First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  August 16, 2007  

The 8 Reasons Companies Are Buying SCM Software

Gilmore Says:
As always in the supply chain software business, it will hit a trough somewhere down the road, but for vendors right now, times are pretty good.

What do you say? Send us your comments here

As we first discussed last week, these are very good times for supply chain software providers, and that means companies like yours must be buying. Gartner’s Andrew White shared some thoughts at what companies were doing through a filter of process automation versus process innovation – interesting comments.

I also noted that with the strong economy, companies were simply buying more components, bringing in more containers, and making and shipping more products. It’s the pressure from rising volumes of the physical supply chain that often drives technology investment.I speak to lots of companies about what they are doing to improve their supply chains, which generally involves, in part, a technology aspect. I’ve been thinking some more about what is really driving software investment, and offer below my eight key drivers of the recent strong levels of supply chain software adoption. It should be helpful for companies to get a sense of the catalysts behind the kinds of investments others are making in supply chain technology.

1. We are in a period of rapid supply chain change, driven most importantly by globalization and offshoring. With that change follows new strategies, processes, and objectives - often driving the need for new technology. Software providers, ranging from supply chain visibility to network optimization to warehouse management (to better handle all that inventory we're bringing in), have benefited from supporting new supply chain network strategies. This is clearly the number 1 factor. (See our Network Planning and Optimization Resource Center from The SCDigest Letter.)

2. Despite some relief from the worst of transportation times in 2005, many companies are still purchasing Transportation Management Systems. Nearly all TMS vendors I know are doing at least OK, and some very well. Companies today simply understand that transportation is a function that requires strong technology support – a big change from the past. (See our TMS Resource Center from The SCDigest Letter).

3. Related to point number 1, and as Logility’s Karin Bursa noted last week, many companies are attempting to become more "demand-driven." While that's not a software application you can buy, most find that to do so requires a lot of technology support, such as supply and demand planning, to provide the needed foundation.

4. Sales and Operations Planning is very hot, and just as with companies moving to be more demand-driven, the right technology foundation makes all the difference. Moving to an effective S&OP process often highlights deficiencies in a company’s current supply chain technology stack, as companies define the “to be” state for S&OP and realize, either before or after they begin the S&OP journey, that better tools than they have are required to optimally understand and balance supply and demand.

5. Companies have found they really can drive tremendous savings to the bottom line from sourcing solutions, such as e-auctions and e-procurement. It’s low hanging fruit, and part of the overall trend towards greater centralization of the supply chain.

6. Years after the internet bubble, companies are also finding real value in applications for web-based collaboration/integration. Many vendors offered these or similar tools early in the decade, but as frequently happens, the uptick in adoption has really just occurred in the past couple of years.

7. In the past couple of years, a few software categories have gone from off the radar to pretty hot. One, Labor Management Systems for Distribution, has been around for many years, but only recently moved to more mainstream interest and adoption (See our LMS Resource Center from The SCDigest Letter).  A much newer category, Inventory Optimization, which helps companies with complex supply chains optimize inventory levels across multiple levels, is also gaining a lot of traction.

8. For now, we’ve come to a reasonable market equilibrium between ERP and “best-of-breed” providers – enough market for both. Some of the worst of the “ERP or nothing” mentality has receded in many companies, and as often as not, if the company should go ERP, it does, and if it should go best of breed, it is. Not always, but enough. The related dynamic is that a company may find it has two or three major centers of gravity entrenched – its ERP system, its supply chain planning system, and its supply chain execution system. It often has flexibility to choose the next app (say transportation management) from which of the three offers the best fit, most value, and least pain.

As we noted before, what I have not seen is a lot of spending on new RFID-based applications, with the somewhat exception of some large consumer goods companies investing in analytic applications, such as those from TC3i and True Demand. I don’t have a great sense for whether companies are again spending money on Manufacturing Execution Systems (MES), a market that never seems to quite get hot. Companies for awhile were reluctant to invest in MES until they figured out what their manufacturing strategies were going to be (e.g., outsourcing), but there is something to this “shop floor to top floor” concept, and regulatory pressures continue to push companies towards more robust manufacturing data collection and control.

As always in the supply chain software business, it will hit a trough somewhere down the road, but for vendors right now, times are pretty good. That means you are buying, and from what I am hearing, the return on investment of late has been good, as buyers have gotten a lot smarter about the buying process and making the implementation work.

What do you think is driving the current good times for supply chain software? Is your company making investments? Where and why? Is there an important difference between process automation and innovation? Let us know your thoughts at the Feedback button below.

Let us know your thoughts at the feedback link below.

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