More
Supply chain management is adopting cost cutting, optimization, speed of deployment, agility and real-time process information and automation, with 21st century software leading the way-and as the economy begins to rebound, companies are starting to spend on software again. They are spending with an eye towards growth, but also with recent memories of recession. All of this results in a mix of demands for supply chain software vendors for solutions that can simultaneously address both cost reductions and global growth. Following is a look at the supply chain software market, what companies are telling their software vendors, and how the supply chain software industry is responding.
A market on the rebound
Across the board, the supply chain industry is seeing a resurgence of buying activity in software. This comes after several tough recession years (2007-2009) in which buying activity literally slowed to a crawl, with companies seeking to “make do” with what they had.
Two thousand ten’s economy has continued to be slow in European and North American markets, but there are subtle hints of growth now beneath the surface, and companies want to be able to capitalize on that growth before it takes off. To do this, many organizations find themselves in positions where they must update supply chain software that is out of date or at the end of its current life cycle-or they have business concerns that when the economy does come back, they will not be able to ramp up their supply chains with the kind of agility, analytics and efficiencies that will be needed in order to compete.
“Companies are definitely buying now,” says Chad Collins, Vice President of Marketing and Strategy for High Jump Software (www.highjump.com). “This is in sharp contrast to a year ago, when supply chain software sales were down 25-35 percent. What we’re seeing now is a combination of a return to a buying mode, and also pent-up demand from the fiscally conservative strategies of 2009.”
The focus in the supply chain software market is on fundamental functions such as transportation and logistics, product capability and even warehouse upgrades-but above all else, companies are looking at their global supplier networks as a major source of the agility, time to market and cost efficiencies that they hope to gain. “In the increased activity that we’re seeing in 2010, companies are pursuing collaborative networks and platforms for their suppliers,” notes Todd Walker, Director of Supply Chain Solutions for Exostar (www.exostar.com). “As they work with these suppliers, companies are assessing the Web portal solutions that they have utilized with their suppliers over the past ten years. These companies are realizing that their existing portal solutions do not provide the flexibility or scalability to meet today’s complex supply chain requirements. These are the kinds of system inefficiencies that companies are targeting as they look for ways to make their procurement activities more efficient.”
Companies have also gone through a protracted period of defensive cost cutting in their infrastructures to where they have come out on the other end with a need to start strategizing and again looking at the big picture. They want to determine how they can be healthy and profitable without having to build back many of the costs they spent eliminating over the last few years. “We’ve seen a shift from customer cost reduction initiatives that were driving sales of software with quick ROI to software that promises to meet a broader corporate supply chain agenda that drives growth initiatives, often driven by efforts to work better with their customers and partners,” says Sterling Commerce’s (www.sterlingcommerce.com) Vice President of Global Product and Industry Marketing, Ken Ramoutar. “This is an economic cycle where you go through several years of shrinking costs and then after you’ve done that, the gains are harder to achieve. It puts customers more in the mindset of planning for the future-and what they are asking themselves is, ‘how can we get more out of a leaner cost structure?’”
What companies really want
If companies are going to adopt a supply chain strategy that goes from cost reductions to laying a foundation for economic recovery that doesn’t forget about cost, they most definitely are headed for revisions in business processes, software, and corporate thinking. One concept that is generating disruptive impact is the unwillingness of companies to go back to the “business as usual” of simply rehiring workers as the economy improves. “Organizations are going to want to keep costs down,” explains Dwight Klappich, Gartner (www.gartner.com) supply chain analyst. “In other words, they don’t want a proportional increase in costs as thing improve.”
Ways to avoid rehiring permanent employees include greater use of temporary workers and the introduction of new automation processes in supply chain software that can eliminate some of the labor intensiveness in both end business functions and corporate IT. “Today’s systems offer new analytic capabilities that help companies observe market conditions and respond to these conditions quickly,” says Klappich. “These analytics also bring efficiencies to processes like labor management.”
On the supply chain software side, especially for large enterprises, this could involve some give and take. Most of these organizations have internal ERP (enterprise resource planning systems), and many have more than one system, thanks to mergers of companies over the years, with each company bringing its own systems. These systems have been heavily customized and ‘hand-integrated.’ If the customization and deep-level integration bring value and competitive advantage, organizations will continue to use them (and some do). On the other hand, there appears to be a shift towards accepting more ‘vanilla’ software that the vendor will continue to maintain, and that can perform the basic supply chain functions in a best-of-breed fashion-leaving the business to focus on its core expertise and opportunities for revenue.
“Companies are going to stay focused on lowering the costs of doing global business at the same time that they expand their sources of supply and volume of product-and they’re going to use software to do it,” says Collins. “We’re also seeing emerging market companies in countries like India, China, and Brazil that are beginning to bring product into consumer markets from outside suppliers. Regardless of where companies are operating, they are rethinking how their supply chains work. Some are opting to go to regional supply chain depots to hold parts. In this way, they can position more inventory closer to customers, and have fewer shipments. This all depends on the nature of the product and the cost of freight.”
Other challenges facing businesses include:
Time to market-Time to market is a major factor, especially in extremely competitive industries with high rates of new product introductions (e.g., technology, retail). Supply chain agility and efficiency are central to the process, meaning that companies must have ways to rapidly onboard new suppliers and also have full visibility of supplier orders, from purchase order approval through manufacturing, shipping and delivery.
Supplier communications and information-In a global market with thousands of potential suppliers, companies need new ways to reach potential suppliers, in addition to being able to rapidly communicate with their existing supplier bases. Social networks are becoming a way for companies to find and communicate with potential and existing suppliers-and also to research them.
Supply chain streamlining-Organizations that have grown through mergers have found themselves with the burden of managing multiple ERP and supply chain systems that are difficult to integrate into a single platform. A second challenge for these organizations, and also for organizations with a single, internal ERP and supply chain solution, is that the software may be well oiled and integrated for internal business processes, but there are gaps when it comes to fielding software for business processes that occur outside of the enterprise. These processes include business transactions with partners and suppliers. “Companies in this situation look to software companies and cloud services providers to become the glue that integrates all of these different systems and transactions, delivering a single source of truth for outside of the enterprise process management,” says Sterling Commerce’s Ken Ramoutar.
Coalescing business channels-Increasingly, retail and banking businesses are consolidating e-tail and brick-and-mortar retail into a single line of business. This requires them to present the same face to the customer, regardless of channel. It also creates impact for the supply chain.
What's hot in software
Unsurprisingly, transportation and logistics, supplier collaboration and communications, inventory management (especially regarding visibility) and cloud-based solutions are hot areas of supply chain software spending for businesses.
“With the global supply chain, transportation and logistics will stay active,” says Gartner’s Klappich. “One client in 2009 saw that there was excess capacity in the slow economy because transportation options were more readily available and the price of fuel was down-but there was also the recognition that this wouldn’t always be the case, that prices would rise, and that the supply chain could become a bottleneck. By investing in transportation software, the company saw a way to get ahead.” Klappich adds that he was seeing an emphasis on global logistics outside of North America and Western Europe.
In step with expanding and changing global supplier bases is software that both researches and keeps track of suppliers and their activities. This is the major impetus behind companies buying in the area of supplier collaboration solutions that include the use of social networking. “A few years ago, social networking in the context of supply chain management was not a common topic,” remarks Ken Ramoutar. “Now, software providers are adding functionality to help onboard partners quicker, or to find new partners. This includes the ability to research partner capabilities. As soon as you look at this model, it’s not hard to see that analytics are important. In other words, companies want to extract and use data from the supplier network to better manage performance.”
As part of the supplier management push, companies are also looking for improved visibility of inventory that will simultaneously optimize both cost control and order fulfillment. Software primarily contributes in the areas of inventory visibility and analytics, and in the ability to reallocate inventory to where it is needed, when it is needed.
While all of these software and business process transformations are occurring, there is also an active migration to cloud-based solutions in key areas of the supply chain. “Back in 2009, we surveyed around 400 companies,” says Dwight Klappich. “We found a lot of interest in SaaS (software as a service) solutions, and also noted that there was a widening gap between leaders (aggressive adopters) and laggards (risk averse). In the leader companies, there are risk exploiters. Employees feel they are empowered to take informed risks, and they are doing so. In the laggard companies, people are risk averse. They get fired for making risky decisions. These companies tend to adopt technology solutions 5-15 years after leaders do.” Klappich adds that early adopters of new supply chain solutions are dominated by high-tech, retail, and consumer electronics firms. “These are very competitive, fast-paced industries that require rapid implementation of new technologies, and this includes supply chain software,” he says.
Top software trends
Just as companies are making dramatic shifts in their supply chain strategies, software also has to keep pace-and it is.
One of the most monumental shifts is a move away from traditional corporate thinking that a high degree of software customization to the business produces competitive advantage. Instead, contemporary thinking is that packaged software in a ‘vanilla’ form can do an adequate job for the supply chain, as long it incorporates industry-wide best practices. Customization for corporate business processes still occurs, but it occurs via technologies like services oriented architecture (SOA), which splits off pieces of business logic that can be assembled to support any end-to-end business process without altering the core software. In this way, companies remain eligible for new software releases (and support) from their vendors and also benefit from the R&D the vendor puts into the product to continually improve it.
“This is a problem businesses had a couple of years ago: they were trying to engineer their business processes for every variant of the supply chain,” explains Klappich. “The issue with this was that there was something new that was always coming up. Now companies are looking at software applications that can support a change in business. SOA is the right platform for software adaptability. Companies that don’t use it are at a disadvantage.”
A second software trend is more built-in capability for analytics that assist managers at different levels of an organization with visibility, reporting, metrics, and analysis of what is (or isn’t) going on in the supply chain. Software development is focusing on increased intelligence embedded in the software, as there is a demand for visibility, which can facilitate the accuracy of forecasts. “Originally, people looked at technology to eliminate complexity,” continues Klappich. “Now people understand that they have to manage their situations. This means more policies and refinements to business processes.”
The third and most publicized trend is the migration to cloud-based supply chain solutions. This is largely being driven by a need to get a handle on external company transactions with partners and suppliers. “The question companies are asking themselves is, ‘How do I reconfigure my supplier network and onboard partners quickly?’” says Greg Kefer, Director of Corporate Marketing for GT Nexus (www.gtnexus.com), “And if prices for goods in China go up, ‘How quickly can I shift my sourcing to Thailand?’ This is not just an economic value. Cloud enables a level of supply chain agility that was not possible in the past.”
The agility and flexibility associated with cloud-based solutions was a key factor for the United Nations’ World Food Programme choosing the GT Nexus platform to better manage the organization’s vast network of food deliveries around the world. The platform went live in 2009 and is now operational globally.
“We run a complex global supply chain that needs to be highly agile and nimble, capable of delivering the right mix of supplies to very remote and inaccessible locations,” noted Stephen Cahill, head of operations at the World Food Programme. “Cargo visibility is the cornerstone to running an agile network and GT Nexus is central to our strategy.”
Cargo visibility is critical to supply chains like those operated by the World Food Programme. GT Nexus not only provides status of shipments in real time, but also pushes information to stakeholders through exceptions and alerts. Historical data in GT Nexus can also be used to adjust plans or plan for different scenarios.
Agility is further enabled through the presence of a pre-existing network of logistics providers on GT Nexus. As the World Food Programme responds to emergencies, they can rapidly change their partner mix since most are connected to, and active on, GT Nexus supporting other customers.
The entire platform is provided in the cloud, over the Internet. The partner network and applications are hosted and managed by GT Nexus. Customers access the platform through standard Web browsers, which is especially important for an organization like the World Food Programme because the majority of their field personnel are located in places with limited technology infrastructure.
A few observations
Supply chain software is in transition, and it is virtually impossible to predict when we will ever again see some of the “mature” periods of this software that we were accustomed to in the past. Cloud computing will continue to expand as a solution, and may even be an entire end-to-end solution for small- to mid-sized companies. Large enterprises will initially opt to deploy cloud-based solutions where these systems provide the greatest immediate benefit, most notably in the business processes external to the company.
Meanwhile, vendors will be asked by companies to provide suites of supply chain software capable of running every area of the supply chain, not just the warehouse or logistics. “Customers want out-of-the-box solutions that are exactly what they need,” says RedPrairie Software’s (www.redprairie.com) Vice President of Product Strategy, Tom Kozenski. “They want to know how your product is going to run the warehouse in the U.S., and how you’re going to get products in from China. They’re looking at the big picture. More deals are global and larger in size.”
Big deals come with a catch for software vendors, though: companies are comprehensively vetting the software before they purchase. The process includes detailed RFIs and RFPs, demanding SLAs (service level agreements); and pilot tests that run the software against prepared scripts that emulate actual business conditions that the company encounters with its supply chain. This can be challenging for software providers, which must not only survive the initial scrutiny, but continue to produce software with significant enhancements every three months.
“For supply chain software vendors, the process will be ongoing,” says Exostar’s Todd Walker. “Next generation portal solutions will be able to combine all suppliers and partners into a network of collaborators, so in the case of a single purchase order transaction, you can have end-to-end supplier collaboration, demand alerts that are automatically issued, collaboration in quality programs, reverse logistics for returns, uniform views of supplier performance metrics, and common access to forms and news. Today’s supply chain management software serves as the platform that brings all of this together.” wt
Contributing writer Mary Shacklett is founder and president of Transworld Data based in Olympia, Washington.
With access to over one million professionals and more than 60 industry-specific publications,
