Daily Archives: October 1, 2006

(Supply Chain Management Technology) Still Going …

A month or so ago, AMR Research released their Supply Chain Management Applications Report 2005-2010. Considered one of the cornerstone reports of the space (with a price tag to match), it’s always worth a read – if you can afford it.

If you can not afford it, you can settle for the highlights, which SupplyChainBrain was kind enough to post in an extended three page review in the September 6, 2006 edition of the e-Insider. I hope you were fortunate enough to catch the summary before it disappeared from their site. If you were not, here are seven highlights from the summary.

(1) The SCM market grew 3% in 2005, and is expected to grow 7% in 2006 and 5% in 2007.

(2) The most rapid innovation is being delivered by independent software providers that are focusing on industry-specific functionality and targeting under-serviced business problems.

(3) While 75% of firms have supply chain organizations, only 52% have experience with a supply chain organization for more than two years. As a result, domain expertise is a limiting factor for user adoption of supply chain management technologies.

(4) Analytics is merging with optimization to drive decision support for critical processes.

(5) The following environmental factors affecting the SCM market have triggered a shift in business priorities since the last report:

  1. Globalization and global sourcing
  2. Leaner supply networks
  3. Increased customer expectations
  4. More mass customization
  5. Increased demand variability
  6. Cost volatility, inflation, and competitive pressures

As a result, the development focus for vendors has shifted as follows:

  • movement from static demand planning to demand sensing and shaping
  • progression from enterprise planning to multi-tier decision support
  • recognition of materials and logistics as major manufacturing constraints
  • shortening of order execution cycles
  • focus on network flow analysis

(6) The top growth area for 2005 was in AMR’s inventory configuration and policy technology category as a result of the need for multi-echelon inventory optimization and inventory policy to buffer against supply risk, maximize in-stock positions, and ensure continuity of supply.

(7) Revenue from application hosting/subscription grew strongly at 16%. SCM software is increasingly purchased by buyers on a subscription basis to avoid capital budgeting, rapidly achieve ROI, and avoid large upfront license commitments. Furthermore, AMR expects subscription licensing to continue to grow as a share of SCM software revenue.

In other words, (1) the market is growing, (7) on-demand is capturing the market place, (5) execution cycles are shortening in a time when improved demand sensing and shaping is key, (6) technology that addresses this problem will continue to grow and improve, (4) the best technology will be built on analytically-based optimization, (2) it will be built by innovative fast-moving independent software providers, and (3) chances are good that you need to adopt this enabling technology since there is a 52% chance your supply chain organization is limited in expertise and experience and the right technology from the right partner will greatly enable your organization.

And all of the above is good news for you.

(1) In a growing market, your solution providers will be pumping more sales dollars back into R&D to make better products for you. This will be especially beneficial to those of you who use on-demand solutions with frequent upgrade cycles.

(2) As time goes on, there will be more and more solutions that address an ever-increasing number of business problems, making your job easier and easier.

(3) Knowing that your domain expertise is limited allows you to go out and seek precisely that. Many consulting firms have been springing up to help you with specific problems. Use them. After all, Aberdeen has found that companies that outsource well do better than their peers.

(4) Considering that Aberdeen has found the application of optimization tools to analyze total costs, and of flexible bidding functionality to uncover creative supplier solutions has enabled early adopters to identify an average incremental savings of 12% above those that basic, price-focused auctions alone have generated, the quality of your allocation award decisions can only improve.

(5) One of my summer series discussed how Demand Driven Supply was the future of supply chain demand planning, so the fact that vendors are already actively pursuing this direction is great news for you.

(6) Simply put, improved inventory management software decreases your costs and increases your profits.

(7) On-Demand is here to stay – which is good news considering all of the benefits it provides.