ERP and VoIP to gain favor in SMB market, despite thin IT budgets, staff

The ERP market could see a significant uptick over the next 24 months as systems installed by large enterprises to address Y2K age out. But increased adoption likely will involve smaller manufacturers with smaller budgets—i.e., those with under $50 million in annual revenues. This will pose challenges for large ERP system vendors, according to a recent report out of Ontario-based Info-Tec...

08/01/2007


The ERP market could see a significant uptick over the next 24 months as systems installed by large enterprises to address Y2K age out. But increased adoption likely will involve smaller manufacturers with smaller budgets—i.e., those with under $50 million in annual revenues.

This will pose challenges for large ERP system vendors, according to a recent report out of Ontario-based Info-Tech Research Group .

“One of the big surprises in the survey is seeing how far ERP has pushed down into the midmarket and below,” says Info-Tech Analyst George Goodall. “A lot of midsize and smaller manufacturers have outdated inventory management systems that were put in back in the 1980s.”

Goodall says one main business/production driver for an ERP deployment is to reduce complexity.



Info-Tech Analyst
George Goodall says ERP and Voice-over Internet Protocol will be the first and second choices respectively among small and midsize manufacturers replacing outdated technology in the next 24 months.

“At first glance, it doesn't seem to make sense to use ERP to reduce complexity—ERP systems are complex systems. But with smaller lot and order sizes and a corresponding increase in the number of orders, companies can't process orders quickly enough. It's a barrier to further growth. They know they need to do a better job of managing the new complexity of the market,” he says.

Info-Tech projects the installed base for ERP will grow from 40 percent to 48 percent over the next two years, with another 12 percent of enterprises currently evaluating ERP but not yet committed to a purchasing decision.

Vendors seeking to tap the lower end of the market must contend with companies with much smaller dedicated IT resources—with many $50-million regional manufacturers having only a single IT professional on staff. This has ramifications in terms of budgeting for new systems. Projects must have strong business cases where ROI delivers bottom-line growth that can fund them.

Consultants and systems integrators will be crucial to augment thin in-house IT resources to assure success. Follow-on functionality to be bolted on later—e.g., EDI and RFID—should not be overlooked for the value they can return, but they must be carefully planned for up-front or they're not likely to take place.

After ERP, VoIP was identified as the second leading technology for replacing outdated technology: 26 percent and 18 percent, respectively. Server virtualization and VoIP were the top choices identified for reducing costs: 27 percent and 21 percent, respectively.

“Virtualization as a priority was a surprise,” says Goodall. “It's more leading edge, and we had assumed that most manufacturers are conservative rather than being early adopters,” Goodall points out.

Virtualization vendors have made similar assumptions and have put most of their market emphasis elsewhere, but as Goodall says, maybe they should take another look at targeting manufacturing.





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