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August 9, 2007 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

Supply Chain Software: Happy Days Here Again?

In case you haven’t noticed, these are pretty good times for supply chain software providers - the best since right beore the Internet bubble crashed. I think there are some insights arising out of this worth considering for most of us.

Let’s just start with some facts:

  • In our supply chain and logistics stock index, supply chain software companies, including ERP providers SAP and Oracle, are up very strong over the past year. Logility is up 65%, for example; JDA, which bought Manugistics, up 37%; Manhattan Associates, up 30%; Ariba, up 19%.
  • These stock price increases naturally reflect increases in overall profits, which for software companies is largely driven by sales of licenses, subscriptions and maintenance. Among the public companies, here are some more numbers: Manhattan’s ever growing license revenue is up 15% in 2007; Logility reported software sales in its most recent quarter up 48% over the prior year; in the second quarter, JDA signed 71 new software license deals, including four contracts that exceeded $1.0 million, and strongly expanded overall software revenue; Ariba signed more than 170 deals; i2 said it expects software bookings in 2007 to exceed its strong results in 2006.
  • The supply chain results of the ERP companies (SAP, Oracle, Infor, Epicor) also seem to be strong.
  • It isn’t of course just the public companies that are thriving – many of the privately held companies we track, such as RedPrairie, Softeon, LogicTools (now part of publicly traded ILOG), HighJump (part of 3M but without reporting separate results), GT Nexus, and many others are also very busy.
Gilmore Says:

Supply chain, as most of us know it, is in the end really about planning, making and distributing physical things. When unit volumes grow in a strong economy, they create pressure and performance challenges that technology can help address.

What do you say?

Send us your comments here

So what’s going on? Well, as with most things, in fact even more so for supply chain software providers, software sales tend to track the economy. In both the U.S. and globally, the economy has been strong.

Just as importantly, supply chain, as most of us know it, is in the end really about planning, making and distributing physical things. When unit volumes grow, they create pressure and performance challenges that technology can help address. Strong corporate profits provide the capital.

I also did some checking on this topic with a few people who I knew would have some good insight, including the always informative Andrew White of Gartner.

“Overall spending on SCM has expanded across several areas – both what we call process automation and process innovation,” he told me.

“The mass market has been adopting SCM best practices now for several years. A few years ago the focus was on Supply Chain Execution with warehouse management and transportation management being most critical to help manage the basics and keep costs down. Drivers such as complexity, competition, outsourcing, and innovation have led SCM leaders to once again evaluate broader SCM techniques such as better planning, optimization, collaboration, visibility, and multi-enterprise processes.”

White sees a lot of the technology investment as focusing on the basics: “We see the mass market adopting SCM for process automation. That is, standardized business processes that are repeatable, formalized and even described as best practices. These are the things a firm does to keep its supply chain on time,” he said.

Still, “Loss of control and lack of ability to change end-to-end processes lead to the other part of the SCM market – SCM process innovation,” White added. “In a post demand-driven world where chaos reigns, SCM leaders need to be more agile and nimble and less dictated to by one simple strategy,” he said.

This means companies need to embed decision making and resource allocation as close to the event that requires a change in the plan; new business rapidly processes form – and re-form.

“This is not SCM for the masses but more SCM for the innovators – firms that bleed SCM when you cut them. We are seeing investments across technologies including S&OP, inventory strategy optimization, global trade management, and sensory based planning and execution,” White concluded.

Karin Bursa, VP of marketing for Logility, told me that she sees "two issues that are driving investments in supply chain solutions: the challenge of synchronizing a global supply chain network, and the need to streamline sales and operations planning in a demand-driven world."

She said demand seems to be strong in food & beverage, consumer goods and vertically integrated manufacturing-retail . "These are highly competitive sectors that rely on new product introductions, promotions and rapid inventory turns to expand profit margins," Bursa said. As a result, these companies have a big need for next generation SCM software to remain competitive.

I think both White and Bursa make good points. There are also a number of other key factors we can point to in addition to those thoughts and the impact of an overall strong economy, but given the space constraints I am going to save those for next week. Would love your thoughts in the meantime.

I'll end with some additional comments from Gartner's White: "Too many organizations perceive supply chain management as an application," he said.  "We hear all too frequently, 'Well, we implemented demand planning, so we have SCM all done.'”

"Yet the same organization might be facing customer service problems with ineffective fulfillment processes. Despite the “software on the shelf” syndrome, there has been a growing awareness by business leaders and innovators that SCM is not an application; it is a strategy supported by technology and process, that should be connected to and driven by the business strategy.  When this connection is made, investment in SCM technology shifts from process automation to process innovation."

The upshot of that: are you investing to automate, or to innovate? Or a bit of both?

More next week.

Also, please note we have revamped our home page again - it's truly excellent. Think you will like it a lot, so please take a look:

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.

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Dan Gilmore


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This Week’s Supply Chain News Bites – Only from SCDigest

August 8, 2007
Supply Chain Graphic of the Week: Where are Companies Investing in Distribution?

August 8, 2007
Mattel Incident Shows Companies Can't Go On the Cheap when Sourcing from China, Must Take Proactive Control of Entire Supply Chain

August 7, 2007
Supply Chain by the Numbers: Aug. 7, 2007

August 6, 2007
Samsung Flash Memory Plant Goes Down, Halting Production for Almost Two Days

August 6, 2007
Supply Chain Executives on the Move: Adtran's Greg Andrews Takes Position at Georgia Tech


It was a rollercoaster week on Wall Street as stocks attempting to recover from last week’s plunge succumbed to an end-of-the-week skid.

Still, our Supply Chain and Logistics stock index faired relatively well.  Software provider, Logility, charted a remarkable 10.9% climb for the week.  In the hardware group, Intermec and Zebra saw mixed results, down 1.3% and up 0.5%, respectively.  Yellow Roadway in the transport and logistics group suffered the week’s largest overall percentage loss (down 9.4%).  

See stock report.


Global Supply Chain: What Will the Supply Chain Fallout be from the Mattel Toy Recall?

Latest in A String Of Product Safety Incidents Likely To Fuel Demands For More Regulation of Chinese Imports; Mattel Finally Names Supplier Involved; Will Western Companies Get Gun Shy About Offshoring?

RFID News: Are We Entering a Period of Consumer "Identity Management?"

Who Has the Power Balance Dictates the Threat in Each RFID Application, New Report Says; Consumer Knowledge is the Key to Limit the Danger

This Month's Supply Chain Marketing News Exclusively for Supply Chain and Logistics Solution Providers

Expert Insight:
Lean Thinking

by Mike Loughrin

Mike Loughrin The Journey to World Class

A Three-Phase Trip to Higher Performance


Have a supply chain or logistics related questions you need answered?

Ask our panel of experts. See our growing list of questions and answers Share your insight.

Reader Question: What Kind of Savings Do Companies Typically See When They Do a Formal Carrier Bid Process by Lane?

Reader Question: Are Supply Chain Certifications Valuable?


Q. What noteworthy contribution did Keith Oliver of Booz Allen Hamilton provide to the Supply Chain industry in 1982?

A. Click to find the answer below



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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're really behind again - bear with us. But keep the letters coming!

We have Letters on a number of topics this week. We received a great letter from Jim Tompkins of Tompkins Associates on our 1H 2007 Supply Chain and Logistics Review – it’s our feedback of the week, and adds a lot to our perspective.

We also publish more letters on our review of the annual state of logistics report 2007, and one from a member of our growing international readership, this time from Saudi Arabia, who said our article on Supply Chain Best Practice Tip: Managing Your Career has helped him think about his manage his own career path.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – On 1H SCM Review

As always I find Dan's columns thought provoking and worthwhile. His key news, trends and eventscover a broad path and I could easily write a response longer than Dan's article. However, let me focus onfour that are key in today's SCM evolution:

1. On the Green side: Wal-Mart’s CIO spent a lot of time at the RFIDLive! conference talking about the “green” initiatives. He also spent time talking about using supply-chain initiatives to drive down the cost of healthcare. He gave an example of how basic supply-chain practices could reduce the cost of generic drugs and supplies (such as the same supplies that go to Wal-Mart with a barcode go to hospitals without one, thus making it hard to track such things in the hospital using auto-ID technology). He mentioned a ten-year-old study called the “Efficient Healthcare Consumer Response” which identified $11B worth of process improvements in the health-care industry, and claimed little progress had been made there. So, basically, the Wal-Mart vision is to use efficient supply-chain initiatives to save the planet and also save the US healthcare system. They have a pretty good handle on what will play well politically these days and continue to use topics like Green and health care to boost their public relations image.

2. Dan mentions food company's pursuing transportation improvement programs. I see this but also see Transportation 3PL's continuing to broaden their service offerings.

  • Expanding into new modes to provide complete transportation management coverage (such as CH Robinson and MIQ(Now YRC Logistics) handling parcel shipments).
  • Expanding global capability (All the big guys have offices in China now)
  • Enhanced shipment visibility tools
  • Flexible solutions (willing to manage client systems, assets, etc.)

3. On the RFID side, CIOs are still not seeing pay-back for the EPC retail compliance model. But those CIOs who have reported success in implementing RFID have used it to fix other problems in their supply chain. The HP executive who attended the RFIDLive! conference mentioned that “we didn’t know how broken our process was until we started getting the data from RFID.” So there’s nothing new here. Some companies implemented RFID as an act of faith, and then reaped process-improvement rewards from fixing their broken processes armed with the new data provided by the RFID technologies. Other companies attack their processes with more traditional data-collection means, and therefore don’t see a payoff for adding RFID to the mix. The “system integrator” trend continues in the RFID marketplace. Industry press releases are starting to confirm that companies who provide a total solution to a business problem –- and that solution incorporates RFID --- are thriving. Pure hardware or software vendors are being driven to a commodity market, so the future action in RFID will be with qualified integrators. Here, “qualified” means a stable of CompTIA certified workers, combined with an executive-management team with good prior accomplishments in the field.

4. I noteDan's well-phrased statement of the “perfect storm” analysis. Tompkins, with our large client base of shippers, has listened to their concerns about the “up-chain” component of the supply chain (before it gets to the national or regional distribution center). Yes, the west coast ports have predicted a smooth peak season for 2007 but the “storm clouds” are brewing for 2008 and beyond. There are several factors that will play havoc with established and yet to be established supply chains. They are (and not in any particular priority):

  • ILWU 2008 contract negotiations with PMA and the ghost of 2002
  • Substantial rise in intermodal contract rates from both the BNSF and the Union Pacific across the board
  • Significant new terminal capacity coming on-line at Tacoma, Prince Rupert and (a big maybe) Punta Colonet in Mexico without any guarantees of cargo commitment
  • Environmental and legislative pressures (really big in California) to limit growth of marine and rail intermodal cargo
  • A lack of a National Freight Strategy that equates to a lack of funding to increase infrastructure capacity (road and rail) anywhere along the supply chain
  • US and Foreign Governmental criteria for security policies and logistical processes that don’t necessarily move the freight faster, safer and more efficiently

All of the above have a significant number of our clients actively moving toward an “all-water” routing, either through the Suez Canal or in an attempt to grab capacity slots in anticipation of the 2014 expansion of the Panama Canal. This could very well mean a complete re-analysis of their distribution and sourcing strategies. The industry is still in a state of uncertainty and rapid change requiring flexibility and options, all not without cost. Therefore what we see today is not what we will see tomorrow. The “storm” is coming and it is our job to prepare for the consequences.

James A. Tompkins Ph.D.
Tompkins Associates

On State of the Logistics Union 2007:

I agree with you analysis. Your points of railroads almost hitting capacity give their current infrastructure is on point. Also initiatives such as RFID mandates are adding additional handling costs as wells as IT spend. Your report is outstanding.

Dr. Erick C. Jones
Assistant Professor
University of Nebraska-Lincoln

The retail sector, which is the example often quoted for warehousing and logistics efficiency is perhaps contributing to more logistics spend in absolute terms with more products and more malls in more towns and City centers. Even so, I doubt whether this can be proven, as the major logistics costs are pushed back to the producer/manufacturer of the goods that are retailed in the stores.

Even in inventories, the increasing requirement for high service levels (with penalties beyond just loss of sales) and the just-in-time sort of inventory models, are resulting in a push back effect on the producer's inventory. Therefore, physical inventories may be growing as a result of the insistence on lean inventories at the upper end of the Supply Chain

T A Krishnan
Larsen & Toubro Limited-Mumbai (India)


On Managing Your Career:

I am working as Supply Chain Consultant for Saudi Telecom Company in Saudi Arabia.

This article gave me ideas about how I can improve my career path.

Syed Iftikhar Ahmed
Oracle Applications Consultant
Saudi Telecom Company


Q.  What noteworthy contribution did Keith Oliver of Booz Allen Hamilton provide to the Supply Chain industry in 1982?

A. He coined the phrase "supply chain management."

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