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AIM Computer Solutions

Is ERP a Vertical? What’s Up with this Vertical Thing?


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Background
In today’s competitive landscape Dynamics Resellers are being encouraged to adopt a vertical approach to their marketing and sales effort. Leveraging this vertical business practice can drives great benefits to the end users who are in a vertical specific industry and are looking for ERP software.

As an end user of ERP, it is clearly in your interest to use application software that reflects as much of your business practices as possible. In certain cases, Integrated Software Vendors [ISVs] have taken the time to modify and enhance out of the box ERP to fit the specifics of certain industries. AIM is such an ISV, and from this perspective, I must admit, this report is biased. Nonetheless, it still provides some useful insight into how users of vertical applications benefit from the niche-specific tailoring of basic ERP software. Without being overly commercial, AIM is referenced in the report with examples of how a vertical ISV in our niche, (AIM’s vertical is automotive production part suppliers,) services our vertical customers by providing software and consulting and addressing automotive-related mandates.

A Vertical… what is it?
First of all, it might help to understand what isn’t a vertical: out of the box ERP.

Period.

By the same token, “manufacturing”, “wholesale distribution” and a variety of businesses grouped under these headers… are not verticals.

A vertical niche has several distinctive characteristics, which differentiate the vertical from more generic software offerings and even other verticals. A vertical is characterized by fitting into several of the following categories:

1. Specific Mandated Business Requirements

These business requirements are mandated by the larger organizations or groups within the vertical, and usually have some form of sanction or audit to measure compliance to the requirements.

In the automotive supplier niche, the TS16949 or MMOGLE requirements easily fit this type of requirement
In some cases, the government steps in with additional rules, guidelines and other measurements of compliance to regulations in the vertical.

2. Industry or Vertical-Specific Glossary

We’re not talking about a new way of labeling item number or product codes; we’re talking about very specific identifications that, if misunderstood, could result in loss of significant business or even life.

Precision specifications on the hardness of a bolt for safety may mean nothing to you until it’s used to attach your child’s car seat. The proper labeling of drugs and medical instruments are also examples of very specific requirements within a niche.

3. Industry or Vertical-Specific Processes

Like the vertical-specific glossary, a real vertical niche will have very specific processes that require special equipment, material or quality measurements. In some cases, the process touches the entire order fulfillment cycle, capturing vertical information early in the order capture process that is used or influences downstream requirements.

4. Industry Associations and Organizations

A vertical will usually be directed, influenced and/or governed by associations or organizations that maintain the integrity of the services or products produced by its members. To the degree that the association is specific and narrow, ERP or software that services it will also be more specific. In the automotive vertical, the Automotive Industry Action Group or AIAG is such an industry organization.

5. Reusability of “Special” Features

Once a real vertical is determined, the forces of a common glossary and processes will generate basic repeatable feature requirements that, in turn, shape the functionality of the vertical software. Moreover, any customer or prospect in the vertical will have a very high likelihood of needing the exact same or similar software features. For true vertical application owners this is a very welcome benefit for all the research and development they must invest in the vertical initially. It special features or differentiators also helps you narrow down your marketing effort and reduces the time to qualify a prospect: if they do not need your vertical features, they are not your prospect.

6. Other Vertical Characteristics
Other vertical characteristics would include outside influences on the vertical business, the number of customers relative to the size of the business, the size of finished goods, how finished goods, raw or component materials are grouped and assigned to customers and parts, the number of companies in the vertical per geographic area, and a host of other special characteristics too numerous to mention.

Why a Vertical?

To begin with, a reseller involved in a vertical does not mean the reseller must learn all aspects of that vertical’s glossary, processes and specific issues. That is what the vertical owner must contend with. We have often asked a partner why they haven’t worked a vertical before [after successfully landing a vertical deal] and we are surprised to hear that they didn’t have enough time to learn a new vertical.
Nonsense.
The Vertical owner will have [or should have] enough general collateral and presentation material to get you jump started in a painless and profitable way. In addition, the vertical owner will also tell you when your geographic or resource level is not suited for their vertical. They are not interested in wasting your time or theirs.

Advantages
1. There is less competition in a vertical
Because of the very definition of a vertical, there are fewer software competitors in the vertical. The extra years of vertical-specific programming, coupled with specific training and industry specific changes will typically keep the vertical channel “pure”. The software vertical owners I know have dozens of implementations with in-depth knowledge in their vertical.

WARNING: Occasionally you will find so-called competitors are really not competition at all, just developers who think after one or two “successful” implementations, they have the vertical mastered. Well, think again.

2. There is little logistical work a reseller has to do to leverage a vertical offering.
Most vertical owners just need a local office to work out of for demonstrations and local support for add-ons and other business support needs. They do not need any help with Dynamics foundation [SQL, OS] tools or parts of Dynamics that extend or complete the vertical. For example, a strict vertical ISV may couple his offering with General Ledger, Accounts Receivables and Customer Relationship Management to round out his offerings to end users.

3. A real vertical offering is a great cost value to the end user
Because of the years of proven experience in the vertical area you will find it hard to compete with a vertical ISV when using a general ERP offering. The real vertical owner has gone through dozens of cycles of learning over a significant amount of years that translate into practical lessons learned within the vertical. These industry lessons translate into software programs that leave out the unnecessary baggage not required in the vertical, and enhance the software functions that provide the end user with advanced alerts and practical applications of scheduling, contract management and cost controls.

Note: Be wary of the software supplier who can provide little evidence of practical experience in your vertical, no matter how technically competent they are. In short, the vertical offering represents years of software programming tuned to your specific industry… no need for customization… an out-of-the-box solution for your vertical. The cost of starting with a “generalized” ERP offering and then adding the vertical requirements would be significant, and has largely been absorbed by the vertical offering.

4. A real vertical offering provides a competitive advantage
A vertical software provider delivers more than just software. They attend meetings and workshops in the end user’s industry to keep on top of new industry mandates that can be addressed with software enhancements. They are likely to not only use technology, but work with other members in the industry vertical to determine the best value and level of technology that will offer the best insight in to the end user’s business: a competitive advantage.

5. Vertical user groups deliver significant benefits
The user group meetings offered by a vertical solution allow the end user to focus, in a short time, on subjects relevant to his industry that may tie to functions that can be supported by the vertical software. In addition, the user group meetings are a great way of networking with other “friendly” competitors on a variety of technology and software related topics.
It is not uncommon in AIM User Group Meetings to have several companies form a steering committee to direct a new vertical programming effort. All participating companies “own” AIM resources for the project, and since they are all involved in the vertical, the software produced is both commercially sound and reusable with the other vertical users.

Disadvantages

None, that I’m aware of. You might have to get used to getting a “no” answer from an owner of a vertical software application who isn’t going to automatically accept you as a representative unless they feel that you are going to succeed. A real vertical owner generated significant business over time because of their reputation. If yours is questionable, then be ready to defend yourself. You will be asked for references, in some cases, references and a profile that will include past experiences, expectations, and your vision of why you want to be a part of the vertical’s industry. If this makes you uncomfortable, then a vertical is not for you. But again, I’m biased.

Conclusion

The adoption of a vertical software application by a software reseller is a great way to increase new name sales in the reseller’s geographic marketing area without adding a significant amount of overhead. Some simple guidelines for an adoption of a vertical:
1. Find out the companies in the reseller’s geographic that fall in the NAICS or SIC classifications that are serviced by the vertical software. In this case, more is better.
2. Talk to some owners of vertical software to find out what tools they offer to help start up a vertical in your geographic. Most of the following should be available from a vertical reseller:
- Reading materials
- Webinars/Presentation materials
- Case studies
- Site visits
- Pricing models
- Sample end user contracts
- ROI and benefit assessments
- Industry associations list
3. Review your vertical owner’s contracts for resellers. Make sure Nondisclosures are bidirectional.

If you are an automotive supplier or are working with an automotive supplier who needs an automotive-centrict ERP software solution, then contact AIM Computer Solutions, Inc..

We are a Michigan Microsoft Certified ISV and ERP Partner with automotive-centered ERP and SCM solutions that are Certified for Microsoft Dynamics GP.

By Jerry Czernel, VP Operations, AIM Computer Solutions, Inc.

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