SAP wins Ford, Caterpillar contract

Software giant SAP said Wednesday that it scored one of its biggest sales in three years, inking a deal with Ford Motor.

The company will supply business applications to the automaker and its logistics partner, Caterpillar. As part of the contract, SAP will develop applications to help Ford lower the cost of distributing vehicle spare parts to thousands of dealers worldwide.

Both Ford and Caterpillar said they plan to license the new software, along with other applications now available from SAP. SAP plans to make the software it develops for the project commercially available in three years.

Ford and Caterpillar selected SAP as part of an agreement the two companies signed in November to develop applications to help keep track of warehouse inventory. Caterpillar's logistics services subsidiary runs Ford's warehouses.

Ford and Catepillar expect the new system to reduce the amount of idle inventory sitting in warehouses, which shows up as an accounting cost. The company also says the system should improve customer service; with tighter controls, Ford could deliver spare parts to service centers in a matter of hours, rather than in a number of days.

The value of the contract was not disclosed, but SAP said it ranked among the top five biggest deals the company has won in the past three years. Analysts estimated the deal could be worth tens of millions of dollars.

Software contracts of that size have become something of rarity as many companies, hampered by the bad economy, reduce information technology spending. SAP recently lowered its sales targets for the year because of weak demand.

SAP plans to begin testing the new applications in a year to 18 months. The applications will become part of an order management system used by more than 15,000 Ford dealers around the world. The automaker also plans set up more and smaller warehouses closer to the dealers for faster delivery of parts, according to Gartner analyst Karen Peterson.

"Ford is really trying to change the nature of its supply chain," she said.

The new system will replace software for warehouse and inventory management at Ford and Caterpillar, but will not affect a large software project that Caterpillar has with i2 Technologies, an SAP rival, according to a Caterpillar representative.

The Ford project is one of several tech initiatives under way in the automotive industry that aims to reduce vehicle and parts inventories, as well as their associated costs. In 2000, General Motors announced an alliance with logistics company CNF, aiming to cut $20 billion in inventory costs related to the delivery of vehicles to dealers.

Such massive projects are moving more slowly than anticipated because of a slowdown in the automobile market, but are still continuing, according to Peterson.