In-Depth

The Quest for Supply Chain Riches

Microsoft's share of the supply chain market may be tiny now, but the company sees massive promise on the horizon — with great benefits for partners.

Microsoft is a household name in operating systems, office suites, databases and now even game consoles. But how often do you connect the Redmond monolith with the burgeoning supply chain market? How many times have you heard Redmond execs even utter that phrase? In the coming months and years, Microsoft will use those words again and again as it seeks a share of the billions of supply chain dollars at stake worldwide.

Microsoft Dynamics is central to Microsoft's quest for supply chain glory, but it's also the company's biggest challenge in that arena (see "Getting Serious About ERP," June 2006). Because Dynamics was built from a series of acquisitions, Microsoft currently has four distinct Dynamics products with distinctly different supply chain capabilities. That fact creates confusion for customers, who can wander Microsoft.com endlessly looking for the right supply chain solution, and for partners trying to hitch their wagons to the best possible tools.

None of that will stop Redmond from banging the supply chain drum. "We've been a little quiet over the last few years about our capabilities across the enterprise and particularly the supply chain. Part of that was by design," says Sharon Ward, worldwide director of manufacturing for Dynamics. "We got our act together around the product acquisitions and [got the products] understood internally and figured out the roadmaps. We are ready now to roll that out and make a big roar about how very cool we are."

Now it's time to make some noise. "There is a very large advertising campaign around Dynamics. We're doing road shows and a lot to showcase our successful partners," Ward says, referring to the $500-million campaign promoting "People-Ready" software.

And through Microsoft's Project Green, which aims to build a unified ERP and supply chain platform by the end of this decade or early in the next one, partners should have a single ERP and supply platform to build upon. That alone could be huge.

For Partners Only
Unlike most of its competitors, Microsoft uses a sales strategy that relies nearly 100 percent on its channel partners. Some 10,000 partners represent the Dynamics line, and, of those, about 2,000 are involved with supply chains, says Niels Bo Theilgaard, general manager of supply chain management for Microsoft Dynamics. And this channel has room for plenty more partners.

Microsoft is encouraging partners to pursue midmarket and upper midmarket companies, although if partners make a push into larger enterprises, that's fine by Redmond. (Microsoft generally defines midmarket, or midsize, companies as those with about 50 to 1,000 users; enterprises have 1,000 and up.) One way to move upmarket is to automate parts of the organization -- perhaps not the core or the hub, but spokes reaching out from the core, such as satellite operations, manufacturing plants and subsidiaries.

It's important to realize that Microsoft isn't on some quixotic mission to displace long-entrenched ERP systems. In fact, just the opposite is the case -- or so Redmond execs say for now. "There are very few companies that don't have some kind of an enterprise backbone application," Ward says. "Many are finding that there are demands placed on those backbones that they either don't handle or were never designed to handle."

Of course, ripping out such a backbone can be incredibly disruptive. So, Ward says, in most cases, organizations simply build onto their core ERP solutions, adding supply chain features such as collaboration, visibility and communications capabilities. That could well include the Dynamics installed base. More than 50 percent of current Dynamics NAV and Dynamics AX customers have supply chain environments, Theilgaard says.

Existing Dynamics partners may want to eye these potential supply chain riches. "It's a natural extension," Ward notes. "It's not an explicit strategy of ours [to go after ERP partners], but there are many companies that are coming to us who have ERP products and would like to add our supply chain or collaboration tools."

Steps to Success
You can't just spin the market bottle, land on "supply chain" and become a successful partner. You must either already have the experience and skills -- or you must get them. "A strong knowledge of the supply chain and a strong knowledge of manufacturing almost go without saying," Ward notes. "The other things that are important are understanding some of the more advanced manufacturing techniques, like lean and Six Sigma, and how to take those off the shop floor and apply them to the overall supply chain."

Supply Chain: A Glossary


Visibility: The ability to see what's happening within your supply chain, including order status, the state of inventory, product movement and more. Collaborative technologies let you gain similar insights to supplier companies worldwide.

Lean: Short for "lean manufacturing," a comprehensive approach to maximizing value and minimizing waste in the manufacturing process.

Six Sigma: A rigorous methodology for increasing efficiency, improving quality and reducing defects in manufacturing.

Value Chain: A way of looking at the overall supply chain, focusing on the processes that add value and eliminate wasted and inefficient steps.

Keeping a global perspective is critical, too. Few companies today have purely domestic or local or regional supply chains. Even small and midmarket companies must deal internationally -- and that requires having fast, flexible operations and service. "One differentiator in companies today is the adaptability and flexibility of their business processes," Ward says. "For companies to be successful selling supply chain applications, they need to have that type of adaptable business process mindset."

Besides going after the midmarket (and perhaps even larger organizations), partners interested in gaining a piece of the supply-chain market should have a vertical bent and a deep understanding of business problems. "You need to address the customer's pain points, which are around business issues," Ward says. "Nobody just goes out to buy a whole technology suite. What they say is, 'I'm having trouble communicating with my partners across the supply chain,' or 'I need to give my customers three-day delivery on products to remain competitive, yet it is taking five days.'"

Such problems drive people to look for new systems, add-on systems or entirely new IT architectures. "Approaching from the idea of a vertical or an industry pain point cuts through a lot of the selling," Ward continues. "It's not going in and [telling the customer], 'You've got to go tear out your AS/400 because it's old.' It's going in and saying, 'You're having trouble with visibility. Here's how we can take a Microsoft Dynamics app and wrap it with some collaboration tools, like SharePoint or Live Meeting, and improve the visibility across your supply chain and communicate more clearly and rapidly with your customers and suppliers.'"

Do it right and deals will come -- and the numbers may be more impressive than if you'd just talked technology. "You can relate it clearly to solving the customer's pain points and the benefits they will achieve. It inherently increases the value in the customers' eyes and increases the price they're willing to pay," Ward says.

Fortunately, Microsoft is seeking interested partners and is more than willing to train them in supply chain technology and issues, Ward adds: "It's a key part of our strategy to go to market with and to our partners. We are only as good as they are."

So let's say you're bored with pushing messaging, or maybe the dental market you're in is going south, and you want to give the supply chain a whirl. What do you do?

First, Ward says, look at Microsoft's Web sites, which contain plenty of supply chain information for partners and prospective partners. Once partners indicate their interest, "our partner organization will make contact and help them understand the opportunity and where they fit in the infrastructure, then launch that huge resource called Microsoft in helping them get their applications ready, getting their marketing information ready and helping them understand how to go to market," Ward says. "We can also introduce them to other complementary partners and others in the Microsoft ecosystem that can help them. We have a huge wheel that is just sitting here waiting for someone to start it spinning."

Top 5 Worldwide SCM Software Vendors
by New License Revenue

Note: Microsoft Business Solutions ranked #11 in 2004, the most recent year for which statistics are available, with revenue of $33.3 million and market share of 1.6 percent. Source: Gartner, Inc.

 

Revenue
(millions of dollars)
Market Share (%)
Vendor
'02
'03
'04
'02

'03
'04
SAP
246.3
315.5
396.1
12.1
15.6
19.0
Oracle
137.1
154.4
163.8
6.8
7.6
7.8
Ariba
209.1
176.3
135.2
10.3
8.7
6.5
PeopleSoft
114.8
96.1
100.2
5.7
4.8
4.8
i2 Technologies
81.5
68.8
62.9
4.0
3.4
3.0
Others
437.1
449.7
460.8
21.5
22.2
22.1
Total Market
2,029.8
2,021.8
2,089.5
100.0
100.0

100.0

What They're Saying
One new partner is building a lean app on top of Dynamics AX. "We selected Dynamics AX to integrate our standalone lean business system for a few reasons," says Phil Coy, CTO of Future State Solutions LLC, a Registered Member in Moorestown, N.J. "Going lean is a fundamental change to a business. It's a philosophy change, a change to organizational structure and a thorough change to normal processes and procedures. Companies beginning a lean transformation are in an ideal position to reconsider their backbone ERP and transaction systems as well. [Because] none of the major ERPs has their own offering of a true lean business system, providing a completely lean solution based on a leading ERP was very appealing."

So why Dynamics AX? "Dynamics AX is a very open application -- easily extensible and tailor-able. Second, our .NET product fits from a technology perspective although I do think that Microsoft will have some serious challenges with X++ and MorphX. Third, Dynamics is appealing in the marketplace with its price point, flexibility, integration with Microsoft Office and the Microsoft name," Coy says. "We believe that there's an opportunity in the SMB market for displacement of other ERPs."

One consultancy has nice things to say about Dynamics GP (formerly known as Great Plains): "We handle five very large supply chain environments using Great Plains 8 and Dynamics GP 9, along with third-party utilities to handle physical inventory, shipping/receiving and bin location management," says Joe Johnson, CTO of Riverside Consulting Group Ltd., a Certified Partner and GP specialist based in Riverside, Ill. "We chose Great Plains because it's simply the best of the best when it comes to a small-, mid- or large-market ERP."

With the advent of SQL Server 2005, the push into the SAP and JD Edwards space on a blue-chip scale is complete, Johnson adds. "Dynamics GP and SQL Server 2005 can handle everything from the corner bakery with three employees and 100 transactions per day to a multinational corporation employing 3 million employees and doing 2 billion transactions per day."

Customers also seem to appreciate what Microsoft has been up to, citing, for instance, AX's tighter integration with Windows Server, Office, BizTalk and SQL Server as key attributes.

Others are just now looking. "[We are] in the process right now of writing an RFP for supply chain and retail software," says an IT pro at an apparel company who asked not to be identified, citing company policy about media interviews. As part of that RFP study, his organization has been examining Microsoft Dynamics AX (formerly Axapta) and Microsoft Dynamics NAV (formerly Navision). They've also been reading up on how those products and other ERP systems integrate with Microsoft Office and other products, he says: "As the integration between our desktop apps and business apps converges, we will begin to not even know where one stops and the other starts."

For experienced supply chain VARs, and for those new to the game, Microsoft offers a range of training options, from teaching the basic concepts of supply chains right down to the nitty-gritty of competitive positioning.

Customers Drive Dynamics Development

Software developers have interacted with Microsoft through the Microsoft Developer Network (MSDN), while customers do the same through TechNet. Now Dynamics customers can tell Microsoft what to do through the new Microsoft Dynamics Community, which includes blogs, video and shared discussions. For details, visit www.microsoft.com/dynamics/community.
-- D.B.

Partner Opportunities and Challenges
Microsoft's role in the supply chain is modest, with Redmond holding just 1.6 percent of the market share, according to Gartner Inc., the Stamford, Conn.-based IT analysis firm. But keep in mind that Microsoft's shares of the word processing, browser, database and messaging markets were small when those tools first shipped.

For that reason, Ward calls supply chain a major opportunity. "If I had a little, or even a large, company with an application or a desire to resell applications, Microsoft is the platform I'd be looking at, and the partner I'd want to talk to," she says. The bulk of the opportunities right now appear to be in larger midsize and enterprise organizations, but Microsoft is keeping an eye on the SMB market as well: Ward cites research indicating that 43 percent of those smaller companies will add functionality to their basic ERP systems over the next five years.

Meanwhile, while there are hordes of supply chain players, there is one monster. SAP AG has built an array of extensions to its core ERP platform that tackle high-end supply chain needs. While Microsoft is, perhaps, a bit coy about whether it expects to tackle the enterprise space, SAP is clearly moving into the midmarket. SAP -- which had 2005 revenues of $8.5 billion with profits of $2.3 billion, making it about 10 times the size of the Microsoft Dynamics line -- brings along its large application and large direct sales force.

"They have more reliance on direct sales than we do, although they certainly do have partners. Most of their vertical apps are created by partners and are supported and rolled out by partners," Ward says. But, she continues: "Our channel is definitely larger and stronger than theirs. Look at the size of the manufacturing market. Globally, there are hundreds of thousands of manufacturing companies and we have 10 thousand partners' feet on the street. We are much better positioned to approach all of those hundreds of thousands of manufacturing companies than any company could be with a direct sales force."

Ultimately, Microsoft believes that same partner channel gives it a clear edge in the supply chain market. "If you are a sales rep for Oracle, you may be calling on a financial institution today, a manufacturer tomorrow and a physician's office on Wednesday. It's hard to understand and appear credible in all of those different types of industries in such a short period of time," Ward argues. Partners, on the other hand, can focus on industries they know and train their employees to serve those markets. "Those people go out and have instant credibility because they can demonstrate a strong understanding of the vertical, and in many cases the local market," she says.

Like its ISV partners -- such as SAP, Manhattan Associates and others -- Microsoft is integrating commonly used tools to create easily understood user interfaces, well-understood back-end databases (SQL Server, of course) and collaboration tools including SharePoint, Exchange and instant messaging. The ubiquitous Office is leading the charge.

If Microsoft has its way, its competitors will be just as aggressive in supporting the stack. "One of the things [SAP] is making the most noise about is the Mendocino [now called Duet] project, which is wrapping Microsoft Outlook and other Microsoft technologies around [SAP's] ERP system to provide communication and collaboration," Ward says. In the end, Microsoft should be able to out-integrate all its rivals.

Given that edge, it might seem natural for Microsoft to take its wares and go after the biggest accounts -- those of the enterprises. And that may happen. At the same time, the big guns -- SAP, Oracle, i2 -- are well entrenched. Given that fact, Microsoft says it's content to push into midsize companies. "Why try to move into a space where it's actually kind of saturated?" asks Microsoft's Theilgaard. "Why would we go up there and start a competition game when there's too little to compete for?"

Besides, such a push would call for a radical reshaping of the Dynamics feature set. "We might not have all the functionality a top enterprise might want to have at the current moment. If we partner with SAP, at least we're sure that some of our other kinds of products get into the deal and we're not completely out of the game," Theilgaard says.

Microsoft's Biggest Customer Is
... Microsoft


Microsoft uses much of its own software to drive its supply chain, particularly in regard to the Xbox 360, which uses BizTalk, SQL Server, Office, the BizTalk connector to Rosetta Net for Internet-based communications with partners, and Dynamics AX. But the core ERP solution driving the chain remains SAP R/3.

Redmond uses the Xbox implementation as a case study to sell Microsoft supply chain solutions and the Xbox supply chain group is providing feedback to product development teams, especially BizTalk. Redmond executives contend that a largely home-grown Microsoft solution was easier and faster to develop and was able to integrate more effectively with key Microsoft tools. In addition, they say that the Rosetta Net connector allowed suppliers to be added faster and more cheaply than the traditional EDI system it replaced.
-- D.B.

Project Green
Partners may have to wait a while, perhaps even into the next decade, for Microsoft to put its best supply chain and ERP feet forward. That's when Project Green is expected to create a unified platform that takes the best of its four platforms, breaks these features down into components and uses them for an all-new core offering.

"We're giving them a state-of-the-art foundation to work from with Project Green," Ward says. "It will have the most advanced architecture because it will be very much component-based. There are lots of little pieces you can put together. If you don't like the little piece around purchase order entry, a partner can explain that order entry in the textile industry is very different and write that little piece specifically for the textile industry. It makes it easy for the customer to put together an optimized solution."

That's fine, but what do partners do now? The answer so far: Partners sell the tools that they know and have built vertical and customer solutions around. And let's face it: The real leaders in the group are Dynamics AX and Dynamics NAV. And through Project Green, these two already share many common components.

Microsoft Tomorrow?
Microsoft has a lot on its supply chain plate, especially considering that Project Green is a massive undertaking that is already well behind schedule. But Microsoft is nothing if not ambitious, and is pushing forward in three critical technical areas: RFID, lean and mobility, says Theilgaard. Microsoft has been working with Accenture, the global consulting company, for years on its own radio frequency ID implementation, done in part to meet Wal-Mart's ongoing mandate to require its suppliers to use RFID tags on their products. Now Microsoft is helping customers move to RFID technology as well. On the mobility front, Microsoft Windows already powers an array of portable devices, from notebooks, to handhelds and "smart phones." On the lean front, Theilgaard admits, there's work to be done: "We're not completely there yet, but I assure you we are going to be there."

Have no doubt, Microsoft has the money to make its mark -- no matter what arena it chooses. And analysts say supply chain is a chosen arena. "[Microsoft is] investing a lot of marketing dollars pushing where [it's] going in the supply chain," says Bob Ferrari, program director for supply chain strategies at IDC, the Framingham, Mass.-based IT research group. "Microsoft has a lot of cash to invest here; the potential is for them to be a player."

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