There's no denying that the market for enterprise resource planning (ERP) systems is going through a classic shake-up typical of software markets past and, no doubt, future.

Just as the database market before it went from a market filled with suppliers to one dominated by a few core players - Oracle, Microsoft and IBM - many expect ERP to go through the same process.

The market is currently dominated by SAP (£1.5bn in licence revenue in 2001) and Oracle (£900m), but they enjoy nothing like the dominance that Oracle enjoys in databases.

JD Edwards, Baan, Intentia, PeopleSoft, Epicor and Geac are just some of the bigger names on the list, along with the likes of Scala and SSA all competing in the mid-range.

Microsoft, through its Navision and Great Plains purchases, has entered the fray with Microsoft Business Solutions.

The company hopes that it can come to dominate the back offices of smaller firms in the same way it dominates the front office.

As if that wasn't enough, SAP, which had already shifted down a gear with its SAP Works offering, this month launched a low-end ERP system to channel vendors that it hopes will push it into a market it has hitherto ignored.

The problem facing mid-tier ERP vendors is that, with SAP pushing from the top and Microsoft pushing from the bottom, they may well get squeezed out completely.

Microsoft isn't blind to the opportunities. "By far the largest supplier in this space is 'other'," said Simon Edwards, Microsoft Business Solutions country manager for the UK and Ireland.

But is this just going to be a carve-up? Both Microsoft and SAP are diplomatic about each other's presence in the market, accepting that they do partner, but saying that they will also compete.

Unsurprisingly, those stuck in between aim to fight back. Take IFS, for example. The privately held Swedish company has quietly built up a substantial presence in the ERP sector.

It may appear small compared with SAP, but IFS has climbed to be the sixth largest ERP vendor in terms of licence revenue (£76.4m in 2001) while still not registering on the radar of some of the research companies.

IFS tends to be dismissed by rivals - "Oh, it just has a niche in aerospace and defence," was a typical comment - but the company has set out to expand from its traditional base.

The time may be right for it. The underlying architecture of IFS' systems is component-based, so the customer can buy as many or as few components as needed.

As the world swings away from over-complex all-singing and all-dancing applications, many will be attracted to a 'suck it and see' approach. Add native support for web services and it begins to look compelling.

Components may be the way forward for those prepared to ditch their old investments, but integration is another route. What is certain is that users will be looking for better results from ERP.

"People have spent huge sums on ERP and have seen questionable benefit," explained Andy Crosby, European director of product marketing at Mercury Interactive.

Mercury is pushing the process of business technology optimisation (BTO), an amalgamation and extension of its measurement and testing tools.

With BTO, IT managers can at least see where things are going wrong within the processes of an organisation, and the problem with ERP has often been that applications are going wrong all the time.

With money short and IT managers on a mission to provide value, ERP vendors are under more pressure than ever before. It seems certain that the market will look very different in two or three years' time.

CASE STUDY: APW

It's not the most glamorous of jobs, but somebody has to do it. Global manufacturer APW builds a lot of enclosures: the cases that fit around PCs and laptops, servers and those racks of power supplies, switches, routers et al.

APW builds them big and it builds them small. It offers them off the shelf by the hundreds and thousands, and will build them to order too.

The products may be straightforward, but bringing all this together is a complex process. The company has been operating for 20 years, but APW only became a separate operation from parent Allied Power in 2000.

It's a business worth about $1bn, with 6,000 employees and operations around the world, including manufacturing in the UK.

APW was stuck with about 20 legacy systems in its different operations. Some were bespoke and some were packages.

When the company was looking for a replacement, it started with Gartner's Top 10 ERP vendors, according to global IT chief Dennis Biederman. On the list were the usual suspects, including Oracle, JD Edwards and SAP.

"We had some previous SAP experience in the team," he said. "We decided that it was too complex for our type of business and the total cost of ownership [TCO] was too high. It's really good if you are building battleships and jet planes, but not for us."

Biederman and his team put together a set of criteria for the process and checked off the suppliers.

"IFS performed a higher percentage of our total requirements than any other company," said Philip Elliott, IT chief for Europe, Asia and South America. "It was easiest to implement and has a lower TCO."

Biederman has nothing but praise for the company. "They were the most responsive supplier team of the whole process, because they talked about what we wanted to know rather than what they wanted to sell us," he said.

The first UK site went live in 2001 with a core of finance, manufacturing and sales and distribution, with some sites also running human resources.

Biederman takes a dim view of many ERP vendors. "They make you happy during the sales cycle, but you don't find too many people who are happy two years down the line," he warned. "We are happy two years on."

The system runs on an HP 9000 with Citrix thin clients from a data centre in Chicago, making this a massive consolidation project in its own right.

Biederman is delighted with the progress on the IFS system. "I have never dealt with a software supplier like this," he said. "But I'd better stop. I'm beginning to sound like a commercial."

CASE STUDY: BABCOCK INTERNATIONAL

To those lucky enough to live by the scenic Firth of Forth, steel-grey Royal Navy ships heading under the Forth bridges and nosing into the navy dockyard at Rosyth are a familiar sight.

There has been a shipbuilding and repair base here for as long as anyone can remember. Now owned by Babcock International, Rosyth continues in its overhaul and maintenance work and waits to see whether it is going to win the contract for the next Royal Navy aircraft carrier.

Like any big engineering operation, Babcock relies on its IT systems to keep the yard working. It's undergoing an overhaul of those systems every bit as painstakingly detailed as the ship overhauls that are its daily business.

"We had a mix of Cincom, SAP for payroll, accounts payable, ledgers and so on and PeopleSoft for HR," explained head of group IT John McCormick. "The reason for this choice that was given to me was that they were considered best-of-breed."

It didn't impress McCormick when he joined Babcock a few years ago from Marconi. "It was costing us well into six figures for licence fees," he complained.

Not only that, but large parts of the system were non-standard. "The system had been customised to death," said McCormick.

He assembled a team to start looking for a new system. "We had 13 potential suppliers in the frame," he said.

At the time, IFS was one of the lesser known names in the group. McCormick found the company on the web. The closer he looked at IFS, the more he was impressed. "Its underlying technology was well ahead of the competition," he explained.

After getting down to a shortlist, he asked the user community to assess the products and applicability of the system.

The original implementation was for 400 users, to be extended to 500. Implementation was carried out with a parallel development of the new system while the old one was running.

The Cincom system was shut down first, followed by the PeopleSoft system and then SAP. As the systems were brought to a close, so were those expensive licences, giving McCormick his cost justification very quickly.

"We haven't had any major problems. Where they have come, they have been on the process side. We have some very complex business processes," said McCormick.

But it's testament to the flexibility and modularity of the software that there was no customisation required.

The advantages of the new system are clear. Apart from anything else there has been a dramatic reduction in the amount of paperwork generated by Babcock's very large project.

McCormick is also impressed with the scalability and the added features. "Most of the modules are becoming web-enabled," he explained.

This allows them to interface directly with a variety of e-commerce applications, including the Defence Ecommerce System. "We wouldn't have been able to do this without the new system," he said.

Where once there was an overly customised system that cost a fortune in licence fees, McCormick now believes he has a flexible manufacturing system that can cope with all situations.