SoftBrands' Recovery Softens the AremisSoft Bankruptcy Blow
P.J. Jakovljevic - February 27, 2006

Background

The dynamic enterprise applications market never ceases to amaze long-term observers. While many players have sunken into oblivion, a few have come back under new names, with familiar (albeit refined) value propositions. One such case is SoftBrands, Inc. (AMEX: SBN; www.softbrands.com ), a Minneapolis, Minnesota (US)-based provider of enterprise solutions for small- to medium-sized businesses (SMB) in the manufacturing and hospitality industries worldwide. The vendor has more than 550 employees in its US headquarters and branch offices in Europe, India, Asia, Australia, and Africa. With more than 4,000 customers in over 60 countries now actively using its products, it has established a decent global infrastructure for the distribution, development, and support of enterprise software.

In order to understand the significance of SoftBrand’s recovery, it must be considered in relation to its recent history. While the SoftBrands name may not sound familiar, some may remember Fourth Shift Corporation, a formerly prominent, public, manufacturing mid-market, enterprise resources planning (ERP) provider. Fourth Shift Corporation was one of SoftBrands’ previous incarnations (and is still its major pillar; for more information, see Fourth Shift Corporation: Working Overtime to Provide Complete Customer Care). Some may also recall AremisSoft, another of SoftBrands’ former names, as a scandal-plagued company whose top executives are still hiding out in their native Cyprus, which (conspicuously) does yet have an extradition treaty with the US (though there is an unconfirmed rumor that one of the culprits was recently captured in the US).

Although SoftBrands was incorporated in October 2001, it was first formed as a subsidiary of AremisSoft, primarily to serve as a holding company for Fourth Shift Corporation and certain hospitality software assets. Fourth Shift, established in 1984, became SoftBrands’ principal operating subsidiary. However, the Minneapolis, Minnesota (US)-based Fourth Shift, which had been a public corporation until it was acquired by AremisSoft in April 2001 (see The Mid-Market Is Consolidating, Lo And Behold), was never really integrated into the ill-fated AremisSoft organization.

AremisSoft purported to be an international developer and marketer of software for several vertical markets. It was headquartered primarily in the UK and Cyprus. Unlike Fourth Shift and many other players in the downshifting market at the time, AremisSoft alleged substantially increased revenue in 2000, in part due to several supposed acquisitions and large sales by its erstwhile Emerging Markets Group, which served Eastern Europe, the Middle East, and India. In late 2000 and early 2001, AremisSoft also acquired two US companies in the hospitality software business and completed a cash merger through which it acquired all of Fourth Shift’s outstanding shares in April 2001. But, beginning in May 2001, a number of class action lawsuits, as well as a US Security and Exchange Commission (SEC) investigation, were commenced against AremisSoft. This led to the resignation of all of AremisSoft’s executive officers by the fall of 2001, and eventually to an SEC enforcement action against AremisSoft and criminal complaints against certain of its former officers.

AremisSoft’s new management, which is Softbrands’ current management, was tapped to help investigate these issues and to operate the businesses AremisSoft had acquired. After substantial forensic accounting work, the new management was (not surprisingly) unable to fully substantiatee AremisSoft’s operations as reported in 2000. Consequently, the class action lawsuits and enforcement proceedings led AremisSoft to file for protection under Chapter 11 of the US Bankruptcy Code in March 2002. With full participation of the plaintiff class, a plan for the reorganization of AremisSoft was approved in July 2002, and became effective in August 2002. Under this plan, SoftBrands was spun-off as a separate entity. The non-SoftBrands assets of AremisSoft were sold or disposed of immediately prior to, or as a part of, the bankruptcy proceedings. Because virtually all of AremisSoft’s continuing operations were already contained in SoftBrands, from an accounting and financial reporting standpoint Softbrands’ spin-off was treated as a reverse spin-off, that is, as if it had spun off AremisSoft.

Because of the substantial disruption in business operations and damage to credibility caused by the events described above, neither SoftBrands’ hospitality nor manufacturing enterprise applications businesses generated significant revenue from product licenses to new customers during the period from June 2001 to late 2002, though the vendor continued to generate recurring revenue from software maintenance of its principal manufacturing software product. During that difficult period, the company was nonetheless successful in expanding revenues in China, and in continuing development on DemandStream, a new generation of lean manufacturing software. SoftBrands management also worked during this period to integrate the company’s hospitality operations, which had been aggregated from several recent acquisitions of disparate software products, and to stabilize the principal hospitality product’s code.

During 2003, the vendor continued to work feverishly to reinvigorate sales of new licenses of its manufacturing software, to introduce DemandStream to the market, and to consolidate and integrate its hospitality operations. To that end, in November 2002, while waiting for the outcome of the AremisSoft bankruptcy proceedings, SoftBrands obtained financing of $20 million (USD), which has since largely supported its cash needs. The company’s financial situation was also aided by the fact that income from its manufacturing operations exceeded expections in fiscal year (FY)2003 (though income levels were still reduced compared to Fourth Shift’s mid-1990s levels) due to renewed interest in Softbrands’ core manufacturing product. The hospitality operations in FY2003, on the other hand, despite the acquisition a new hospitality product, Medallion, in April 2003, continued to be plagued by systems and personnel that had never been fully integrated and by software code for new products that did not meet customer expectations.

Because of these business unit performance issues, SoftBrands substantially restructured its operations at the end of FY2003, combining several office locations, decreasing staff in the hospitality division, and combining management of its manufacturing and hospitality operations so that the entire organization would function with greater efficiency. Since then, SoftBrands has continued its efforts to put its entire unfortunate, nightmarish AremisSoft-related history behind it, so as to further reinvent itself and rebuild some credibility. Consequently, it has been making a strong comeback in the enterprise applications world, especially in its traditional stronghold of China (and also in India).

During 2004, Softbrands, capitalizing on steps taken during 2003, entered into an arrangement to provide software to the smaller manufacturing business market with SAP Business One (see SoftBrands to Institute Fourth Shift for SAP Business One Manufacturing Work-plan) and continued market development for the budding DemandStream lean manufacturing product. As for the hospitality operations, the vendor completed new versions of its software products that now are reportedly stable, are under consistent development control, and have obtained renewed support and confidence from major customers.

SoftBrands’ Recovery

Currently, SoftBrands has revenues of about $70 million (USD), with around 65 percent coming from customer support as recurring revenue, and approximately 60 percent coming from North America. The vendor has also successfully worked on its Wall Street reinstatement (its stock had long traded on the pink sheet over-the-counter stock market, where value is much more difficult to gain than in national markets). As of December 28, 2005, the company has been trading on the American Stock Exchange (ASE).

The AremisSoft operations that were curtailed as part of the bankruptcy agreement are reflected in SoftBrands’ 2004 financial statements as discontinued operations. Over the next five years, the company’s goal is to grow revenues 10 percent to 15 percent and to have earnings before interest, taxes, depreciation and amortization (EBITDA) of 20 percent to 30 percent, thereby building its business to a greater size and scale. This optimism is based on several of SoftBrands’ strategic initiatives, including the following ones.

• The company’s partnership with SAP, which gives Softbrands a major credibility boost. The recent appointment of Ralf Suerken as senior vice president (SVP) and general manager (GM) of SoftBrands’ manufacturing division can be bundled in with this. Mr. Suerken has many years of SAP-related experience. He has intimate knowledge of SAP culture and mid-market products and services in Europe, where SAP is accepted as a viable mid-market candidate, and brought itelligence Group, a major SAP mid-market reseller, to the US in the 1990s.
  
  
• The vendor’s commitment to advancing, under its own steam, the lean, demand-driven manufacturing concepts with its DemandStream offering
  
  
• Its long-term presence (i.e., since 1989) in the Chinese market, which makes it one of the leading ERP suppliers in China. SoftBrands now has Asian headquarters in Tianjin, China, as well as offices in Shanghai, Beijing, and Guangzhou, China. SoftBrands’ current manufacturing customers in China are primarily western-based companies with major operations in China.
  
  
• The company’s ability to capitalize on right-shoring trends through its worldwide development and customer support infrastructure. Again, much of this infrastructure is in China, where it has more than 100 employees in 4 offices and several hundred customer installations. It also has a presence in India, where it has eighty staff members and thirty installations.
  
  
• The fact that the company recently received $12.6 million (USD) as part of the $200 million (USD) settlement (one of the largest in the history of rogue, runaway executives) reached between federal regulators and the former chief executive officer (CEO) of AremisSoft. This money is coming in handy to bolster SoftBrands’ cash position and expansion capital. SoftBrands also received $2.9 million (USD) in 2003, and could potentially receive more in the future.
  
  
• The ongoing upgrading of SoftBrands’ hospitality solution products

Nowadays, Softbrands’ revenue comes mostly (about two thirds or more) from the SoftBrands Manufacturing division. It receives the remaining approximately 30 percent from sales and support of mid-market hotel, property, and leisure management systems (i.e., PORTfolio, POS, Medallion, RIO Grand, and other products) within the SoftBrands Hospitality division. With over 300 employees worldwide, the manufacturing business supports the enterprise information management needs of small- to mid-sized manufacturing companies worldwide by offering them ERP software, consulting, implementation, installation, and ongoing support. SoftBrands’ four core products for manufacturing include the following.

1. Classic Fourth Shift, aimed at manufacturing SMBs
2. Fourth Shift Edition for SAP Business One. This product is the result of the 2004 agreement to a significant joint-initiative with the SAP Business One product to address the software applications needs of small and medium-sized manufacturing companies.
3. evolution (formerly Aremis Enterprise). This is another extended ERP product that is primarily a configurable ERP and business-to-business (B2B) e-commerce solution. It is built on several database platforms (Oracle, IBM Informix, and Microsoft SQL2000) and server platforms (HP-UX, Sun Solaris, IBM AIX, and Microsoft 2000 Windows Server), and, therefore, might be more suitable for larger mid-size manufacturers.
4. DemandStream. On the manufacturing side, DemandStream is a lean enterprise automation software system that addresses the emerging market for lean automation.

This concludes Part One of a five-part note. Parts Two and Three will address SoftBrands Manufacturing, Part Four will look at SoftBrands Hospitality, and Part Five will examine the company’s market impact.

Classic Enterprise Resource Planning Solution Shifts Over
P.J. Jakovljevic - February 28, 2006

SoftBrands Manufacturing

SoftBrands, Inc. (AMEX: SBN; www.softbrands.com), is a Minneapolis, Minnesota (US)-based provider of enterprise solutions for small- to medium-sized businesses (SMB) in the manufacturing and hospitality industries worldwide. The company’s revenue nowadays comes mostly (about two thirds or more) from the SoftBrands Manufacturing division. For details on SoftBrands’ recent history, see SoftBrands’ Recovery Softens the AremisSoft Bankruptcy Blow.

This is Part Two of the five-part SoftBrands’ Recovery Softens the AremisSoft Bankruptcy Blow series.

Classic Fourth Shift

Classic Fourth Shift is SoftBrand’s core manufacturing product aimed at manufacturing SMBs. Fourth Shift software, which is built on a Microsoft platform, was introduced in 1985 as one of the first personal computer (PC)-based enterprise resource planning (ERP) systems. Its comprehensive extended ERP suite facilitates critical business functions, including manufacturing, engineering, operations (order entry, purchasing, and shipping), financials and accounting, workflow, e-business, human resource (HR) management (including recruitment, hiring, benefits administration, payroll, compliance, and employee training), customer relationship management (CRM), advanced planning and scheduling (APS), and supplier relationship management (SRM).

Producing approximately 65 percent of its revenue, the Fourth Shift product remains a major breadwinner for the SoftBrands Manufacturing division. It is a Web-enabled product for different manufacturing mid-markets that is available in seventeen languages. More than 4,000 systems have been sold to over 1,500 customers in 60 different countries. Classic Fourth Shift users include some of the fastest growing manufacturers and global enterprises from the Global 2500, such as Eastman Kodak, Unilever, Bosch, TTK Prestige, and Electrolux.

The product covers many bases with nearly fifty integrated application modules handling order entry, accounting and finance, inventory control, manufacturing, executive decision support and business intelligence (BI), engineering, purchasing, and shipping. It also has adaptable Web-based supply chain visibility modules that communicate through portal technology. For a more detailed account of the solution’s features see Fourth Shift's evolution within SoftBrands' DemandStream.

These capabilities led to Classic Fourth Shift being promoted as one of the first mid-market ERP products whose ability to embrace customer and supplier activities was tied to core transactional back-office systems. To support these claims, Fourth Shift has long offered very competitive e-commerce ability within its market niche, which includes, but is not limited to, on-line catalogs, Internet storefronts, on-line credit checking, credit card validation, a rule-based parametric product configurator, on-line procurement, and order fulfillment. All the major user groups have been provided with e-business applications—while the My Fourth Shift Workplace takes care of employees, the Customer Center application enables customers or channel partners to browse the user enterprise’s on-line catalog, configure products, place orders, view their own specific pricing, check product availability, and access the status of their order(s) by tracking shipping and viewing their account and payment information.

The product has also traditionally been very strong in terms of transaction entry and reporting, tactical level production status visibility, lot traceability, cost control, and work in progress (WIP) management, rendering it well suited for order-ship-bill operations within make-to-stock (MTS) and configure-to-order (CTO) manufacturing environments.

The typical sale price for an installation of Fourth Shift, including license, training, and other up-front services, is approximately $200,000 (USD).

Expanding the Fourth Shift Footprint

In addition to the more than fifty native Fourth Shift modules, SoftBrands has expanded its solution by offering fifteen companion modules (covering the areas of customer operations, financial management, inventory management, manufacturing operations, planning and scheduling, product definition, vendor operation, and general business needs), which SoftBrands distributes on behalf of third parties. These modules may be licensed either individually or in combination (for more information, see Fourth Shift's evolution within SoftBrands' DemandStream).

In addition, Fourth Shift’s acquisition in the late 1990s of Computer-Aided Business Systems (CABS), a Colorado (US)-based developer of workflow-based e-business solutions, improved the product's plant execution and multi-site product functionality by providing VisiTools applications to improve user companies’ control, visibility, and understanding of manufacturing operations. These workflow-based extensions of the Fourth Shift product help track the movement of components and products through the plant from receiving through production, to the warehouse and final shipping. These applications also enable customers to monitor transactions and automatically take action as specified events occur, which should improve efficiency through tighter control over inventory with greater accuracy and less manual intervention. Many customers also praise the product’s workflow capabilities between production lines and warehousing facilities (including electronic data interchange [EDI] functionality that can be integrated with barcodes, automatic generation of all advance shipping notices [ASN] and containerization data, etc.), as well as its automatic data collection (ADC) capabilities for near real time operation (see The Why of Data Collection).

The Visitools include VisiBar, a data collection and workflow application that incorporates bar code data collection, real time data access, serial-device control, and a high-level programming language to create business-specific solutions (for more information, see Fourth Shift's evolution within SoftBrands' DemandStream). To that end, the VisiBar Designer uses a Microsoft Windows environment to generate scripts, which incorporate logic and database access to an organization’s business systems for validation and updates, and user interface (UI) commands to communicate with users. User prompts are delivered using desktop VBClient software, whose configuration settings allow multiple languages to be used simultaneously, so that each user interacts in their preferred language. In addition, VisiBar can print labels based upon the data collected and validated for material receipts, warehouse movement, and customer shipments. Several types of data collection devices are supported, and drivers can be developed for other devices.

The transaction monitoring application VisiWatch includes a selection of pre-written applets that often can help reduce the amount of time manufacturers spend on administrative tasks by notifying users about changes to their systems before those changes become problems. VisiWatch applets alert customers regarding bill of materials (BOM) changes; new customer orders and credit status changes; inventory adjustments; manufacturing order creation; purchase orders; remote control virtual reality (RCVR) errors; Sarbanes-Oxley compliance events; and queue e-mail delivery (for more information on Visiwatch, see Fourth Shift's evolution within SoftBrands' DemandStream). Because of these capabilities, Fourth Shift could be regarded as one of the first proponents of emerging business activity monitoring (BAM) applications (for more details, see Business Activity Monitoring: Watching the Store for You).

More Partnerships and Alliances

SoftBrands has also sought help in satisfying burgeoning customer requirements for radio frequency identification (RFID) and UCCnet compliance. In October 2005, SoftBrands formed a partnership with GlobeRanger, a leading provider of RFID, mobility, and sensor-based software solutions. The partnership should extend and enhance the existing RFID capabilities in the Fourth Shift ERP solution with GlobeRanger’s iMotion RFID platform.

This partnership came about a year after SoftBrands announced its vision for a global supply chain networking solution, which would provide manufacturers with a tightly-woven, broad framework for compliance with global data pools, such as UCCnet. At this time, the vendor also pledged to provide cornerstone technology to meet key supply chain requirements for the implementation of RFID technology. GlobalNet software’s two modules help meet these requirements.

The GlobalNet Data Synchronization Module (GDSM) ensures that the data users upload to UCCnet complies with the database’s format requirements, since the business rules, data relationships, and attribute hierarchies built into GDSM validate the users’ information, thus allowing them to publish correctly the first time. The module creates a foundation for adopting RFID by giving user companies the mechanism to store and manage data that RFID will rely on, thereby positioning the user company for the ultimate move to RFID.

On the other hand, GlobalNet Dock Door (GDD) serves as a manufacturer’s investiture into the world of RFID by enabling companies to comply with specific mandates today, while providing the scalability, data management, and integration capabilities for enterprise-wide RFID roll-outs as required in the near future. It is a middleware solution built specifically for real time data collection and processing. It allows for user-defined rules and adds business context to product movement data by identifying critical events and providing alerts both locally and back to enterprise systems. GDD stores data for a permanent history of product movement through the supply chain, which is the foundation for value-added business applications. It also provides remote monitoring, device management, data management, and open integration. Its flexible model accommodates both electronic product code (EPC) and proprietary formats.

As part of the above-outlined vision, SoftBrands also entered into a strategic partnership with Internet Commerce Corporation (ICC), a pioneer in business-to-business (B2B) e-commerce connectivity. This alliance integrates ICC’s Global Data Synchronization (GDS) solution with Fourth Shift to simplify and speed GDS implementations for SoftBrands’ customers. To this end, SoftBrands has modified its Fourth Shift data repository to maintain the full complement of data synchronization data attributes, provide the necessary workflow to manage item status, and utilize the ICC.NET network service.

ICC.NET has received Drummond approval and meets uniform commercial code (UCC)-compliance requirements for UCCnet services due to its extensible markup language (XML) processing and applicability statement 2 (AS2) Internet EDI connectivity capabilities. Because ICC is certified as a 2.2.1 UCCnet solution partner, its array of data synchronization offerings have gone through a rigorous certification process to ensure standards compliance, technical expertise, solution requirements, and implementation tasks in accordance with UCCnet standards. Therefore, the ICC partnership presents SoftBrands’ manufacturing customers with the ability to gain an out-of-the-box interface to exchange information with complete compliance to UCCnet standards. The ICC and SoftBrands combined solution should seamlessly transmit item data reliably, securely, and efficiently from Fourth Shift to trading partners via UCCnet.

Along similar product enhancements lines, early in 2005, Aegis Analytical Corporation, a provider of compliance enterprise software and expertise for pharmaceutical and biotechnology manufacturers, selected SoftBrands as a software alliance reseller of its Discoverant Paper Record Input Manager (PRIMR) solution. The Food and Drug Administration (FDA) Title 21 Code of Federal Regulations Part 11 (21 CFR Part 11)-compliant PRIMR allows users to capture their paper-based data more easily and accurately in the highly demanding manufacturing environment. The data can then be used in a variety of ongoing quality compliance and operational tasks, such as process trending, specification setting, annual product reviews, and process validation. This alliance thus expands the value of the Fourth Shift Lot Trace Module.

PRIMR’s user-centric graphical interface provides customizable, on-screen data entry forms based on a user’s existing paper forms. Once data is entered through the PRIMR interface, it is verified and approved. The data then becomes available to the entire user community within the company for all their operational excellence and quality compliance tasks. The partnership provides SoftBrands’ customers with a data capture method vastly superior to paper record keeping, whereby vital data can be easily backed up and therefore protected. In addition, customers can search and select the records needed for further analysis much faster than they can hunt through paper records.

Fourth Shift Edition for SAP Business One

Fourth Shift Edition for SAP Business One, another of SoftBrands Manufacturing division’s core products, is the result of a 2004 agreement for a significant joint-initiative with the SAP Business One product to address the software applications needs of small- and medium-sized manufacturing companies.

As the largest enterprise application software company in the world, SAP has significant marketing, distribution, and name-recognition advantages. The giant selected SoftBrands as its partner for mid-market manufacturing opportunities. The reasons cited for this partnership included SoftBrands’ brand recognition in the target market; existing customer base and global reach; large accounts potential; and fully integrated functionality with SAP Business One at the user interface (UI) level.

In a nutshell, although SAP has had a few other partners that have added some manufacturing functional nuggets to SAP Business One, none has exhibited the depth of functionality and global coverage that SoftBrands can offer with the Fourth Shift product. Fourth Shift has a very strong global customer base, including more than 400 customers in China (at one point, almost 75 percent of manufacturers in China that had implemented an enterprise resource planning (ERP) system were Fourth Shift customers, largely because it was the first ERP product to be certified by the local regulatory institutions). On the other hand, despite good products, SoftBrands's manufacturing revenue has been low lately for many reasons (e.g., fierce competition, saturated market, negative perception of the bankruptcy filing, etc.). The vendor badly needed a mechanism to reverse the trend of slim sales of new licenses for its manufacturing software products, as license sales constituted only about 15 percent of the overall manufacturing revenue during last few years.

Fourth Shift Edition for SAP Business One is a set of software applications based on the core Fourth Shift product that has been integrated with the SAP Business One software. The product, which has been sold commercially in earnest only since mid-2005, is designed to be an affordable, quick to implement solution with relatively full functionality for small- and mid-sized manufacturers. Using it, a dozen or so early adopter customers have reportedly been able to access real time information through a single system containing financial, customer relationship management (CRM), manufacturing, and management control capabilities.

Fourth Shift Edition for SAP Business One is based on flexible, open technology that allows it to change and adapt as a business grows. By embracing the concept of modular technology, the Fourth Shift product supplies a great number of middleware application program interfaces (API) for interconnectivity among its own and third party components, while also providing for flexibility and incremental deployment. The Fourth Shift 7 series also provides connectivity to other applications based on Microsoft standards, such as .NET and XML, which is considered appropriate for its target niche. This capability not only enables access to the distribution capability of SAP and its partners, but it also provides a significant opportunity to sell SoftBrands solutions to the divisions of SAP’s extensive installed base of enterprise customers.

Challenges and Plans

While this product offering has generated significant interest from existing and new customers (even before it was fully-integrated and market-ready), SoftBrands will have to be careful not to focus all their energy on Fourth Shift Edition for SAP Business One. The danger is that Classic Fourth Shift, which still has the largest install base, could be neglected. Having said this, SoftBrands expects Fourth Shift Edition for SAP Business One to be its top breadwinner—first in North America, and then in other geographical regions as those versions are released.

To this end, in October 2005, SoftBrands unveiled its plans to make the solution commercially available in seven additional manufacturing markets around the world during the next two quarters. Thus, the product became available in Australia, New Zealand, Singapore, and Malaysia in the fourth quarter of 2005. In the first quarter of 2006, it will be launched in the UK, Ireland, and South Africa. It has been available for several months already in the US and Canada. Moreover, SoftBrands recently demonstrated its commitment to the German market by acquiring Infra Business Solutions, GmbH, a privately-held German software company that is a reseller and development partner of SAP Business One. SoftBrands expects to have a translated and localized version of Fourth Shift Edition for SAP Business One for Germany, Austria, and parts of Switzerland in the second half of 2006.

Infra provides SoftBrands an entry into the key German manufacturing market with a successful, profitable organization that has extensive manufacturing, consulting, and support expertise in the small to medium enterprise manufacturing segment. Its key product, Infra:Net, is a production planning system sold in the German, Swiss, and Austrian markets. The Stuttgart, Germany-based firm today serves approximately 380 active customers, and has 20 channel partners that provide sales, consulting, and implementation services. Infra reported annual revenues of more than $2 million (USD) in fiscal year (FY)2005.

To date, the Fourth Shift Edition for SAP Business One sales strategy has depended primarily on the existing SAP channels supplemented by the Fourth Shift channel to sell and support implementations, as there has not been a real sales force in place. For now, SoftBrands is primarily selling the solution through its direct sales force, but one should expect that more deals will eventually come through other SAP Business One channel partners. For instance, in November, SoftBrands partnered with et alia LLC, a Milwaukee, Wisconsin (US)-based referral partner, to extend its reach in the North American small and midsize discrete manufacturing markets. et alia is also an SAP Business Partner focused on selling, implementing, and supporting SAP Business One software products for small and midsize manufacturing businesses, and as such it is a natural partner for SoftBrands.

This concludes Part Two of the five-part SoftBrands’ Recovery Softens the AremisSoft Bankruptcy Blow series. Part One discussed the company’s background, Part Three will address the evolution and DemandStream products, Part Four will look at SoftBrands Hospitality, and Part Five will examine the company’s market impact.

Extended Enterprise Resource Planning Vendor Shows Its Lean Side
P.J. Jakovljevic - March 1, 2006

Introduction

Besides the Classic Fourth Shift and Fourth Shift Edition for SAP Business One solutions (see Classic Enterprise Resource Planning Solution Shifts Over), SoftBrands Manufacturing’s core products include another extended enterprise resource planning (ERP) product named evolution (formerly Aremis Enterprise), as well as DemandStream, a lean enterprise automation software system.

For details on SoftBrands’ recent history, see SoftBrands’ Recovery Softens the AremisSoft Bankruptcy Blow.

This is Part Two of the five-part SoftBrands’ Recovery Softens the AremisSoft Bankruptcy Blow series.

evolution

Introduced in 1986, evolution is currently used worldwide in approximately 1,000 locations. evolution is a configurable ERP and business-to-business (B2B) e-commerce solution, built on several database platforms (i.e., Oracle, IBM Informix, and Microsoft SQL2000) and server platforms (i.e., HP-UX, Sun Solaris, IBM AIX, and Microsoft 2000 Windows Server), that might, therefore, be most suitable for larger midsize manufacturers. In fact, the evolution application is referred to as a platform neutral application, because it is available on most common enterprise platforms, and its user interface (UI) runs in a zero client mode, so that any browser-enabled device can access and work with evolution’s applications.

evolution’s functional scope embraces applications for the Internet, information publishing, connectivity, and multisite operations. The product’s core applications are production, planning, sales, inventory, purchasing, and financials, which are presented as approximately 6,000 loosely coupled, configurable components.

The product was designed to serve niche manufacturing markets, and is particularly suitable for dimensional and converter manufacturing environments (see Fourth Shift's evolution within SoftBrands' DemandStream). In fact, there has been a slew of recent functional enhancements for converter businesses. These enhancements include dynamic roll allocation, whereby the consumption of source material is managed through a comprehensive order material management function, which provides planners with the ability to designate source rolls or other material, specifying the material reservations or allocations using any of a number of attributes, such as lot number, roll weight, roll width, or roll length. Also, new production reporting features deal with operations such as mill rolls, coating, laminating, wide roll slitting, and tape slitting. For more information, see The Exacting Needs of Metal Service Centers.

Like Fourth Shift, evolution has integrated customer relationship management (CRM) and human resources (HR) applications, electronic data interchange (EDI) support, and shop floor data collection, and the suite is Web-enabled with a universal look-and-feel browser-based interface that covers the entire functionality. In contrast to Fourth Shift, which is a complete software system sold in a standardized form, evolution is designed to allow customers to customize the system to their own unique operations.

In particular, with a wide range of functionality, high scalability, and strong tools for tailoring the application, evolution provides businesses with a strong platform for business process improvement and business growth. For instance, the ensure business process toolkit has a 1,000 strong library of default business processes and hypertext markup language (HTML)-based drag-and-drop modification facilities to aid with implementation. In addition having been built on a service-oriented architecture (SOA), and by using business process management (BPM) tools to model, design, configure, and implement user enterprises’ unique functional requirements, evolution allows customers to tailor the application without modifying the underlying source code (see Understanding SOA, Web Services, BPM, BPEL, and More).

evolution BPM

Late in 2004, SoftBrands announced the release of evolution BPM, a solutions toolkit for delivering BPM capabilities (see BPM: A Crash Course on What It Entails and Why Use It). Two of the main drivers for companies to implement BPM are often the enablement of operational process improvement and the delivery of strategic competitive advantage. However, SoftBrands believes that BPM will be increasingly applied to support strategic business objectives and end-to-end business processes rather than individual departmental functions.

To make this point, the vendor often challenges prospective customers with the question, “If you are doing the same as your competitors, what advantage do you have in the marketplace?” That is to say that by designing processes that are unique to the business, one should achieve a competitive advantage, and BPM should help leverage those unique actions and make them work in powerful ways that are incremental, focusing on process improvement rather than on radical redesign. BPM is both a management technique (i.e., it focuses on continuously improving operational processes that affect a company’s performance goals) and a set of technologies (i.e., it refers to a variety of tools that can be used to facilitate the modeling, improvement, documentation, and deployment of business processes), giving user companies a way to more effectively bring together proven operational improvement techniques (such as lean Six Sigma) with current Internet-based process execution technologies.

The essence of BPM is modeling the business processes, using a visual process modeling (flow chart) tool to document the flow of information, human activities, and system activities (often as a result of process improvement actions). The tool will define rules, roles, relationships, alerts, notifications, and application integration, so as to identify process cost, documentation, and ownership. Thus, the resulting process map is actually the running business process, and when the map is changed, the process is changed too.

BPM can bridge the chasm between physical actions and the underlying systems requirements needed to support the process. For instance, ongoing quality initiatives, such as Six Sigma, work to improve quality and reduce errors, measuring the improvements in business processes through process analysis. BPM, for its part, establishes a defined enterprise view of all these improved processes and then provides for their documentation, control, and management. In this way, BPM can bring lean manufacturing initiatives to the rest of the business (including the white collar staff), extending the power of lean automation from the shop floor to the office, providing tools to take waste out of every process, and bringing all aspects of the business closer to the customer. Needless to say, because BPM technologies are built using evolving Internet-based capabilities, they also open up the possibility for building supply chain processes that smoothly integrate business processes across multiple companies, leveraging the Internet where it makes sense.

Accordingly, evolution BPM’s BPM Designer tool helps managers visualize the business as a series of processes that coordinate individuals, departments, and even whole organizations. Once the processes are designed, the BPM Workflow Engine provides event-driven process automation, using the evolution Corporate Portal to alert individuals of actions required in a process, in a configurable and secure manner.

evolution 11P

SoftBrands most recent evolution solution, evolution 11P, also has BPM capabilities. In October, SoftBrands announced the upcoming availability of the evolution 11P product, which is the latest advancement in intelligent, integrated BPM-based ERP. Some components of the release are already available, while the balance is scheduled for roll-out over the next several months.

The 11P release is SOA-based to provide customers with faster and more flexible reconfiguration of their business processes by enhancing the ability to share and reuse services and components. Building on evolution’s history of providing componentized applications, this architecture should allow customers to leverage their current applications while deploying critical improvements for the needs of the business. Some of the advantages that this architecture, as an enabler of BPM, should provide user enterprises are as follows.

• Deployment of Web services, including evolution’s own Web service that allows dynamic access to any existing user function, and the linking of services from multiple applications into a cohesive set of processes
  
  
• Migration of business rules management from the traditional application layer to a rules management layer configured through the BPM designer
  
  
• BPM workflow engine that provides for the visualization, execution, and management of business processes, which are realized through continuous process improvement events. To that end, an updated BPM engine will cater for loops, parallel tasks, and process cost analysis, while improved process visibility, administration, and monitoring will come through the process Visualizer.

DemandStream

SoftBrands Manufacturing’s final core product, DemandStream, was introduced in 2001 and currently has approximately 30 customer installations worldwide, primarily in the US and China. DemandStream is a lean enterprise automation software system that addresses the emerging market for lean automation.

Lean manufacturing principles were initially developed in the 1950s, but nowadays are enjoying a resurgence and wider acknowledgement as a leading means of improving manufacturing efficiency. Lean manufacturing concentrates on the relentless removal of waste, and on constant manufacturing process monitoring and connectivity to suppliers and customers. The concept is intended to cause the manufacturing processes to provide precisely what customers demand, while minimizing interruption because of lack of supply, raw materials, work in process (WIP), and finished goods inventory (for more information, see Lean Manufacturing: A Primer).

SoftBrands realizes that most companies start their lean manufacturing journey with manual processes, but that to sustain and advance lean benefits and maintain competitive advantage they must eventually progress to lean automation. Otherwise, there is the danger of inefficiencies slowly creeping back into processes and bringing continuous improvements to a halt. This is where DemandStream comes into its own.

DemandStream supports the demand-driven factory from the shop floor through the entire supply chain. While Fourth Shift’s VisiTools and GlobalNet modules are impressive (see Classic Enterprise Resource Planning Solution Shifts Over), DemandStream belongs to a group of new and innovative software products that are addressing the gap between plant operations and extended supply chain networks. DemandStream’s combination of supply chain execution (SCE) functionality, supply chain visibility, and supply chain event management (SCEM), based on demand-pull and lean manufacturing, might provide the means for advanced operational and supply chain efficiencies of synchronized networks (see Using Visibility to Manage Supply Chain Uncertainty and Supply Chain Management Is Evolving toward Interdependent Supply Networks).

Complex supply chains need visibility, and a means for optimizing the flow of materials through the network. DemandStream provides this by enhancing supply chain network communication and collaboration among network participants. In other words, the product’s Demand-Driven Factory, Demand-Driven Replenishment, and Demand-Driven Supply Chain components provide factory floor management of dynamic kanbans, lean material flow management, and supply chain material or demand signals with visibility to both vendors and customers.

Moreover, DemandStream works in tandem with a manufacturing customer’s ERP system and is not dependent on Fourth Shift or any other specific ERP software products per se. DemandStream further distinguishes itself from other pure play lean solutions by being designed to be complementary to traditional push-based planning systems and being specifically intended to enable lean implementation in less than ideal environments (i.e., environments other than manufacturing operations with low-mix, high-volume, make-to-demand products).

DemandStream’s core is the Dynamic Lean Engine, which drives the entire software and is designed to automate pull signals and easily integrate lean processes throughout the enterprise and supply chain. The following are the key capabilities of the Dynamic Lean Engine.

• User-driven rules to accommodate lean operating practices (after users have made a significant investment in designing factories and processes) from factory management to replenishment and supply chaiin management (SCM)
  
  
• Always-on agent, which is (as the name implies) agent-driven and event-based to continuously monitor and signal lean activities, including triggers from other systems, based on user-driven rules. The always-on agent broadcasts signals to drive the right action from the right areas of the enterprise and value chain at the right time.
  
  
• Connector toolkit, which allows seamless, open, two-way integration of lean concepts with third party systems, such as ERP systems or virtually any data source (spreadsheets, flat files, databases, etc.), and suppliers through Internet connectivity (e-mail, EDI, RosettaNet, Microsoft BizTalk, and extensible markup language [XML]) and Web-based portals
  
  
• AutoCapture, which streamlines data collection and movement by eliminating manual processes with integrated bar coding, scanning, scales, radio frequency identification (RFID) terminals, etc.

Back-office Integration Tools

DemandStream also provides back-office integration tools for importing data using Import Wizards into the Shop Floor Module from a back-office system, and for inputting data using XML messages generated by the Shop Floor Module back into a business system. In a nutshell, the product delivers the following four major capabilities to manufacturers.

1. The Dynamic Kanban capability enables kanban sizing and resizing to be synchronized with the demand pattern of the business. This allows lean manufacturers to achieve improved material flow and to reduce overall production lead times.
   
   
2. The Lean Scheduling and Demand Smoothing capabilities balance customer demand smoothly to the shop floor for timely and efficient execution. DemandStream also delivers visualization of traditional heijunka smoothing techniques and drives the execution data all the way to the cells for execution without the challenges of manual techniques.
   
   
3. Supply Chain Execution is an interactive Web-based application that enables the shop floor to interact with suppliers through the Supplier Kanban Board. Features include interactive shipping and an enhanced XML messaging system, while reports include projected usage and vendor performance statistics.
   
   
4. ERP System Transaction Automation. Manual lean implementations are still relying on ERP systems to process transactions—a burden which often offsets significant portions of the gains realized by the adoption of lean practices. DemandStream’s back-office integration capabilities automate or eliminate most of the ERP system transaction processing effort.

This concludes Part Three of the five-part SoftBrands’ Recovery Softens the AremisSoft Bankruptcy Blow series. Part One discussed the company’s background, while Part Two addressed Classic Fourth Shift and Fourth Shift for SAP Business One. Part Four will look at SoftBrands Hospitality, and Part Five will examine the company’s market impact.

Vendor Extends Welcome Mat for Hospitality Industry
P.J. Jakovljevic - March 2, 2006

Introduction

With over 130 employees worldwide and contributing about a third of the company’s revenues, SoftBrands’ hospitality business supports the enterprise information management needs of hotels and resorts with a range of software products and services. The vendor provides property management systems (PMS) and leisure management systems (LMS) to hotels, resorts, spas, and health clubs. The two PMSs are Medallion and PORTfolio, and the primary LMS is RIO. There is also POS, a touch screen point-of-sale solution for the efficient management of restaurants and bars.

For details on SoftBrands’ recent history, see SoftBrands’ Recovery Softens the AremisSoft Bankruptcy Blow. For a discussion of the Classic Fourth Shift and FourthShift for SAP Business One products, see Classic Enterprise Resource Planning Solution Shifts Over. For a discussion of the evolution and DemandStream products, see Extended Enterprise Resource Planning Vendor Shows Its Lean Side.

This is Part Four of the five-part SoftBrands’ Recovery Softens the AremisSoft Bankruptcy Blow series.

Medallion

Medallion is a Microsoft Windows-based PMS designed primarily for small and mid-sized hotels, limited-service chains, and extended-stay hotels worldwide. It features a single-screen approach to property management and a high number of features. Medallion has been translated into numerous languages and can accommodate both single- and double-byte languages, allowing it to be sold in all global markets. There are currently more than 600 installations of Medallion worldwide.

Medallion is one of SoftBrands’ key products, since it can offer customers of legacy systems an attractive replacement product. A key product feature is its look and book function that lets a user drag and drop bookings using a graphical representation of their property. This feature was designed for hotel staff with little time for lengthy or sophisticated training. Nonetheless, the product contains virtually all the functionality of a first-class property management system, including individual, corporate, or family reservations; rate management; guest accounting; city ledger; conferencing and banqueting; group handling; travel agent allocations; seasonal rate structures; unlimited folios per guest room; charge routing; guest and company history; integrated rate management; credit card processing; sales and marketing tools; and employee e-mail and task manager.

Medallion is Microsoft SQL Server-based and Microsoft Windows NT, 2000, and XP-compliant. The system can be customized fairly easily to meet the specific needs of each property. It can also be integrated with leading back-office applications for necessary reporting purposes.

Prior to 2003, SoftBrands was a distributor of Medallion. It acquired all of the intellectual property rights to the product in mid-2003 and has since worked to standardize the offering and increase its appeal to its target markets. The vendor expects to increase its Medallion marketing efforts in the US and China in the immediate future, especially in light of the coming Olympic Games and the expected boom of the Chinese tourism industry.

To that end, in October, SoftBrands announced that it is developing a two-way interface for Medallion PMS to the Best Western Central Reservation System (CRS). Development of this interface is a significant step in the certification and endorsement process that will allow Medallion to become an approved PMS for Best Western member properties in North America.

SoftBrands is currently a member of the Open Travel Alliance (OTA), an organization working to standardize communications within the travel industry, and the Best Western two-way interface conforms to OTA specifications. The new two-way interface will make it possible for guest reservations to be booked or updated through the Best Western central reservation office or through an individual property using real time hotel availability data for Best Western properties.

PORTfolio

PORTfolio is a comprehensive client/server hotel system that offers a wide range of functions for both front- and back-office operations in single-site and multi-property hotels and resorts. With PORTfolio’s centralized management system, hotel chains can take advantage of a central reservation system (CRS), as well as centralized guest and company history, data warehousing, and a sales ledger. The product also has many customizable features, allowing hotel staff to keep operations flowing from one shift to the next. Using these features, staff can track reservations, client history, room availability, rate levels, and day-to-day communications with graphically rich screens and relatively easy-to-read menus.

Other key features of PORTfolio include a diary, end-of-day processing, housekeeping, maintenance, accounts receivable (AR), and full management reporting. There are currently approximately 250 installations of PORTfolio. These are primarily in the UK, though about thirty are in the US. This is because PORTfolio is a small enterprise solution particularly suited to the characteristics of the hotel market in the UK. In North American markets, the product is also sold to timeshare properties that are using Resorts Solutions CRS software.

RIO

SoftBrands’ guest-centric LMS, RIO, supports the activities of spas, health clubs, and resorts. RIO is an integrated system that is particularly suitable for high-end accommodation resorts and spas. The system has seven software modules that are designed to operate either independently as stand-alone applications, or collectively in any combination to provide an integrated solution, which shares a client history database.

The heart of the system is the Client Profile Manager, which allows a resort or spa to capture all aspects of client preferences and activities. RIO can tie together all areas of a resort property, including the spa, restaurant, gift shop, classes, special events, golf, tennis, and fitness center, through specific modules such as RIO Spa, RIO Retail, and RIO Dining. SoftBrands has offered the RIO product for over three years, and there are currently approximately 250 installations of RIO worldwide.

Legacy Software System

Besides revenue from the aforementioned solutions, a large portion of hospitality revenue is derived from maintenance of legacy software systems, primarily IGS Hotel and LANmark, which SoftBrands pledges to continue to support. IGS Hotel operates in a multitasking Microsoft Disk Operating System (DOS) environment and offers a wide range of functions for both the front- and back-office operations in a hotel. LANmark is a property management product, which operates in multitasking DOS environments and offers many of the same features as IGS Hotel.

Hospitality Operations

SoftBrands’ principal offices for its hospitality operations are shown in table 1 below. The vendor also has sales offices in Beijing, China; Dublin, Ireland; and Johannesburg and Cape Town, South Africa, as well as distributors worldwide.

Table 1. Principal Offices of SoftBrands Hospitality

SoftBrands currently provides customer support for hospitality customers on a geographic basis from locations in the US, the UK, Belgium, and Australia. The company is developing a worldwide customer support center in Bangalore, India, through which it will provide first-line customer support for hospitality clients on an around-the-clock basis, beginning any day now (if indeed it has not already started).

SoftBrands distributes its hospitality products primarily through a worldwide direct sales organization, though it does have some reseller and distributor relationships. The vendor currently employs about a dozen direct sales personnel in its hospitality operations worldwide, and has contracts with approximately nine resellers.

A direct sales force conducts all the sales in the US, while the vendor uses resellers in Canada and Mexico. In the Europe, Middle East, Africa (EMEA) markets, it has a direct sales force, which accounts for 70 percent of product sales, as well as channel partners in Spain, the Netherlands, Scandinavia, Dubai (UAE), and Russia. In Asia Pacific, the company also uses a mix of direct sales force and channel partners.

Research and development (R&D) for hospitality products occurs both in-house and through an agreement with RekSoft, a St. Petersburg, Russia-based company with whom SoftBrands has a multi-year development contract. RekSoft currently provides continued core development for Medallion. Indeed, the focus of SoftBrands’ current development efforts is primarily on increasing the functionality of Medallion.

The vendor has also made a long-term commitment to software development and coding in India, with the creation of a worldwide development center in Bangalore, India. Approximately twelve hospitality development staff are located in Bangalore, India. This development effort focuses on the PORTfolio and RIO products.

This concludes Part Four of the five-part SoftBrands’ Recovery Softens the AremisSoft Bankruptcy Blow series. Part One discussed the company’s background, while Parts Two and Three addressed SoftBrands Manufacturing. Part Five will examine the company’s market impact.

Enterprise Application Provider May Deepen Market Impact
P.J. Jakovljevic - March 3, 2006

Market Impact

The past several years have been tough for SoftBrands, a Minneapolis, Minnesota (US)-based provider of enterprise solutions for the manufacturing and hospitality industries (see SoftBrands' Recovery Softens the AremisSoft Bankruptcy Blow and Fourth Shift's evolution within SoftBrands' DemandStream). However, the worst is certainly past for SoftBrands, and there are some glimmers of hope for a better future.

For a discussion of the Classic Fourth Shift and Fourth Shift Edition for SAP Business One products, see Classic Enterprise Resource Planning Solution Shifts Over. For a discussion of the evolution and DemandStream products, see Extended Enterprise Resource Planning Vendor Shows Its Lean Side. For details on SoftBrands Hospitality, see Vendor Extends the Welcome Mat for Hospitality Industry.

This is Part Five of the five-part SoftBrands’ Recovery Softens the AremisSoft Bankruptcy Blow series.

SoftBrands’ manufacturing customers are concentrated in the life sciences, machinery, chemical and plastics, automotive, consumer products, and electronics industries. We believe that the life sciences and consumer products sectors represent potential growth markets for SoftBrands in North America. In the Europe, Middle East, and Africa (EMEA) markets, there is growth potential in Eastern Europe, primarily in the Czech Republic, Poland, and Russia.

When it comes to the Asia Pacific market, the manufacturing sector in China is growing rapidly, and the vendor should be well positioned to capitalize on this growth. In particular, SoftBrands should gain an advantage from the facts that the erstwhile Fourth Shift was the first enterprise resource planning (ERP) vendor to be certified by Chinese authorities, and that, for a long time, the Chinese market lacked the strong local competition found everywhere else. There might also be potential for SoftBrands to gain market share with private Chinese enterprises as a result of the Fourth Shift Edition for SAP Business One offering. However, the vendor will likely need to produce local language versions before it can generate substantial sales of Fourth Shift Edition for SAP Business One in the Asia Pacific market. In addition, localization of value proposition, implementation services, and functionality will be required to adapt the product to the cultural differences found in Chinese companies.

In terms of the hospitality sector, SoftBrands has a hospitality customer base of approximately 2,500 worldwide. Organic growth in hospitality might come from replacing legacy systems with new products such as Medallion, and winning new-name accounts.

Regardless of industry, however, all the above forays should be backed up by substantial progress in developing an indirect channel to supplement the company’s direct sales force. SoftBrands currently has direct sales offices in several countries, including in Minneapolis, Minnesota (US); Reading, UK; and Tianjin, China.

Manufacturing sales offices employing about forty direct sales personnel are located in Singapore; Shanghai, Beijing, and Guangzhou, China; Johannesburg and Cape Town, South Africa; Dublin, Ireland; and Mexico City, Mexico. The vendor’s customer service hubs for the manufacturing business are found in Mexico City, Mexico; Blackburn, UK; Mantua, New Jersey (US); and Johannesburg, South Africa. Despite the fact that SoftBrands distributes its manufacturing software and services through a combination of direct sales and resellers, essentially all its revenue is generated through the direct sales offices. The following table summarizes the principal means of distribution for SoftBrands manufacturing products by geography.

Table 1. Distribution of SoftBrands Manufacturing Products by Geography

SoftBrands has quite a dispersed organization for a relatively small vendor with a number of diverse products. However, we believe that without development of a loyal channel beyond the current contracts with approximately twenty-five resellers and referral partners, the company's growth will be insufficient and SoftBrands will remain only marginally profitable. This is particularly true in light of many tier one vendors’ painful learning experiences regarding the importance of resellers in the lower end of the market.

SoftBrands Future Focus

We expect SoftBrands to increase the amount of distribution resources devoted to its newest product offering, Fourth Shift Edition for SAP Business One, within the next few years. In addition, SAP will more than likely help SoftBrands round out its functionality in areas such as distribution requirements planning (DRP), transportation management, plant maintenance, and enterprise asset management (EAM), where SoftBrands would require significant investment to deliver on its own.

However, the markets for some of SoftBrands’ more established products are mature, and the vendor may have difficulty generating significant new software license sales in those markets. In North America, for instance, the combination of a decline in the level of manufacturing activity and ERP software package purchases by a substantial portion of mid-sized manufacturing concerns can be expected to limit the potential for new license sales growth of existing ERP packages.

In these markets, SoftBrands may depend for growth on new software products that have a less consistent record of sales and service revenue, such as DemandStream and Fourth Shift Edition for SAP Business One. Demand Stream is a new application for lean manufacturing and a potential gold mine, but SoftBrands needs to form a respectable and knowledgeable team of business consultants that can help customers apply the technology to their lean initiatives.

While the vendor may become increasingly dependent on such products, which are not yet widely accepted (and which no one can be certain will ever be, since they have not sold in substantial quantities so far), SoftBrands will continue to invest in its other manufacturing applications, such as its classic Fourth Shift application and evolution. Given the apparent refocusing and transfer of the sales force to the SAP Business One edition, the vendor will have to tread carefully so as to not disconcert users of the original Fourth Shift. This is especially true in light of the fact that this product’s recurring revenue remains a major chunk of the company’s revenue. At the very least, SoftBrands should clarify for both existing and prospective users the functional, technological, and pricing differences between Fourth Shift and Fourth Shift Edition for SAP Business One. In other words, if someone was attracted to Fourth Shift in the first place, why should she or he consider (or not) the SAP Business One edition?

SoftBrands currently employs a staff of over eighty developers in its manufacturing software development department, and has contracts with a handful of independent developers. Table 2 shows the geographical spread of the product development departments for the various manufacturing products.

Table 2. Location of SoftBrands Product Development Departments by Product

The Fourth Shift development staff focuses on developing new functionality that customers have indicated they desire and extending the interoperability of Fourth Shift with other software products and new platforms. Additionally, the vendor is still currently devoting substantial effort to integrating selected portions of the base Fourth Shift code with SAP Business One for Fourth Shift Edition for SAP Business One. On the other hand, SoftBrands’ evolution development staff is focused on custom programming using the evolution tools to create individualized ERP systems for evolution customers. The DemandStream development staff has created, and continues to create, new software technology that further enhances this new product.

The idea of gaining economies of scale by building common application components as commodities that can be deployed within the entire product portfolio is tempting and promising in the very long run. However, the flagship back-office product lines will likely remain on separate tracks for some time to come, owing to their quite disparate, and in some instances proprietary, technologies and user bases. The disparity in the technological foundation of the products is also a disadvantage in that it has likely multiplied development expenses and caused difficulties with product integration, which also complicates the tracking of third party partnerships to compensate for the products’ different weak areas.

Challenges

This technological diversity is not SoftBrands’ only problem. In addition to the problem of blending many formerly independent organizations together, SoftBrands is still figuring out how best to bring their different technologies and industrial experiences to bear. Even if one puts aside the vendor’s tainted parent’s past (and the resulting negative market sentiments), the new company is left with multiple products whose brand recognition is quite low due to both the recent re-branding effort and brand confusion caused by the multiplicity of manufacturing products (not to mention the host of hospitality products).

Also, while the products may have their separate niches (i.e., Fourth Shift will be sold to Microsoft-centric smaller enterprises with up to $50 million (USD) in revenues within medical or surgical products, machinery, automotive, rubber and plastics, and furniture and cabinetry segments; evolution will go to larger enterprises with up to $250 million (USD) in revenues that prefer the UNIX and Oracle platform combination within the converters and packaging, apparel, textiles, food, and primary and dimensional metals segments), they may in some instances be similar enough to confuse former Fourth Shift and evolution direct sales representatives and value-added resellers (VARs) when selling the combined portfolio (e.g., to platform-agnostic, mid-market enterprises in the electronics and fabricated products sectors).

The channel partners for the most part will continue to concentrate on one product or the other, at least for now, which will demand little cross-training. Further, only selected members of SoftBrands’ direct sales teams in selected geographies will be in the position of representing multiple products, and these individuals will be assisted by pre-sales consultants from one product group or the other who know their products in-depth. Still, the conundrum of how to show a single face to customers certainly remains, especially when it comes to more vigorous enticement and reactivation of over 1,000 dormant accounts. One should also be closely watching the impact of Fourth Shift Edition for SAP Business One on SoftBrands' revenue in the next several quarters as additional geographical releases enter the market.

That being said, SoftBrands faces fierce competition on many fronts. The market for ERP software is intensely competitive worldwide and also price sensitive because the functionality of many of the product offerings in this market have become similar to each other. Moreover, the North American portion of the market has matured and is largely saturated by existing vendors. Competition in this market has become particularly acute, and the market has shown reduced growth since 2000. The EMEA and Asia Pacific markets are less saturated and stronger growth opportunities exist.

Some key competitors for Fourth Shift include Epicor Software, QAD, SYSPRO, Microsoft Business Solutions, Oracle, PeopleSoft, and Infor Global Solutions. Key competitors for DemandStream include QAD, Oracle, Infor (formerly Lilly Software), Pelion Systems, Factory Logic, Exemplary, etc., while the evolution product competes with vendors of financial and enterprise management products from a number of suppliers, including QAD, Oracle, IFS, Infor (formerly MAPICS), Intentia, Glovia, Verticent, and SSA Global. The enterprise software market for the hotel and resort category is also highly competitive and fragmented. SoftBrands’ property management systems (PMS) products compete primarily with Micros-Fidelios, HIS, and Springer Miller, while in the leisure management systems (LMS) realm, Springer Miller is the primary competitor. Similar to their manufacturing brethren, SoftBrands’ hospitality products compete primarily on the basis of functionality and integration capabilities

User Recommendations

SoftBrands’ target market of manufacturing and distribution companies in the $10 million (USD) to $250 million (USD) yearly revenue range, including regional subsidiaries of multinational corporations, should certainly consider the company's latest value proposition. However, such companies should also be aware of other equivalent products.

Midsize manufacturers or existing SAP customers with a need for worldwide supply chain business-to-business (B2B) integration and collaboration and for a divisional or plant-level ERP system should take a look at Fourth Shift Edition for SAP Business One.

For repetitive, batch process, make-to-order (MTO), discrete, and mixed-mode manufacturing enterprises at the lower end of the mid-market, which have limited information technology (IT) budgets and conservative IT strategy, as well as significant manufacturing, customer relationship management (CRM), supply chain, and collaborative B2B e-commerce requirements, we generally recommend including the original Fourth Shift in a long list for an enterprise application selection. Although it addresses the market horizontally, the product has a high proportion of its customers in the automotive, electronics, computers, machinery, fabricated products, consumer products, batch process, and medical devices industries, where traceability and engineering change management (ECM) are key requirements.

Meanwhile, evolution is more suitable for the upper-end of the same market, serving enterprises requiring three-dimensional (3D) or attribute-based bills of materials (BOM), such as textiles, food, paper, mining, and pharmaceuticals companies in MTO, contract-based and configure-to-order (CTO) manufacturing environments.

As DemandStream is targeted at flexible lean manufacturers; can handle mixed-mode operations, electronic kanbans, and just in time (JIT) at the plant level; and can agnostically interface to most ERP systems, non-SoftBrands users may benefit from evaluating it on a stand-alone basis. The product might be of particular interest to enterprises experiencing demand fluctuation, product customization and combination, frequent engineering changes, numerous resource bottlenecks, long lead times, and supply chain complexity, but which are still keen on deploying lean manufacturing principles.

Nonetheless, due to relatively recent restructuring and a fledgling channel, potential clients should conduct thorough research on available resources and reference sites of a regional SoftBrands office or an affiliate service provider. Existing users of earlier product releases that face stabilization (e.g., Micro Data Base Systems [mbds]-based products) should react positively to the company’s strategic activities (as outlined above), as they may benefit from querying the company’s future product migration path, service and support, or scalability strategy, and as they may be able to negotiate favorable maintenance reinstatement contracts.