It didn't take long for ERP (enterprise re-source planning) to become a dirty word in most IT shops. The companies that wrote the systems have been trying hard to re-brand themselves, first into e-commerce and then into supply chain, most with little success. SAP Aktiengesellschaft may be the exception that has finally broken through with new technology and new blood. What the German software giant must do now is find a balance between its past and future.

"I think in the past we were primarily an ERP company," says Bob Betts, SAP's senior executive for global supply-chain management. "That's both good news and bad news. It gives us a tremendous customer base from which to work and it gives us real-world experience in working with companies." As for the bad, ERP roots can become an impediment.

"It's difficult for some of our customers to change their view of SAP, or to see us as more than an ERP company," Betts says. "It's funny when your own success is your own liability."

If numbers are an omen, management must be smiling. In its second quarter, despite the economic malaise felt by technology companies in general, the German software giant broke away from the pack, beating analyst forecasts, growing second- quarter profits by almost 80 percent, and predicting a strong rest of the year.

Betts, who joined the company from IBM, is the "global product champion," says Dave Boulanger, research director of AMR Research. "As such, Bob Betts is commissioned at looking three years out." Betts must see where the market is going, keep products relevant, and convince customers to participate in co-development deals. Such is more easily intended than accomplished.

Over the last few years, SAP has been caught short on the persuasion front. Competitor i2 Technologies has developed the reputation of being the leader among supply-chain software vendors. A strong reason for its success has been its focus on the problems faced by potential customers.

"In i2, sales reps come in and ask people what keeps them up at night," Boulanger says. "The SAP approach is...72 pages of mind-numbing technology bubbles. It very much goes back to their heritage of an executive sale to the CIO."

Betts agrees that the company needs to find new ways to speak to customers. "To truly approach a company and address supply chain and get sustainable benefits," he says, "you must be able to speak with both the business operations people as well as the technology people. I expect [our people] to speak to the CEO of a company as well as speak to the technologist who will make this happen."

While the words are right, Boulanger and others are waiting for deeds to back the talk. "Our question back to SAP is, 'So, Bob, how are you executing? Let's see your plan.' It's still pretty technology focused."

The necessary change in SAP's sales model must go beyond targeting a particular person, as expectations for supply-chain software tend to be based on ROI (return on investment) and business-case metrics. "Gone are the three-year ERP implementations with no ROI," Boulanger says. "In many cases, to get funding for phase two, you have to prove the ROI for phase one."

Deciding on that ROI is a tricky proposition. According to Betts, many companies are too easily swayed by the promise of quick improvements in their businesses—guarantees that can vanish like dew in the morning.

"We have some competitors who say they can get you some small percentage of benefit very quickly," Betts says. "Anyone can do that. You can get out at least 10 percent of the cost by doing the processes a little more efficiently, even if manually. Any set of consultants can do this, providing they understand supply chain." However, over time, retaining those savings becomes more difficult. "People stop focusing on it and the processes have not been integrated into the operating systems of the company."

Some customers, too, have little or no idea of what they actually need to achieve. Betts remembers meeting with a dissatisfied SAP client. "They started in to me like everyone else," he says. "I politely looked at them for 30 minutes and said, 'What are you trying to achieve?' They had no baseline, no set of benefits, and they didn't know what kind of inventory they were talking about." After a three-week analysis, his team found that the client counted raw materials and finished goods on completely different schedules, and so couldn't control its supply chain. Now the customer is happy, Betts reports.

Having an insight into supply-chain problems is vital, but not enough when a company's primary business is selling software. SAP's first entry into supply chain in 1998 was, from the customer perspective, weak, Boulanger says. "APO 2.0 was heavier functionally but still had a significant amount of bugs." Version 3 came up to competitive snuff in January, resulting in a product similar in many ways to that from i2. "In supply-chain planning, you could argue that if an i2 got a grade of 10, SAP would get a seven to eight or eight to nine," Boulanger says.

During the summer, at its annual SAPPHIRE user conference, SAP announced agent technology that might push the company ahead and even counteract its reputation for creating difficult-to-implement applications. "These are small pieces of software that will allow us to interface and create interfaces for customers," Betts says. "There are 84 master agents that we've identified so far, so we've eliminated what in my experience was a key cost in any project."

Having set its mind on pushing ahead in supply chain, it would be a mistake to cede the industry lead to any other company. "We're a product line in a company—a very large company with deep pockets and tons of assets," Betts says.

Current size alone may not be enough, though, and SAP continues to face a massive task. "We've got to scale up quicker," Betts adds. "We've got a lot of work in front of us. We've got over 900 people in development in supply chain right now, and I'm still not sure that's enough."