Comparative analysis of ERP vendors: SAP, Oracle, and Microsoft

Transcription

1 K507 Enterprise Resource Planning 2008 Fall ERP Project Comparative analysis of ERP vendors: SAP, Oracle, and Microsoft Koenraad Adams, Eric Piazzoni, and In-Saeng Suh Abstract This is a study of the comparative analysis on the enterprise resources planning (ERP) vendors, SAP, Oracle, and Microsoft. We research on functionalities, cost, features, and target market for each vendor. Keywords: ERP, SAP, Oracle, Microsoft, SME 1

2 1. Introduction ERP system is an integrated information system to support the business within different organizational parts of an enterprise. The leading global providers are SAP, Oracle, and Microsoft. ERP packages are designed to be customizable to concrete needs of an organization and to its legacy systems. The customization of ERP modules for a concrete user is performed with special tools and using specific or standard programming languages. Due to already mentioned general ERP characteristics, customization and implementation usually require specialized knowledge and significant resources. SAP was founded on April 1, 1972, by five IBM employees. It developed its first product (financial accounting software) in close cooperation with its first customer. The company grew initially around ERP and solidified its market leadership by being a pioneer in the move from mainframe to client-server computing with its R/3 ERP solution introduced in the 1990s. From there, SAP expanded into a much broader set of applications for other functions in the enterprise: customer relationship management (CRM), supply chain management (SCM), product life-cycle management (PLM), and supplier relationship management (SRM). By bundling and integrating these applications, SAP became known for high-quality, comprehensive enterprise solutions, which SAP or SAP-trained SI consultants would then customize. Oracle was founded in 1977 as Software Development Laboratories. The first Oracle program was written in assembly language, ran on PDP-11 and with 128k of memory. The software was never "officially" released though. Version 2 which was released in 1979 was the first to be released. The company had changed its name by then to Relational Software Inc. Business grew and by 1982 they had changed their name again, this time to Oracle and in 1987 the company went public. Today, Oracle remains one of the leaders in the ERP industry. A few of the firsts Oracle brought us are: The first commercially-available SQL-based database (1979) 2

3 The first database to support symmetric multiprocessing (SMP) (1983) The first distributed database (1986) The first database product tested to comply with the ANSI SQL standard (1993) The first 64-bit database (1995) The first web database (1997) The first proprietary RDBMS to become available on Linux (1998) The first database to support XML (1999) Microsoft Dynamics AX is a line of business management solutions that provides financial management, business intelligence, human resource management, project management, customer relationship management (CRM), manufacturing, supply chain management solutions, collaborative workspace, and configuration and development. The Information Technology views quadrants Gartner Consulting produces each year as a type of benchmark to see where each provider stacks up against their competition. In 2007, Gartner released the quadrant on the left. While many will argue that Gartner s methods are too simplistic and don t give a truly accurate view of what the decision makers face, it is still a good place to start when comparing products. Gartner ranks venders in two areas, Completeness of Vision and Ability to Execute. Using various qualifiers based on the rankings, the solutions are places in one of four quadrants: Leaders score higher on both criteria; the ability to execute and completeness of vision. Typically larger industry developed businesses with vision and potential for expansion 3

4 Challengers score higher the ability to execute and lower on the completeness of vision. Typically larger, settled businesses with minimal future plans for that industry Visionaries score lower on the ability to execute and higher on the completeness of vision. Typically smaller companies that are unloading their planned potential Niche players score lower on both criteria: the ability to execute and completeness of vision. Typically market fledglings In 2007, both Oracle and SAP were placed towards the bottom of the Challengers Quadrant. This would indicate they have the ability to execute, though maybe not that well as they are towards the bottom of the quadrant, and they don t seem to have a great deal of vision. But is that all there is to look at? In this study, we focus on functionalities and features, the total cost of ownership, and target market of the ERP vendors: SAP, Oracle, and Microsoft Dynamics. 2. Functionalities and Features 2.1 SAP R/3 SAP R/3 is a client-server based application, utilizing a 3-tiered model, the presentation layer, the application layer, and the database layer. SAP R/3 is structured using its own proprietary language called ABAP (Advanced Business Application Programming). ABAP, or ABAP/4 is a fourth generation language (4GL), geared towards the creation of simple, yet powerful programs. SAP R/3 also offers a complete development environment where developers can either modify existing SAP code to modify existing functionality or develop their own functions, whether reports or complete transactional systems within the SAP framework. ABAP's main interaction with the database system is via Open SQL statements. These statements allow a developer to query, update, or delete information from the database. Advanced topics include GUI development and advanced integration with other systems. With the introduction of ABAP Objects, ABAP provides the opportunity to develop applications with object-oriented programming. SAP ERP redefines enterprise resource planning delivering role-based access to crucial data, 4

5 applications, and analytical tools. With SAP ERP, we can efficiently deal with business challenges in the following areas: End-user service delivery Ensure that employees can readily access the critical data, applications, and analytical tools they need to perform all their job functions efficiently and effectively while also supporting a shared-services organizational model for human resources, finances, and other key processes. SAP ERP offers role-based access, self-services, and employee interaction center support through SAP Manager Self-Service, SAP Employee Self-Service, Duet and employee interaction center support. Plus, SAP Mobile Time and Travel enables employees in the field to report time and expenses offline. SAP ERP Financials Ensure compliance and predictability of business performance so the organization can gain a deeper financial insight across the enterprise and tighten control of finances. SAP ERP Financials automates financial and management accounting and financial supply chain management. The solution also provides rigorous support for corporate-governance mandates such as Basel II and Sarbanes-Oxley. SAP ERP Human Capital Management Optimize the HR processes with a complete, integrated, and global human capital management (HCM) solution. SAP ERP provides this HCM solution for organizations of all sizes and in all industries. You can maximize the potential of your workforce, while supporting innovation, growth, and flexibility. The SAP ERP HCM solution automates talent management, core HR processes, and workforce deployment enabling increased efficiency and better compliance with changing global and local regulations. SAP ERP Operations Manage end-to-end procurement and logistics business processes for complete business cycles from self-service requisitioning to flexible invoicing and payment optimizing the flow of materials. SAP ERP Operations also helps discrete and process manufacturers manage the entire life cycle of product development and manufacturing. The solution automates the entire manufacturing process and reduces costs by controlling and adapting the 5

6 manufacturing process in real time and increases customer satisfaction by delivering higher-quality products. SAP ERP Corporate Services Helps organizations manage their most costintensive corporate functions by supporting and streamlining administrative processes in the areas of real estate; enterprise assets; project portfolios; corporate travel; environment, health, and safety compliance; quality; and global trade services. SAP ERP Corporate Services is a complete and integrated solution that maximizes transparency and control, while reducing financial and environmental risks and enhancing safety of employees. Performance management Support the entire life cycle of performance management, delivering real-time, personalized measurements and metrics to improve business insight and decision making. SAP ERP supports financial analytics, operations analytics, and workforce analytics, as well as consolidated financial and statutory reporting; planning, budgeting, and forecasting, strategy management and scorecards, and risk management. 2.2 Oracle An Oracle database system is a platform with at least one application running on it to access and process the data. Data is stored logically in the form of table spaces and physically in the form of data files. The recommended structure for an Oracle database is the institute RAC--Real Application Clusters. Multiple instances, usually on different servers, attach to a central storage array. This offers better performance, scalability and redundancy for the users. There are various versions of the Oracle database management software. In addition, Oracle divides it s product into various editions to track marketing and sales. Enterprise Edition The full suite of performance, scalability, security and reliability stored on either a clustered or single server. Runs on all standards and available with a large number of applications. Standard Edition Provides Enterprise level functions for mid-sized organizations. Sold through Oracles 400 Value Added Resellers. Standard Edition One low end minimum five users entry level package. 6

7 Express Edition primarily intended for students to learn how to code applications for Oracle. It is small, free and his limited capacity. Oracle Personal Edition High end functionality but sold to single-use developers. Oracle Database Lite designed to run on mobile devises. Though this looks like a large number of options, there are really only three true choices and they are based on the size (number of seats) of the organization. Of the other three, 2 are for developers and the other just provides access to database information from a mobile devise. Oracle does, however, offer some other flavors to offer as well. Oracle has grown dramatically mostly through acquisitions. Their product lines include. PeopleSoft Enterprise Siebel JD Edwards Hyperion Agile AutoVue Fusion Not counting the other products (PeopleSoft, JD Edwards etc.) Oracle Business Suites alone have over 140 different applications which can be installed on their platform. These include: Enterprise Performance Management A tool which aides in the executive decision making process by supporting a broad range of strategic, financial and operational management processes. Business Process Outsourcing an application which seems to work as an extranet and allows organizations track the non-core business processes which have been outsourced. Customer Relationship Management tracks what is going on in the sales department. Allows other departments (finance, production) know what they can expect. It will also allow the marketing groups know how effective campaigns have been. 7

8 Customer Self-Service Solutions allow customer place orders themselves without the supplier having to have someone enter the order. This reduces the risk of order entry errors. Production or warehouse groups receive the order right away and can act on it much quicker so turn around takes less time. Financial Management Solutions provides and tracks data for finance operations, governance, risk, compliance, and performance management. Human Capital Management tracks all aspects of the Human Capital needs, from core human resource (HR) transactional functionality through service automation and delivery to complete enterprise talent management solutions. 1 It provides the needed resources and has proven to reduce the costs. Procurement Insures that the supply chain stays on top of productions needs and maintains the most cost effective method of doing so. Project Management maintains record of current projects statuses and communicates with those needing the information in order to insure projects are proceeding as they should. Transportation Suite insures shipments reach their destination as well as, lowers transportation costs, improves customer service and asset utilization, and provides flexible, global fulfillment options. 2 These are just a handful of the applications available. Essentially, whatever the need, Oracle has a way to meet it. 2.3 Microsoft Dynamics Financial Management Microsoft Dynamics AX accounting and finance solutions help you track and analyze business information. You can easily manage your general ledger, payables, receivables, inventory, sales process, purchasing, analytical accounting, cash flow, bank reconciliations, fixed assets, and collections. 1 "Human Capital Management Solutions." Oracle, The World's Largest Enterprise Software Company. 19 Nov < 2 "Transportation Management." Oracle, The World's Largest Enterprise Software Company. 19 Nov < 8

9 Business Intelligence and Reporting Microsoft Dynamics allows you to manage budgets, create and consolidate reports and look for trends and relationships in any part of the business. Human Resource Management Microsoft Dynamics allows the management of applicant and employee information: payroll and benefits, skills mapping, recruitment and employee registration, and skills development. In addition the system helps you ensure your organization is meeting government reporting requirements accurately and on time. Project Management Project management and accounting applications allow project managers, accountants and executives to improve their project profitability and adapt to changing conditions. In addition manage resources, forecast costs and budgets, track time, and expenses. Lastly, manage contracts and billing. Customer Relationship Management Customer relationship management solutions enable management of customer groups, create and launch marketing campaigns, track customer activity, manage sales and after sales. It also enables automation of many day to day tasks for sales, customer service, field service, call center, and marketing professionals. Manufacturing It provides an integrated suite of manufacturing applications that give you the tools to plan, manage, and execute a top of the line manufacturing operation. The manufacturing process consists of product configuration, scheduling and shop floor, and supply and capacity requirements planning. Supply Chain Management This improves inventory management, management of single or multi-site warehouses, demand planning, order processing, and online collaboration with suppliers. Collaborative Workspace This extends the reach of business applications, information and process to employees, customers, and partners with role based delivery through a single web-based portal. Configuration and Development 9

10 Customization capabilities enable programmers and system administrators to add new functionality and modify existing functionality quickly and with limited coding. 3. The total cost of ERP ownership Total cost of ownership (TCO) is a significant factor in ERP strategies and decisions. Yet while both end-users and ERP vendors tend to talk about lower TCO and many vendors claim it as a point of differentiation. Three different elements of total cost associated with ERP implementations are actually important: Amount spent on software Amount spent of external services Internal costs Since as the company grows, the number of users goes up, along with the total cost of software and services, one can naturally expect a correlation between size of the ERP deployment and costs. As shown in Table 1, as the number of users goes up, the total cost of software and services also rises. Table 1: Average Software and Services Costs by Company Size Company Size Average # of Users Average Software Average Service Average 3 years Maintenance Average total cost Under $50M 38 $176,597 $126,022 $81,676 $384,295 $50M - $100M 92 $482,941 $351,374 $247,554 $1,081,869 $100M - $250M 195 $695,395 $581,090 $443,066 $1,719,551 $250M - $500M 344 $985,714 $655,263 $346,639 $1,987,616 $500M - $1B 475 $1,364,286 $1,110,000 $617,735 $3,092,021 $1B - $5B 2187 $2,360,577 $2,081,000 $1,479,208 $5,920,785 Over $5B 3365 $2,652,500 $2,102,778 $1,163,531 $5,918,809 Source: Aberdeen Group, July 2007 Table 2 displays software and service costs by vendor, since the ratio of services to software costs is indicative of both ease of use and ease of implementation. We just adopted a few major vendors, Infor, Lawson, QAD, SAP and Oracle. Table 2: Software and Service Costs by Vendor 10

11 ERP vendor Average Software Average Service Average # of ERP modules Average Software + Service per user Average total costs per user Infor $703,261 $494, $9,843 $12,773 Lawson $482,500 $455, $10,521 $11,826 QAD $633,871 $463, $9,741 $12,161 SAP $1,276,667 $1,115, $11,381 $15,067 Oracle $1,929,167 $1,694, $16,882 $20,983 Source: Aberdeen Group, July 2007 Functionality and TCO remain significant factors on ERP strategies and decisions. The depth and breadth of functionality deployed, along with the cost of software, services, and on-going maintenance combine to provide a price performance of ERP. Table 3 shows the ERP usage and total cost per user per percentage Point of functionality used by three vendors, SAP, Oracle, and Microsoft Dynamics. Table 3: ERP Usage and Costs per User per Percentage of Functionality Used ERP Vendor Average # of Modules Used Average % of Functionality Used Average # of Users Software + Service + 3 Yrs Maint. SAP % 834 $702 Oracle % 1365 $513 Microsoft Dynamics % 116 $607 Source: Aberdeen Group, July 2007 Cost Areas of Microsoft Dynamics AX The initial average license price per user for Microsoft Dynamics AX is $3,000. According to Nucleus Research, Inc the average initial license price for a Microsoft Dynamics AX customer was $571,234 with a low of $50,000 and a high of $2.55 million. The consulting average expenditure for Microsoft Dynamics AX deployment was $1,169,745 with a low of $50,000 and a high of $6.8million. The median expenditure for consulting was $600,000. Pertaining to those customers that made hardware investment, the average hardware costs were $180,188 while the median cost was $84,750 (Nucleus Research, 7). Those companies that invested in the internal personnel for deployment and 11

12 ongoing support for the ERP solution the average personnel costs were $346,667 and the average annual ongoing cost was $192,000. Lastly, training costs on average were $141,375 with one hundred and ninety-five users, twenty-nine hours of training time at a cost of $25 per hour. Table 1. The Average 3-Year Cost of an Microsoft Dynamics AX Deployment Average Data Components Software $571,234 Average initial license price Consulting $1,169,745 Average standalone consulting expenditure of customers interviewed Hardware $180,188 Average hardware expenditure of customers interviewed Personnel $346,667 Average number of personnel needed to deploy:4 Average time of deployment:13 months Assumed fully loaded cost of an employee:$80,000 Training $141,375 Average number of users: 195 Average training time: 29 hours Assumed fully loaded hourly cost of an end user: $25 Total $2,409,207 Average initial cost of deployment Ongoing Costs Software maintenance $274,192 Average maintenance rate: 16% Average initial license price. Personnel $576,000 Average number of FTEs required to support Microsoft Dynamics AX: 2.4 Assumed fully loaded cost of a support FTE:$80,000 Total 3-Year Cost $3,259,399 Average 3-year costs of software, consulting, hardware, personnel, training and maintenance. Table 2. The Median 3-Year Cost of an Microsoft Dynamics AX Deployment Initial Costs Average Data Components Software $168,000 Median initial license price Consulting $600,000 Median standalone consulting expenditure of customers interviewed Hardware $84,750 Median hardware expenditure of customers interviewed Personnel $220,000 Median number of personnel needed to deploy:3 Average time of deployment:11 12

13 months Assumed fully loaded cost of an employee:$80,000 Training $72,000 Median number of users: 120 Median training time: 24 hours Assumed fully loaded hourly cost of an end user: $25 Total $1,144,750 Median initial cost of deployment Ongoing Costs Software maintenance $75,600 Median annual cost of license: 15% Median initial license price: $168,000 Personnel $300,000 Median number of FTEs required to support Microsoft Dynamics AX: 1.25 Assumed fully loaded cost of a support FTE:$80,000 Total 3-Year Cost $1,269,950 Median 3-year costs of software, consulting, hardware, personnel, training and maintenance. 3. Target market SAP serves 75% of the Fortune Global 1000, but less than 1% of Fortune Global million. The small and medium enterprise (SME) market is a huge opportunity. SAP views SMEs as its main potential source of growth. As of summer 2006, SAP led the midmarket segment, but to reach its goal of having 45% - 50% of order entry from SME customers by 2010, SAP has to address the two most important elements of an SME solution: Total Cost of Ownership (TCO) and ease-of-use. SAP s offering has higher up-front outlays but lower maintenance rates. SAP aggressively expands SME market via the SAP NetWeaver platform strategy toward the goal of doubling SAP s market cap by It would probably be safe to say Oracle targets anyone interested in purchasing an ERP solution. That wouldn t be entirely accurate. It s obvious that Oracle has achieved it s success by building for the large Enterprise organizations but they ve also been successful due to their focus on their platform. Enterprise solutions will probably remain a staple target for them. However, if you look at the products they are now producing making it easier for smaller organizations to get introduced to their product, it s an obvious sign they are seeking more small to medium businesses in their portfolio. The 13

14 Standard Edition One with a price of $180 per user is a sign of that. They also have a suite of out of the box applications ready to bolt on once the server is in place. Get the business used to the Oracle environment when they are small at a competitive price, then sell more licenses as your software helps them grow seems to be their motto. I can t say that s a bad one. At the end of the day, selecting the best solution comes down to preference. Obviously, each solution has strengths and weaknesses. But how do you select a solution when one provider is strong in one area you need while another is strong in another? Additionally, there are more solutions coming on the scene. Smaller companies who may be able to provide a different type of service than what the biggest players offer. Another solution many will consider in the future, especially with the current economic situation, is the growing Software as a Service trend. 3 SAP has already got a jump on the market with their ByDesign solution. At the end of the day, it will have to come down to what solution works best for the business making the choice. 3 Maxcer, Chris. "Is SaaS ERP a viable model for manufacturing?" Manufacturing ERP software and management - SearchManufacturingERP.com. 9 Sep Nov < 14

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