Supply Chain Management
A look at the state of the Supply Chain Management market.
- By Clara Parkes
As we navigate choppy political and economic waters, companies are being forced to grapple with a new type of challenge: disruption of supply.
Security measures as a result of the Sept. 11 attacks have slowed the movement of materials from source to customer, impacting the corporate supply chain. Although many companies have some type of supply chain management (SCM) systems in place, most of these systems have been optimized to forecast and respond to uncertainties in demand, not supply. The challenge for SCM vendors is to bridge the gap between demand management and supply management.
Who Owns SCM?
Because SCM systems need to integrate with both front- and back-office processes, ERP vendors are making a strong push to claim SCM as part of their solutions. The latest move came in April when Baan announced plans to expand into the supply chain and product lifecycle management market. SAP, Oracle and PeopleSoft are already firmly entrenched.
Although feeling the pinch from ERP vendors, several pure SCM companies remain relatively strong. i2 Technologies, still considered the SCM market leader, has strengthened its planning and execution integration through partnerships with Informatica and webMethods.
Originally established to provide outsourced delivery services, third-party logistics (3PL) providers are also gradually inching their way into the SCM arena.
January 2002: SAP delivers mySAP SRM.
Our take: Although several vendors already offer SRM functionality, SAP's endorsement gave the SRM market a broader legitimacy for future growth. The product is not new, however. It's essentially a modified version of SAP's procurement product.
April 2002: Company announces iBaan for SCM.
Our take: Baan's entry into the SCM market was long overdue, considering how well-established other ERP vendors have already become. Baan's solution is part software and part professional services, with iBaan Collaborative Dispatch (an SCEM solution) being the first deliverable.
April 2002: Company announces 16 percent annual revenue increase and positive adjusted fourth-quarter operating income.
Our take: Manugistics was hit hard by the economic shifts in 2001. The company began to show signs of recovery in December 2001, when its third-quarter earningsalthough still in declinebeat analysts' expectations. Proving financial stability is critical if Manugistics wants to establish and retain customer confidence, especially with increased competition from ERP vendors.
March 2001: Company lays off nearly 8 percent of its workforce, or approximately 500 employees.
August 2001: Company completes acquisition of SRM vendor RightWorks.
October 2001: Kenneth Lay resigns from i2 board of directors after resuming his position as Enron CEO; company releases i2 Five.Two technology platform.
Our take: After quite a roller-coaster ride in 2000, i2 returned to sea level at the beginning of 2001. The company demonstrated intelligence and strength by cutting back while continuing to make acquisitions and partnerships that would further its process integration offerings.
The ABCs of SCM
The SCM market is one of the most fragmented in the industry, with functional subcategories whose boundaries often appear to blur with one another. The most common divisions are:
SCASupply chain analytics: These products enable customers to measure ongoing ROI of operations. Vendors offering SCA functionality include PeopleSoft and Informatica.
SCCSupply chain collaboration: Already in practice for several years now, collaborative supply chain management is beginning to become a de facto element of other flavors of SCM. It involves the integration of distribution centers, warehouses, and other sites across multiple organizations for a more efficient flow of materials from source to customer.
SCEMSupply chain event management: SCEM software is designed to addresses strategy and planning for optimal supply chain operation. It takes into account events along the supply chain that can affect supply replenishment calculations. Standalone SCEM vendors are feeling the pinch from ERP and SCM vendors such as i2. This, combined with a bad economy and slow market penetration, has many predicting the collapse of standalone SCEM vendors altogether. Vendors still standing: Saltare and Tilion.
SCESupply chain execution: These products focus on automating and managing the actual logistics of the supply chain, including shipping and tracking/ tracing products and containers through international and domestic operations. Pure SCE vendors include LOG-NET, which provides cargo management software; and Pfastship, which provides shipping and tracking functions.
SCPSupply chain planning: This component involves strategic forecasting, predictions, and complex analysis aimed at improving the overall efficiency of the supply chain while optimizing inventory. Giga Information Group estimates that the SCP market has grown between 30 and 40 percent per year over the past decade. Vendors offering SCP functionality include SAP, i2, Manugistics, Logility, and WebPlan.
Supplier relationship management: This category is essentially a reshaping of CRM technology to help companies manage supplier relationships efficiently. SRM functionality has been legitimized by the likes of SAP, Oracle, and PeopleSoft, but it isn't limited to the larger ERP vendors. Pure SCM vendors i2, Manugistics and Commerce One also offer SRM technology.
Source: Giga Information Group
Uncle Sam to the Rescue
In April 2002, the United States Customs Service announced the Customers-Trade Partnership Against Terrorism (C-TPAT) to expedite border crossing of goods while maintaining safety. Companies must apply to the C-TPAT and adhere to a rigid set of guidelines. Once they achieve compliance, they're given a trusted status resulting in faster movement of goods through customers, dedicated shipping lanes, and fewer inspections.
Should companies incorporate C-TPAT into their SCM strategy? According to Gartner Inc.'s Dan Miklovic, absolutely. "Global companies should step up to the security challenge as a matter of course," he advises. "Enterprises that fail to join programs such as C-TPAT or participants that post a horrendous compliance record will suffer from a competitive disadvantage."
To date, only a few smaller vendors offer inventory-planning capabilities that take supplier and channel uncertainty into account:
Other vendors are relying on partnerships and acquisitions to integrate supply and demand management functions. For example, Nonstop Solutions partnered with DemandTec, while JDA/E3 partnered with KniMetrics.
Flying High or Falling Fast
It's hard to overstate the impact SCM efforts can have on a business. Sun Microsystems Inc.'s supply chain initiative resulted in half of the company's $350 million inventory reduction. But AMR Research estimates that less than 15 percent of manufacturing companies have been successful implementing more than just a few of their supply chain planning software purchases.
Although the industry is making advances toward truly integrated, collaborative supply chain management environments, to date these advances remain more promise than reality. Gartner maintains that 90 percent of Global 2000 executive management won't seriously consider any type of large-scale strategic SCM project until the second half of 2003. The firm cites product immaturity, incremental rollout methodologies, and today's tight economy as the causes.
Manufacturing Market IT Spending
2002: $71 billion
2005: $96 billion
Technologies poised to benefit from this growth: SCM, ERP, CRM, and procurement.