It's pretty unreasonable to suggest that no company that has built an ERP for a specific niche (think electronics assembly, chemical manufacturing, food processing, etc…) is wanting to actually be in that space, but let me make a case for why this might be so.

First, let me qualify what I mean when I say that they don't want to be in that space. Building on a point I made previously, smaller vendors want to move up-market, but this necessarily means eventually catering to customers whose operations are much more diverse.

To meet these needs, vendors will end up refining their systems and begin offering multiple manufacturing modes. They end up following in the footsteps of the big players, understanding that they need to generalize or lose the deal.

An operation is an operation is an operation

One thing that has become clear after speaking with many people in varying industries is that the vast majority of them believe that what they need is a system that caters to their specific industry, business model, or manufacturing method (ie. "the needs of my industry” they say). Being the dominant sentiment, how can anyone disagree with its wisdom?

This seems too simplistic upon further inspection. If you take this to its logical extreme, there would be one ERP system per company. Everyone would have their own homegrown system that is absolutely perfectly tailored to their business. While that version of the world might be ideal to some, it’s clear that most companies have no interest in being in the ERP business, most don’t have the resources to create something so expansive and dynamic, and most would not care to maintain and grow the system as the business’s needs grow.

When it comes down to it, manufacturers simply want a way to track their inventory along with their value-adding operations, being able to translate their physical activities to their financials. Whether its pouring molten metal into a cast for a forged product or producing kitting picklists for complex assembly, every manufacturer needs a way to represent their processing activities and the resulting effects on the materials involved with the level of detail they desire.

The benefit of the niche

So if all operations are essentially the same, then why is the niche so important? Well to start, whether it’s by industry, company size, or business need, there are a million ways to segment the global ERP market. Through this segmentation, each vendor can specialize its offering to a specific subset of customers that it believes can benefit most from its chosen focus.

Let’s take for a second a simple distinction along industry lines. An electronics assembly company will need to keep track of hundreds and thousands of components, account for assembly performed manually or by automated PCB - Printed Circuit Board - assembly machine, and track a PCB through its various steps as it is transformed.

Conversely, a water bottle company needs to track a non-discrete amount of fluid going from filtering through cleaning, bottling, and packaging, where the mechanical and chemical complexities of each step are abstracted away from the ERP, but the percent yield heavily drives the company’s financial performance.

We can see that an ERP tailor-made for the first industry would have a challenge satisfying the needs of the second. But for most companies, this is perfectly acceptable. It isn’t until companies becomes highly diversified that they begin to encounter these limitations and, by then, they usually have enough capital to find a more generalized solution.

The constraint of the niche

Herein lies the problem. The niche can only be optimized for within the niche itself. As an ERP vendor optimizes for the niche it initially targets in order to grow and become more stable, it devotes more and more resources to said growth, which it ultimately needs to see a return on.

Eventually, the company outgrows its niche and starts to expand to neighboring segments that it is not actually optimized for. This is when one of two things will happen: either more features are added to satisfy the new segment’s needs, or the existing features are generalized for the wider market. An operation is no longer tailor-made for a specific segment, it starts being thought of as just another operation.

Now, instead of only offering production order management, the ERP also begins to offer recipe management, or begins referring to everything as a work order. While most ERP systems don’t make such a drastic pivot, anyone who has some familiarity with larger vendors will know that they offer larger modules that cater to general industries and leave it up to consultants to facilitate the implementation for each customer’s specific use case.

Unfortunately, this will result in vendors selling to industries that they are not optimized for and delivering solutions that don’t satisfy the customer's expectations. Just imagine trying to manage complex, multi-level bill of material structures using software designed to manage retail operations - infamous for very simple (or no) nested structures - which has been adapted to try to meet this new industry’s needs.

Utopia?

There does seem, however, to be a few companies out there who will offer a certain feature and leave it up to the customer to choose how it is displayed for them. This is popular in CRM - Customer Relationship Management - software where users have a choice to call their customers “clients”, “customers”, or anything else that they choose.

The principle to recognize here is that there is an infinite number of ways that a company will structure its operations and a corresponding infinite number of custom needs that will arise. The traditional approach has been two tiered (including a blend of the two). Either target a very narrow niche which demands very low customization, or offer generic solutions that can be custom tailored to each individual company. The latter is what wins out in popularity for larger enterprises.

It seems like for every company that is targeting a niche, the niche plays the role of stepping stone until the vendor can branch out enough to warrant generalizing its operations and handing off the customization responsibility to implementation consultants. Mention ERP migration and its associated costs and timelines to manufacturers and you will be met with sour looks around the room.

I’ll take optimistic reality instead

So this utopia, where an ERP can be infinitely customizable according to the needs of each individual customer and what they need out of their operations: will it live up to its descriptor and remain unattainable? If history is any indication, then yes. The niche vs. generalization/consultancy model has thrived for so long because it has been the path that consistently benefits most parties. It has worked for the industry for a very long time, and for good reason. It abstracts the complexity of maintaining an organization’s business system across multiple layers, creating value for everyone along the way, benefiting many, many people.

Just because the utopia might not be attainable, there are certain researchers who are advancing what it means for an ERP to be user-friendly and offering pathways forward to putting more control back in the hands of the end-users. We see elements of this trend reversing slowly in newer companies, but also some of the more mature players, so there is a great degree of optimism that as stale ERP systems fade away, the more agile and newer solutions will incorporate these principles to the benefit of manufacturers the world over.

Ultimately, asking operational departments to rely on consultants with advanced technical understanding of the ERP system to make simple customizations is a roadblock that hinders ERP adoption and hampers end-user engagement and proficiency.

The great thing about manufacturing though, is that the industry as a whole is very familiar with building upon itself to progress forward. Thankfully, the software that caters to it has no choice but to keep up. It’s up to the industry to decide for itself what it will value in the future.