November 2007

ERP in SMB: Exploring Growth Strategies

Small companies face a dichotomy of business drivers impacting Enterprise
Resource Planning (ERP) strategies. While mid-size to large companies tend
to balance growth expectations against the pressures to improve customer
service and response times, Small to Mid-size Businesses (SMB) combining
those with annual revenues under $50 million, with those aspiring mid-size
companies with revenues between $50 and $250 million, are predisposed to
concentrate on one or the other. Aberdeen's July 2007 ERP in Manufacturing
benchmark found that SMB companies are evenly split between focusing on
growth strategies (49%) and customer service (48%), but these top pressures were mutually exclusive in more than two thirds of the combined total. Despite this disparity of market pressures, the standardization and acceleration of business processes is a common goal of ERP implementations.
The integration of functional departments across the small enterprise and
the clear ownership of ERP implementations combine with the broad and
deep use of feature functionality to produce demonstrable business benefits.

Business Issue
Almost one in five small companies resists implementing ERP. Eighteen percent (18%) of small companies and ten percent (10%) of those with revenues between $50 and $250 million participating in our July study have yet
to implement ERP, while another 9% intend to implement ERP within a
year. Some are intimidated by anticipated complexity and others fear the
cost is beyond their limited budget. Yet those small companies that hope
one day to be larger, as well as those with an established base of increasingly demanding customers stand to gain the most from implementing ERP.
Companies are small for a variety of reasons. On one end of the growth
spectrum, they may be in a start-up phase and anticipating high growth. In
contrast, we may see well-established and stable small companies with little
growth potential because of limited markets, global competition, or management design. These companies are more driven to sustain and improve
customer service in order to preserve market share and profit margins. Yet
regardless of market pressures, Aberdeen's July 2007 ERP study found that
ERP strategies to standardize and accelerate manufacturing (57%) and nonmanufacturing (63%) processes to be common across all Best-in-Class companies, along with the strategy to provide visibility to these business processes across functions and departments (50%).
From the end users perspective, the key benefits of a successful ERP implementation are streamlined and automated processes that reduce costs
and improve schedule performance and administrative efficiencies to either
fuel growth or improve customer service. This is accomplished by providing:
2007 Aberdeen Group, Inc.
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Research Preview
A Research Preview provides
and advanced look at an upcoming study and the research
hypothesis, which will be explored, based on prior research

How to Participate in the Study

If your company is:
A small company interested
in ERP
An ERP vendor with a solution for small companies

Contact us now to get involved in this study!

Aberdeen's Definition of SMB

Aberdeen's definition of Small
companies includes those with
annual revenues less than $50
million. For purposes of this
study we venture into the low
end of Mid-size companies and
define SMB to be those companies with annual revenues less
than $250 million
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A clear and reproducible system of record for all fiscal transactions

Visibility to data and business process status, including customer order status

Consolidation and compliance with financial reporting requirements

Better control over inventory and manufacturing schedules

Aberdeens Hypothesis
For SMB companies with expectations of growth, the objective of implementing ERP is to lay a solid foundation from which processes may be standardized, in order to avoid growing pains. The ultimate measure of success
will be actual growth performance as compared against budgeted growth
while containing or reducing inventory, operational, and administrative costs
through growth phases.
For those focused more intently on customer service and response times,
the objective will be to provide a measure of visibility and control to customer-facing metrics such as complete and on-time shipments as well as
customer retention and growth.
Table 1: Best-in-Class PACE Hypothesis
Pressures

Actions

Capabilities

Expectations of
Standardize and accelerate Standardized enterprise-wide
growth
business processes
procedures for order management, procurement, production
Improve customer Provide visibility to busiservice and reness processes across func- planning and execution, cash
collection, and financial reconsponse times
tions and departments
ciliation
Optimize the use of cur
Line of business ultimately owns
rent capacities
the success of the implementation
Decision makers are notified in
anticipation of exceptions and
respond proactively and / or are
notified in real time as exceptions occur and can react immediately

Enablers
Integrated ERP: integrate order entry,
procurement, production, and financial
management applications
Business intelligence / analytics
Business process management / workflow
Alerts and triggers (event management)
Middleware / integration tools for
collaboration and interoperability
ERP extensions: CRM, SRM, EDM /
PDM/PLM, SCP, WMS, TMS
Corporate performance management
Financial planning and budgeting
Source: Aberdeen Group, November 2007

The performance metrics that will be used to determine Best-in-Class companies include:

Reduced levels of inventory

Inventory accuracy

Manufacturing schedule compliance

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ERP in Small Companies

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Percent on-time and complete shipments

Number of days needed to close a month

Case in Point
Take, for example, the case of Harvey Vogel Manufacturing (HVMC), a custom metal stamper located in Woodbury, MN. Founded in 1942, it has
grown from a two-room building in St. Paul, MN to a 120,000 sq. ft state-ofthe-art stamping facility in Woodbury, MN. HVMC provides metal stamping
and value-added services to a diverse set of customers, with products ranging from simple ice cream scoops and bagel-slicer blades to complex gearshift parts and ATMs.
Todd Caughey joined HVMC in 1997 as HVMCs Information Technology
Manager. At the time, his primary assignment was to replace HVMCs current ERP system. In 2000 and 2001, after a long search, Harvey Vogel Mfg.
Co. implemented a new ERP system and since then the company has nearly
doubled in sales volume. Additionally, the system scaled well and continued
to handle the increasing transaction volumes very well. HVMC is now planning to migrate to the latest version, which is essentially a complete re-write
of the system, so it will be considered as a re-implementation. The primary
growth related aspect for migrating is to leverage new features that will allow HVMC to continue to grow while maintaining the same administrative
staffing levels.
Caughey further explained, Although [the current ERP system] has allowed
some reductions via attrition in staffing (specifically three fewer people in
accounting) it is not as much a case of cost reduction as cost avoidance. Or,
in our case, leveraging the savings to add a couple sales people and generate
new business. Doubling sales levels without increasing support staff to accommodate it has made us more competitive in pricing while still maintaining gross margin goals. The other 'cost reduction' area has been in 'error
avoidance.' By using reporting tools to get information out of the system
and in front of the people who need it, we have significantly reduced errors.
One example was printing sheets of identification labels for shop floor operators to stick on WIP inventory cards, rather than hand-writing (or more
often forgetting to write) the cards. This virtually eliminated misidentified
parts and / or skipped operations that were costing $30K per year. Since
2001, this one 'fall out' project's avoided cost has more than paid for the
system.

Outcome
ERP forms the underlying system of record for any business, large or small.
Our research will show that to achieve a high degree of growth, customer
responsiveness, or both, companies must blend a combination of strategic
actions and new technologies to:

2007 Aberdeen Group, Inc.

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In the past we have survived

without an ERP system but we
are developing new products
for new markets. Once we go
into production on these products, we will need to reevaluate our strategies. These
products will be higher volume
and we will definitely outgrow
our ability to manage our business with the desktop applications we use today. We will be
looking for a cost effective
package that is easy to use.
Managing Director, Small Industrial Equipment Manufacturer

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Standardize and accelerate business processes

Provide visibility to these processes in real-time to support effective

decision-making

Assign ownership to those line of business professionals who are

responsible for delivering against corporate goals and objectives

Solution Snapshot
Several years ago, ERP companies fought hard for relative positioning on the
Top 50 list published annually by Manufacturing Systems Magazine (now
MBT Magazine). In fact, at one point, the list was expanded to the top 100
to provide more aspiring market leaders their share of the spotlight. Today
many would argue the list of well-known vendors has shrunk to 12 to 15.
Yet when a small company goes shopping for ERP there are many more options to consider.
Given the consolidation of the market, one would expect a one-to-many
relationship between ERP vendors and ERP products. Infor alone has acquired 31 companies in the past five years, a good portion of which were
ERP vendors. ERP vendors like Consona, Epicor, Exact, Microsoft Dynamics,
Oracle, and Sage have anywhere from three to six or more ERP product
lines.
However, the converse is equally true. While some ERP vendors bring their
products to market predominantly through their own direct sales forces,
indirect channels are certainly not uncommon, especially in selling to the
low end of the market. In fact:

Microsoft Dynamics' four ERP products are exclusively sold by Microsoft resellers

Oracle approaches both small and medium size businesses through

its Oracle Accelerate program, which boasts 330 partner resellers

SAP's Business-One, targeting companies with less than 100 employees, is also sold by an extensive partner network, with over 100
Independent Software Vendors (ISVs), 170 partner solutions and a
total of 1,300 partners

Sage Software drives almost half its revenue through its channel

Some of these resellers sell a single product or multiple products from the
same or different vendors. For example, Microsoft partner Columbus IT
offers both Microsoft Dynamics AX and NAV, targeting small companies
with the latter and larger companies with the former. Tectura and ePartners
offer all four Microsoft ERP products, while Fullscope offers only one (AX).
Third Wave Business Systems offers both Microsoft Dynamics GP as well as
SAP's Business One. Sage has a very heterogeneous channel, with many
partners specializing in just one or two of its product lines.

"Although we are small, our

company has grown by acquisition and we have taken an integrated approach and consolidated to a single ERP. Our primary objective was to enter
data into the system only once.
Through this approach we have
improved visibility, reduced
inventory by 15% and we
shaved five days off our month
end close.
~ General Manager, Small (and
growing) Injection Molding
Company

Of the well-known ERP vendors, Aberdeen's July 2007 ERP in Manufacturing

study found Epicor, Infor, Microsoft Dynamics, QAD, Sage Software, and
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ERP in Small Companies

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SAP to have the largest presence amongst our survey respondents from
small companies. We have included these and several other well-know vendors in our partial list of ERP solution providers to small companies in Table
2, as well as some that are far less well known. Given this one-to-many relationship between vendor and products, Aberdeen has included the product(s) offered by each. Those products that appear in bold text are specifically targeted at small companies. Other products may be implemented in
companies ranging in size from small to mid-size or large companies.
Table 2: Solution Landscape
Company

CMS Software
www.cmssoftware.com

Consona
www.consona.com

Epicor
www.epicor.com

Exact Software
www.exactamerica.com

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Industries Served

Products

Automotive Suppliers
Food Processors
Consumer Package Goods
Aerospace
Electronic Components
Metal Stamping
Plastics Molding

CMSi5 and CMSm5

Automotive Suppliers
Food Processors
Consumer Package Goods
Aerospace
Electronic Components
Metal Stamping
Plastics Molding

Made2Manage, DTRPlastics,
Cimnet, Axis, EnCompix, Intuitive

Aerospace and defense

Automotive
Capital equipment
Electronics
Fabricated metals
Machine builders
Medical devices
Mold making
Rubber and plastics
Screw machinery
Sign building
Stamping tool and die

Enterprise, iScala, Vantage, Vista, Dataflo, Manfact

The Macola line is a horizontal solution

targeting mid-size manufacturers
The JobBOSS product line is designed
specifically for job shops, custom manufacturers, and high-tech shops; both
high-volume and production shops as
well as a quantity one prototypes, machine builders, tool builders, or assembly shops

Macola, Kewill ERP, MAX, JobBoss

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Company

Industries Served

Products

Retail & Wholesale Verticals such as:

Everest Software
www.everestsoftwareinc.com

Glovia and Glovia Services

www.glovia.com
Harris Data
www.harrisdata.com

Infor
www.infor.com

IQMS
www.iqms.com

Jobscope
www.jobscopesoftware.com

Microsoft Dynamics
www.microsoft.com/dynamics

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Apparel
Furniture
Industrial Equipment and Tools
Computers
Consumer Electronics
Food Specialties
Outdoor Entertainment
Pet Supplies
Sporting Goods

Everest Advanced

Electronics
Capital equipment
Automotive

Glovia (previously Xerox Chess)

Glovia Services delivers the
product On Demand to small
companies

General Manufacturing
Distribution

HarrisData ERP Manufacturing

Automotive
Process industries
Distribution
Industrial equipment and machinery
High-tech and electronics

COM, BPCS, ERP LN (Baan), ERP LX

(BPCS), MANMAN, MK Manufacturing, KBM, MAXCIM, CAS, PRMS, Masterpiece, Infinium, Prism, Protean,
BAAN, Visual, TRANS4M, Xpert, XA,
Syteline, Adage, System 21, A+,
FACTS, SX.e, Anael, Sun Systems, and
Varial

Plastics
Automotive
Consumer products
Packaging
Medical
Appliance
Electronics
Computers / business machines

EnterpriseIQ ERP

Engineer- to-order manufacturing

Repetitive manufacturing
Aviation MRO
Metals processing
Retail
Automotive
Chemicals
Consumer packaged goods
Hi-tech and electronics

Jobscope Enterprise Edition, Microsoft

Dynamics GP, Microsoft Dynamics
NAV

Microsoft Dynamics AX, Microsoft

Dynamics GP, Microsoft Dynamics
NAV, Microsoft Dynamics SL

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Company

Industries Served

Products

Oil and gas

Utilities
Manufacturing

NetSuite
www.netsuite.com

Oracle
www.oracle.com

Plexus Systems
www.plex.com

QAD
www.qad.com

The Sage Group

www.sage.com

SAP
www.sap.com
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Software
Wholesale/Distribution
E-commerce
Service
Media & Publishing
IT Resellers
Advertising
Agriculture
Manufacturing
Non-profit
Retail

NetSuite

Industrial manufacturing
Hi-tech
Consumer packaged goods
Life sciences
Communication
Engineering and construction

E-Business Suite, Peoplesoft Enterprise, JD Edwards EnterpriseOne, JD

Edwards World

Automotive
Aerospace and defense
Medical devices

Plexus Online

Automotive
Consumer packaged goods
Electronics
Food and beverage
Industrial manufacturing
Life sciences

QAD Enterprise Applications 2007

(MFGPRO)

Automotive
Construction
Finance
Healthcare
Ecommerce
Retail
Not-for-profit
Distribution
Real Estate
Manufacturing

Sage PFW ERP, Sage Pro ERP,

ACCPAC 90/200/500 ERP, Sage
Adonix ERP, MAS90/200/500

Aerospace
Automotive
Chemicals
Consumer products

R/3, mySAP Business Suite, SAP

Business One, SAP All-in-One, SAP
Business ByDesign
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Company

Industries Served

Products

Engineering, construction, operations

High-tech
Industrial machinery and components
Life sciences
Mill products
Mining
Oil and Gas

Technology Group International

www.tgiltd.com

Vormittag Associates
www.vai.net

Agriculture
Construction
Consumer Packaged Goods
Electronics and High-Tech Manufacturing
Industrial Manufacturing
Medical Products and Devices
Food and Beverage
Wholesale Distribution

Enterprise 21

Medical
Automotive
HVAC / Plumbing Heating
Metals
Building Supply
Electrical Supply
Pharmaceutical
Food
Apparel
Electronics
Industrial
Janitorial

S2K Enterprise for Manufacturing

Source: Aberdeen Group, October 2007

For more information on this or other research topics, please visit

www.aberdeen.com:

Related Research
The 2007 ERP in Manufacturing
Benchmark; July 2007
The Total Cost of ERP Ownership
in Small Companies; August 2007

2007 Aberdeen Group, Inc.

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When Replacing ERP, Size Matters;

July 2007

Taking the ERP Plunge for the First

Time; June 2007

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Related Research
Author: Cindy Jutras, Vice President and Group Director

cindy.jutras@aberdeen.com
Founded in 1988, Aberdeen Group is the technology- driven research destination of choice for the global business executive. Aberdeen Group has 400,000 research members in over 36 countries around the
world that both participate in and direct the most comprehensive technology-driven value chain research
in the market. Through its continued fact-based research, benchmarking, and actionable analysis, Aberdeen Group offers global business and technology executives a unique mix of actionable research, KPIs,
tools, and services.
This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's
methodologies provides for objective fact based research and represent the best analysis available at the
time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by
Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or
by any means without prior written consent by Aberdeen Group, Inc.

2007 Aberdeen Group, Inc.

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