items that contain peanuts or other food allergens followed by other items that cannot contain peanuts on the same production machine will need to have machine clean out time built into the production schedule between those two respective schedule groups.

So, if you’re a manufacturer with any reasonable level of complexity in your manufacturing processes, don’t be drawn like a moth to the flame during software demonstrations.  Dig deeper into ERP systems’ manufacturing scheduling functionality so you have a broader set of requirements beyond, “Does your production scheduling system support drag and drop functionality?”

Follow TGI on Twitter Follow TGI

Become a fan TGI on Facebook Like TGI on Facebook


Your Warehouse is Paperless. Why not Make Your Accounts Payable Department Paperless too?

September 8th, 2009 by admin

During the ERP selection process, wholesale distribution companies tend to focus heavily on the software system’s ability to process a wide variety of transactions and their associated accounting entries. Selection teams also focus on how various software solutions can help their organizations achieve greater operational efficiencies in order entry, customer service, inventory management, and warehouse management. Sophisticated ERP systems can allow wholesale distributors to streamline operations and improve overall organizational process efficiencies while simultaneously reducing overhead expenses. Unlike the order entry, customer service, inventory, and warehousing departments, however, the accounting department is frequently overlooked during the software selection process as a source for improved personnel productivity and greater departmental operating efficiency. An ERP accounting software solution that can allow the organization’s accounts payable department to operate in a completely paperless environment, on the other hand, can provide significant benefits to the distributor in the form of personnel time-savings, reduced overhead expenses, and decreased document retrieval time for situations in which a given invoice from a particular vendor is needed. In Enterprise 21 7.1, wholesale distributors can leverage paperless accounts payable functionality to achieve such benefits.

So, how does the paperless AP process work, and what is required to get started? First, the organization needs a document scanner for scanning invoices. Secondly, the organization needs adequate electronic storage space to store the digitized images of the scanned invoices. Assuming you have Enterprise 21, a scanner, and sufficient disk space, you’re ready to operate your accounts payable department in a paperless environment.

How it works. When the AP department receives an invoice from a given vendor or supplier, the invoice is scanned, an image of the invoice (usually a PDF) is generated and stored on the organization’s computer, and the associated purchase order document numbers are recorded. Enterprise 21 then automatically assigns a document number, creates an open AP matching record, and chooses the lowest value of the invoiced/received amounts to pay. A person in the AP department would then review the batch entries, view the invoices online as needed, make any necessary corrections to the batch entries, flag the purchase order(s) as complete where applicable, and commit the batch to be processed. From there, it’s business as usual for the AP department. This process enables wholesale distributors’ AP personnel to perform their daily tasks in a more timely, effective manner, eliminates the need for thousands of paper invoices to be filed and stored, reduces overhead expenses in the form of paper, filing cabinets, and storage space, and allows the AP department to retrieve any given invoice quickly and easily.

Paperless AP is just one of the exciting new features in Enterprise 21 7.1. Questions? Email us at info@tgiltd.com.

Follow TGI on Twitter Follow TGI

Become a fan TGI on Facebook Like TGI on Facebook


Selecting a Small Business ERP Solution: Small Business Software Should Not Be “Small” In Functionality

September 3rd, 2009 by admin

When small businesses decide to migrate from their existing software to a more sophisticated ERP solution, they are doing so for two primary reasons: 1) the business has outgrown the software it is currently using, and as a result, what were formerly simple tasks to complete take an excessive amount of time and have resulted in the development of impractical, inefficient internal business processes; and 2) the small business’ leadership team has recognized the need to purchase a new software system that will allow the business to grow in gross revenue, net profit, and customer base without a proportional increase in staff. When a small business elects to purchase a new ERP system, it should not settle for anything less than what other larger organizations would find acceptable.

When selecting a small business ERP solution, full integration is key. There is no point in moving forward with an ERP vendor who does not offer a complete solution that includes accounting, inventory management, purchasing, order entry, customer service, e-commerce, business intelligence, and warehouse management. Again, one of the primary reasons why a small business begins to engage in a software selection project in the first place is to eliminate the need for multiple software solutions from a variety of software developers.

From a purely functional standpoint, a small business should be careful not to buy into many ERP vendors’ claims that the business does not need function X, Y, or Z. When developing a list of functional requirements, the small business’ selection team must take into consideration both existing and future software requirements. For example, the selection team should ask vendors to provide a sales quote/proposal that includes a fully-integrated warehouse management system with RF and barcode technology. Similarly, the team should look for an ERP accounting solution that is SOX-compliant and provides full audit trails. While these are just a few examples, there are hundreds of functional and technical requirements that the small business selection team should demand from software vendors. For more information on developing a list of ERP requirements, click here.

In addition to scope of software functionality, the selection team should also look for a software solution that is platform independent. By selecting an ERP solution that is platform independent, the small business does not need to worry about becoming “locked in” to or outgrowing a particular operating platform. The chosen software’s architecture should provide the small business with a variety of operating and database options to choose from for both today, tomorrow, and beyond.

Lastly, and perhaps most importantly, the small business should ask software vendors to describe the scalability of their proposed software solutions. The small business must do everything it can during the selection process to ensure that whatever software it selects, the software will provide the business with an opportunity for growth. The small business’ selection team should require software vendors to disclose the lowest user count for a given business using the proposed software solution and the highest user count for a given business using the proposed software solution. The difference between these two user counts should provide a fairly good indicator of the software’s scalability. The selection team should then request a formal proposal from the software vendor that includes all previously demonstrated functionality and all functionality that was deployed in both the low and high user count business’ software solutions.

By following these simple guidelines, small businesses should be able to obtain the necessary information from software vendors to select a small business software solution that is anything but “small” in functionality and features.

Follow TGI on Twitter Follow TGI

Become a fan TGI on Facebook Like TGI on Facebook


A Key Question Wholesale Distributors Should Ask Themselves – What Can I Do Today to Make it Easier for My Customers to Do Business With Me?

August 28th, 2009 by admin

Today, wholesale distributors are looking for ways to continue to protect their existing customer base, to hold or increase profit margins where possible, and to look for opportunities to grow their market presence through selling additional products and services to existing customers and by finding and attracting new customers with whom to do business.

One way in which distributors can continue to maintain existing customers and add new ones is by continually asking, “What can I do today to make it easier for my customers to do business with me?”  What is it that customers are looking for in the first place?

Customers want to buy the products and services they need from their supplier.  They don’t want to hear that their supplier can provide certain products from a given manufacturer’s product lines but can’t provide others because “we don’t stock those items.”  They may even be looking for suppliers who are willing to place consignment inventory of certain high-moving or highly critical stock at the customer’s premises for easy consumption.

Customers want straight forward and accurate pricing.  They also want to understand their suppliers’ ability to deliver the given products they’re looking to acquire in the time frame within which they need them.

Once they’re ready to place an order with their supplier, they want to be able to do so as efficiently as possible.  They want to be able to minimize their work efforts while providing their supplier the precise information they need to be able to receive the products in the exact quantity they’ve ordered, and to be invoiced exactly what they expect for those products.

Customers want to be able to choose their preferred methods of placing orders – either via eCommerce, EDI, fax, email, or phone – and want to get back an accurate promise date from their suppliers the first time, every time.  They likewise want to receive communications from their supplier in their preferred manner.

When the products they’re acquiring are delivered, customers want to receive the expected quantities on the date and time frame in which they were promised by the supplier.  They may also want their suppliers to perform value-added services including applying correct product labeling and price marking of the products to the customer’s specifications.

Finally, customers want to work with suppliers who can resolve any issues that may arise when transacting business together in an expedient, professional manner with a first-time resolution.  They also want their suppliers to take the data arising from problem resolution and make continuous improvements to minimize or eliminate the possibility of the given issue arising again in the future.  They want their suppliers to make it easy for them to get the information they need in the manner in which they need it to be able to transact and analyze their on-going business.

The bottom line is that customers are looking to do business with suppliers who “say what they do, and do what they say – period.”  Customers want to work with suppliers who are looking out for their customers’ best interests while continuing to grow their own businesses.  By leveraging wholesale distribution software solutions, like TGI’s Enterprise 21, wholesale distributors can meet and exceed their customers’ precise expectations.

Follow TGI on Twitter Follow TGI

Become a fan TGI on Facebook Like TGI on Facebook


Go-Live Expectations

August 24th, 2009 by admin

The final step in the implementation process is the day of system go-live. On this day, the manufacturing or distribution organization will switch from its former software system to a new ERP software solution to serve as the transactional backbone of the organization. On this day, all of the company’s former problems will go away, 100 orders above the daily average will be processed and shipped, and worker productivity will increase, on average, 75%. This is what any company who has just completed a software implementation should expect, right? Wrong. Initial system go-live is a critical step in the migration from one software system to another, but it is unrealistic for the organization to expect that all of its troubles will be solved on the initial go-live date. What then, should the organization expect on the go-live date in terms of customer orders, worker productivity, and return on investment?

From a customer orders standpoint, the organization should expect to enter, pick, pack, and ship customer orders on the initial go-live date. We frequently hear terrible stories in the ERP industry of companies investing six to nine months of employee time and money in a software implementation only to go live and not ship orders for another two, three, or four days, causing complete chaos for customer service personnel and the organization’s customers. I can honestly say that in nearly twenty years of business, we have been very fortunate to have every one of our customers ship orders on their initial go-live date. With sufficient testing and training, there is absolutely no reason why orders should not be shipped on the go-live date. That being said, companies should also expect the volume of orders shipped on the initial go-live date to fall slightly below average. Issues (hopefully minor) will arise, questions will come up, and some employees will not have a full, 100% understanding of the new pick, pack, and ship process within the new system; however, things will improve, the process will continue to be practiced, and overall operations will become much more efficient over time. One of our customers had an average of roughly 300 orders shipped per day under their old system. When they went live in January 2009, orders shipped fell to below 200 the first day of system go-live (a Monday), climbed above 250 the following day, and reached above 300 by Wednesday. Within two weeks after go-live, the company was shipping nearly 500 orders per day. Again, companies should fully expect to ship orders on the initial go-live date but should also expect to see an initial decline followed by a steady increase in shipping volume over the following weeks.

The organization should also expect overall worker productivity to decline on the day of go-live and then steadily increase in the following weeks. The transition from one software solution to another is not always easy for or widely accepted by the organization’s employees. No matter how much training end users receive during the implementation process, they are always going to have a multitude of questions upon initial go-live. They will, however, learn how to perform their daily tasks in a productive and efficient manner with the new software solution and will more than likely become more productive over the course of a workday than they previously had been under the old software platform. Workers starting to use a new ERP solution are like toddlers – they need to learn how to crawl before they can walk or run.

Lastly, what can the organization expect in terms of return on investment on the day of initial system go-live? The answer, bluntly, is nothing. Realizing a return on investment for purchase of an ERP solution takes time. Some companies, depending on the nature of their business, realize a return on investment in a variety of different ways and over a variety of times. Larger organizations can achieve a sizeable return on investment by eliminating staff due to streamlined processes and operations under the new software solution. One of our customers, for example, was able to eliminate 30% of its customer service personnel within 4 months of go-live due to improved visibility to customer information and more efficient order processing. Smaller businesses can achieve a return on investment through increased productivity, reductions in employees’ time spent on a given task, and improved inventory accuracy and data integrity. Even the task of closing an accounting period can save a CFO hours of time using a sophisticated and fully-integrated ERP system. Organizations of all sizes can and should achieve a sizeable return on investment. Such a return, unfortunately, is not going to occur on the initial go-live date. For more information on calculating a return on investment for purchase of an ERP software solution, click here.

Initial system go-live is a critical step in the overall implementation process. Companies should be realistic with their expectations but should also demand reasonable results from their software supplier. Orders should be processed and shipped, and end users should be sufficiently trained to make it through the day.

Follow TGI on Twitter Follow TGI

Become a fan TGI on Facebook Like TGI on Facebook


The Small Business Software Rules: Add a Product, Upgrade Software

August 21st, 2009 by admin

I recently spoke with a small business owner who provided me with a piece of information I previously was unaware of. The small business owner said that his company had started running QuickBooks approximately three years ago when the business was just in its infancy. The business grew rapidly, increasing its customer base and its product offerings. One day, the business had reached a total of 3,501 products in its catalogue. When the QuickBooks user entered the 3,501st product, the software informed the user that the entry was invalid, as QuickBooks would only support a maximum of 3,500 total products. When the small business owner called customer support, he was told he needed to upgrade to QuickBooks Enterprise Edition to allow him to enter more products. I, needless to say, was shocked. Believing that his business was not ready to migrate to a more sophisticated distribution software system, the owner spent $3,000 to upgrade to the Enterprise Edition for the privilege of adding new products, which, according to the owner, was simply a waste of money.

This pricing scheme for varying degrees of standard software functionality should be a lesson to all small business owners as they consider migrating from their existing small business software to a more sophisticated ERP software solution. Owners should pay careful attention to a software solution’s pricing structure and the software’s limitations at each price level. By requiring software vendors to disclose the true cost of all demonstrated software functionality before contract signing, the small business owner will receive the most accurate cost estimate to be used for budget and ROI calculations.

Follow TGI on Twitter Follow TGI

Become a fan TGI on Facebook Like TGI on Facebook


Which are Your Most Profitable Customers? Leveraging Your ERP System to Analyze True Customer Profitability

August 19th, 2009 by admin

Strong ERP software systems can enable companies to more accurately assess true customer profitability.  While gross profit margin is an obvious measure of customer profitability, there are a number of other factors which can affect true customer profitability dramatically.  Executives and sales managers are encouraged to include the below gross margin costs in their overall customer profitability calculations.  An obvious place to start is to make sure you’re including all of the costs of promotions, allowances, and rebates that the customer qualifies for in the cost equation.

Next, consider the internal administrative costs associated with entering customer sales orders into your system.  These costs can vary substantially depending upon the methods by which your customers place their orders.  Do they email, fax, or phone in orders, or do they require a company representative to call out to them to get their orders placed?  Or, do your customers place orders via EDI transactions where there can be little or no manual interaction required beyond the initial setup of the transactions in the EDI translation solution being used?

Assuming you have a company representative speak with your customers to get orders placed in your system, you may have the opportunity to perform cross-selling or up-selling to those customers.  Likewise, the company representative can discuss with your customer contacts about products they may have ordered from you in the past and how they’re sourcing those currently.  You might be pleasantly surprised by how much information you can receive from your customers by merely asking the appropriate questions.  You can potentially find out from whom your customers are buying and the associated prices they’re paying your competitors for these items.

Does your customer access order status electronically through your Web site or via EDI transactions, or do they call your customer service personnel to inquire about the status of their orders?  One of the most interesting facts about enabling customer self-service has been that not only has this process resulted in reductions of administrative costs by companies, it has also produced increased customer satisfaction by enabling their customers to get the information they desire any time of the day or night, 24 hours a day, 365 days a year.

One of the costs that is frequently overlooked when analyzing true customer profitability is the rate at which your customers change their orders once they’ve been placed in your system. If you’ve enabled your customers to be able to change their orders themselves via the Internet or electronically via EDI transactions, this will result in reduced administrative costs over customers who communicate their order changes via email, fax, or phone which requires your personnel to make these changes manually in your systems.

Of course, your customers’ orders must be picked, packed, and shipped.  Are your customers ordering in bulk quantities where there are efficiencies gained through picking case or pallet quantities, or are they buying in eaches where individual products must be picked and packed for shipment?  Similarly, you may be making margin on the shipment of your products to your customers by charging the customer at standard transportation rates while you’re paying a reduced rate to your carriers.  Alternatively, you may be giving your customers free or reduced freight due to their status as a preferred customer or based on the overall pricing of the given order.

Once your customer receives its products, what is their frequency of returning products to you via RMA’s?  Some organizations may be charging their customers restocking fees in an attempt to offset some or all of the cost for the RMA processing while others may not.  Additionally, you may want to analyze how frequently your customer places a shipment variance claim with you where they’re claiming they’ve received less than the quantity you believe you had shipped them.

Next, there are costs associated with customers short paying invoices or taking unauthorized discounts.  Likewise, it costs you money to provide your customers with a professional, well-trained account management team that may include direct sales reps, indirect sales reps, inside sales reps, and sales management.  There will be costs associated with traveling to see your customers and sales related travel and living expenses for activities such as golf outings or other entertainment activities.

The bottom line is that strong ERP systems can better enable executives and sales management to more accurately assess the true profitability of their customer base by including all relevant costs to get a handle on the bottom line.

Follow TGI on Twitter Follow TGI

Become a fan TGI on Facebook Like TGI on Facebook


Three Benefits to the Wireless Warehouse

August 19th, 2009 by admin

A key functional element to any wholesale distribution software solution is an integrated warehouse management software system that provides distributors the ability to operate their warehouse in a completely wireless, paperless environment. A wireless warehouse that utilizes RF and barcode technology can streamline warehouse processes, decrease the likelihood of data entry errors, and improve worker productivity. While there are hundreds of benefits to a wireless warehouse, here are three:

Directed Picking. Directed picking utilizes RF devices to prompt warehouse workers to pick items using an optimized picking path that reduces overall time spent during the picking process. Rather than a warehouse worker simply looking at a pick ticket and traveling around the warehouse in a completely random order, the RF device can instruct the worker to pick items on a pick ticket from their associated locations within the warehouse in a logical sequential order that reduces worker transit time from one location within the warehouse to another. This feature can streamline the pick process and reduce average picking time to improve warehouse efficiencies and lead to increased worker productivity and daily shipping volume.

Accurate Data Entry. Using RF and barcode technology can greatly decrease the likelihood of data entry errors in receiving, picking, and shipping. Lot numbers, for example, which can frequently be several characters long, can easily be scanned and recorded in the ERP system via barcodes and scanning devices with little to no manual data entry. Deploying these devices for use in the warehouse for receiving, picking, and shipping can result not only in faster, more efficient data processing but improved data integrity and product tracking as well.

Faster Physical Inventory and Cycle Counts.
A common process many distributors deploy for physical inventory and cycle counts is to have a warehouse worker walk throughout the warehouse with a clipboard and piece of paper, manually count and record the quantities of each product in the warehouse, walk back to his or her computer, and then manually enter the recorded inventory quantities into the organization’s software system or Excel. This process, needless to say, can lend itself to a number of problems. First, manually counting and recording inventory quantities takes a painful amount of time for people in the warehouse. Secondly, manually counting and recording inventory quantities on paper and then entering those values into the computer increases the likelihood of data entry errors and diminishes the integrity and accuracy of the counted values. By using barcodes and scanning devices in the warehouse, workers can complete their physical inventory and cycle counts in a timely, efficient manner. Furthermore, by scanning items, the recorded quantity of items is directly recorded in the ERP system, eliminating multiple steps to complete the same process while simultaneously improving data accuracy and integrity.

Follow TGI on Twitter Follow TGI

Become a fan TGI on Facebook Like TGI on Facebook


Gauging Long-Term Viability of Software Vendors – Examining Revenue-per-Employee

August 17th, 2009 by admin

One of the key areas companies attempt to gauge as part of their ERP selection projects is the long-term viability of potential ERP software companies.  On the surface, one might initially assume the vendor’s annual revenue is the key element to consider, but is it really?

In recent years, Oracle bought PeopleSoft, who had previously acquired JD Edwards.  In using Software Magazine’s Software 500 as the data source, PeopleSoft reported corporate revenue of $2.27 billion in 2004 – the last year they reported data as a separate business entity prior to their acquisition by Oracle.  Likewise, JD Edwards reported corporate revenue of $904 million in 2003.  Assuming revenue alone could be used to gauge long-term viability, would anyone have come to the conclusion that these software vendors would be gobbled up?  Some other large entities that have been acquired in recent years with their last reported annual corporate revenue from the Software 500 include Siebel at $1.34 billion, Hyperion at $765 million, SSA Global at $712 million, Geac at $444 million, and Intentia at $425 million.

Rather than merely reviewing revenue, it is our recommendation that potential buyers of ERP systems and consultants with whom they work take a good look at the various vendors’ revenue-per-employee ratios.  For example, let’s examine this in light of the recent announcement that SoftBrands was being acquired by Infor.  SoftBrands reported corporate revenue of $93.4 million with 775 employees in 2008.  This equates to a revenue-per-employee ratio of roughly $120,500.

In reviewing a series of twenty-five software businesses (including ERP, supply chain management, CRM, and financial management software companies) which have been acquired by other ERP software businesses since 2002, seven of these had revenue-per-employee ratios between $100,000-150,000 in their last year of reporting, nine were between $151,000-200,000 (including PeopleSoft and JD Edwards), five were between $201,000-250,000, and three were between $251,000-280,000 (Hyperion, Mapics, and Siebel).

So, what are the revenue-per-employee ratios of some of the familiar ERP software vendors in the market today?  For 2008, Microsoft led the pack at approximately $647,000 in revenue-per-employee, followed by SAP at $344,000, and Oracle at $240,000 respectively; however, these numbers include these organizations’ complete portfolios of products and services rather than ERP software sales and associated services revenue alone.  In reviewing data for the top ten big name Tier 2 ERP vendors included in the study – using 2008 data if they reported or their most recent reporting in 2007 or 2006 otherwise – four of these businesses reported revenue-per-employee ratios between $100,000-$150,000, while the other six were between $151,000-200,000.

Based on the percentage of employees with strong technical talent that software businesses must attract and retain, and considering a typical employees’ salary and benefits, ERP software companies whose revenue-per-employee ratios are at or below $150,000 may start to raise some serious questions about their long-term viability.

Businesses that are selecting new ERP systems are doing so with the knowledge that they are making a long-term commitment to run their businesses on the new software packages and to work with the associated software vendor for roughly 8-12 years, on average.  In doing so, gauging the long-term viability of the software vendor is a key element to this long-term success.  We encourage software selection teams to examine potential vendors’ revenue-per-employee ratios and trends over the past several years before making a final commitment to move forward together.

Note: Software Magazine’s Software 500 has been the source of all revenue and employee data for this article.

Follow TGI on Twitter Follow TGI

Become a fan TGI on Facebook Like TGI on Facebook