Let’s face it, managing applications is a major factor to your success. As part 2 in our Original Equipment Manufacturers (OEM) Supply Chain series (link to part 1), we will discuss the reasons behind the trend towards simpler, less customized platforms and the switch to having them supported and maintained by application software providers. Currently, most OEMs have at least one packaged Enterprise Resource Planning (ERP) system installed. However, very few have held true to the model of “one core platform” and “no modifications” in order to reap significant reductions in long-term cost of ownership.
Packaged software can help OEMs manage risk, reduce the cost of applications implementation and maintenance, and provide a framework for standardizing business processes around industry best practices.
Generally speaking, packaged software represents:
- A proven solution that works
- An ability to leverage “vendor sponsored” applications maintenance
- Software vendors continually invest in Research & Development
- Vendors keep each other competitive vis-à-vis functions and features
- Products are continually evolving with new features and functions
- A repository of best practices that addresses the needs of multiple industries and business environments
- A framework for standardizing business processes and procedures
- Protection from technological and industry changes
By leveraging vendor investments in packaged software, companies are able to both gain more functionality, and distribute the value of each similar block of code over a much broader set of users, making economies of scale a significant consideration.
Standardizing on a common platform and package vendor will likely increase OEM’s ability to leverage the vendor’s investment in the product―new functionality, maintenance and support, and at the limit, integration between modules. That means less IT staff time doing development and maintenance, particularly on those pesky interfaces, and more time for the discretionary projects (or cost reductions).
In other words, the resources required to support outdated legacy systems or increasingly complex new applications has given them less time for innovation. In fact, according to a recent independent Forrester survey, “Ongoing operations and maintenance will consume almost 55% of [the] budget with the remaining part equally split between new software licenses and new individually developed software solutions.”1
Remember that fundamentally, ERP systems attempt to provide an enterprise-wide view of manufacturing, sales & distribution and financial information, using one integrated database. The more functions and modules using that one core set of data, means more efficiency and likely better data quality for analysis.
One way of looking at this is to view the portfolio of applications as a stack built on the core ERP platform, with new modules introduced only to meet strategic or unique business needs.
Most OEMs and CIOs are trying to shift their investments towards the lower levels of the application stack, to achieve more standardization as well as leverage vendor investments.
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1 The State of Enterprise Software And Emerging Trends: 2010 by Holger Kisker, Ph.D., Stefan Ried, Ph.D., and Heidi Shey, February 12, 2010. © Forrester Research, Inc. Quotation used with permission.