ERP vendors eye e-commerce

Forget "enterprise." The "E" in enterprise resource planning (ERP) is starting to stand for electronic, as in e-commerce.

Enterprise resource planning vendors like SAP, Oracle, and PeopleSoft have stretched their product to every corner of the corporate enterprise. Now they are looking for a portal to the world outside a customer's walls and e-commerce appears to be the key.

"For the ERP players e-commerce gives them an avenue to transition from being the enterprise backbone to the supply chain backbone," said Greg Girard, supply chain analyst at AMR Research in Boston. "And that opens up all kinds of very sweet opportunities for them to extend their reach and increase their seat counts."

Large and small players alike are focusing on e-commerce as a means of expanding their systems beyond the internal operations of their customers, from market leader SAP to even small players like Los Angeles-based Glovia International. All are building or partnering with other software companies to add e-commerce features to their systems.

"When you think of e-commerce, it's a business process and when you think of ERP software, it's business process-ware. So it's a natural fit for ERP vendors to converge on the e-commerce space," said Roy Satterthwaite, analyst at the Gartner Group in Stamford, Connecticut. "ERP vendors have been very busy raking in money from their core installations and solving year 2000 problems. It is natural for them to extend their core offerings from traditional back office systems to the front-end of EC."

Analysts said the first areas ERP vendors are likely to target are maintenance, repair and operational supply procurement, or MRO--the business-to-business side of e-commerce. It's all those things like paper clips that a company needs to run its business but are not used to make a core product.

"ERP vendors have done a good job at direct procurement, integrating things needed in the supply chain, but not in indirect procurement, or MRO," Satterthwaite said. "ERP vendors have the architecture, they have the core pieces of technology but they lack a couple of pieces like catalogs and things like that. They will need to move quickly. You will see a lot of deal making in this space."

In fact, SAP has already struck a deal. The German software titan announced last week a new Internet-based procurement module, which will allow users of its popular R/3 system to link directly to vendors of operational supplies. SAP also made an equity investment in Commerce One, a Walnut Creek, California-based company that specializes in online cataloguing of supplies. The idea is to tie the catalogs directly to a user company's R/3 system.

Satterthwaite said to expect more than just partnerships in this space, however. His office is predicting that in the next two years, ERP vendors will start buying up these e-commerce companies.

What's driving the trend? The Internet, of course.

E-commerce and its use of the Internet as the networking mechanism, is a relatively cheap and effective alternative to electronic data interchange, the traditional method companies passed orders between suppliers and distributors. EDI required complex systems of local- and wide-area networks and few companies could afford to use them, according to Dennis Byron, analyst at International Data Corporation in Framingham, Massachusetts.

In fact, less than 1 percent of global companies use EDI and because no uniform standard was ever developed, the cost of it put it prohibitively out of reach of most companies.

But, AMR's Girard said the Internet and e-commerce are changing that by "changing the notion of economies of scale."

"EDI worked well with high-volume transactions over a fairly limited number of partners," he said. "With the Internet you can still handle high volumes of transactions but they are scattered among any number of partners any of who may have relatively few transactions."

Don't expect the e-commerce trend to stop at procurement either. Girard predicts that ERP vendors are likely to develop products that will allow customers to use e-commerce for all types of communications. Those communications could include collaborative demand management or vendor supply management and forecasting.