Supply Chain Management

Sector Outlook, Fourth Quarter, 2003

Supply chain management systems are concerned with figuring out the demand for items at every point in the supply chain and then finding the optimum way of satisfying that demand.

Some years ago, the large ERP vendors effectively froze the market for supply chain systems by announcing that they would create equally functional systems that were fully integrated with their ERP application. In one case, a large ERP company even paid an analyst firm a substantial amount of money, and they proclaimed that the ERP company was a leader in the space when the company did not even have live offerings in most of the areas in the space.

Hurt most were companies like Manugistics and i2, which focus mainly on supply chain optimization (forecasting and planning) systems. (Manugistics also has a good, though aging transportation offering.) Less damaged were supply chain execution companies (warehousing and logistics companies), like EXE and Manhattan. Some time after these announcements, a new area emerged, called supply chain visibility; here, the idea was simply to let people know whenever things weren't going to plan.

The overall effect of these announcements was simply to slow interest in the systems. The companies that had really effective products fell on hard times (much of the damage was self-inflicted, of course). At the same time, the ERP companies never really cracked the code for these systems. It turned out that integration was not necessarily all that important; even if a system was integrated, if it was not well-designed or it was not installed correctly, the benefits of integration were lost.

What all this adds up to is that the substantial potential benefits of supply chain management software have not been realized. Forecasts are still done with spreadsheets. Planning is still done with MRP. And jillions of dollars that companies can easily realize by puting in orderly planning processes are thrown down the drain every year.

Of course, this isn't money that is lying in the street ready to pick up. It is by no means easy to realize the potential benefits. Software is a start, but only a start. You need real expertise in supply chain processes--a commodity that is still in short supply. If you're using software, you probably need to modify it and, alas, integrate it (even if you're getting it from an ERP vendor). And you're going to have to teach people about these tools. It isn't quite rocket science, making this work, but participants have told me that it sometimes reminds them of certain painful, personal medical procedures.

At some point, we expect this market to pick up. Some of the big vendors (like PeopleSoft) are going to put some marketing dollars into it. The best-in-breed players are finished staggering from the body blows, and in some cases, have used the time to make both products and delivery better.

B2B Analysts, Inc. has been working with companies that have implemented best supply chain practices for many years. We have done ground-breaking work in this area in two industries (automotive and CPG/retail.) If you are interested in investing in supply chain management, we may be able to help.

Our research in this area is available only to customers. If you are interested in getting copies of the research or talking to us about supply chain investments, please contact us.