Transora plans to roll out a hosted service to handle heavy-duty enterprise planning for its midsize members.
Nothing unusual there, except that at $5 billion in revenue, its mid-size members dwarf the scale of application service providers typical customers. The complexitys an issue, too.
"Any kind of hosted service that looks at processes addressed by [Enterprise Resource Planning] faces huge challenges," said Joan Harbin, research director at AMR Research.
Thats what Transora, an exchange organized to automate the supply chains of 56 consumer products makers — like Kelloggs, Kraft Foods and Sara Lee — plans to do because of its members financial reluctance to buy their own ERP systems.
With the help of Ariba, its main software vendor, Transora wants to provide software to help member companies process documents used in such areas as design, procurement, manufacturing, marketing and delivery. Its meant to help its 56 investor companies fully capitalize on the electronic transactions possible through Transora. This is work typically done by complex ERP software.
Companies in the consumer packaged goods industry tend to be big — a $50 billion company is considered large. Even so, these small giants are reluctant to invest in the computer systems needed to handle such processing themselves.
"They have certain work flow needs that require more sophisticated offerings than a browser," said Rick Herbst, chief business officer at Transora.
But they wince at the up-front cost of installing an ERP system. They would rather tackle it as a variable cost, such as a subscription or fee for service, that they could drop if necessary, he said.
Software vendors and their customers increasingly seek out hosted solutions because they are cheaper and faster to deploy. Transora will offer its own ERP services in an effort to better serve customers and generate a new revenue stream.
Pricing has not been determined.
"Every major technology implementation ends up costing something different along the way, generally more expensive," Herbst said. The cost of the hosted solution is more predictable and manageable than installing new ERP systems.
The large scale of the industry makes it possible to do a hosted solution for companies with $500 million to $5 billion in sales, Herbst said. After $5 billion, companies need their own IT systems.