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A couple more great letters on our First Thoughts piece on “The End of a Supply Chain Era,” which commented on the acquisition of i2 by JDA. They are both long, so we are just publishing two comments this week (we had a large number on this topic), both are worth reading.
First, David Schneider, in our Feedback of the Week, says one era may be ending, but another is coming, especially with regards to on-demand supply chain software. Jon Kirkegaard agrees, but with a different perspective, and says we are only scratching the surface of what supply chain software can do for companies. Both articles make great points – please take a look.
Feedback of the Week - On End of a Software Era:
The passing of an era, but as one goes out the door another is coming in the room form the other side.
The impact that i2, Manu, and all of the other 'big' supply chain management systems made was huge. But the huge traditional systems were tagged for assimilation as they assimilated the smaller players in the field. Eventually the big systems had nothing to feed on except for each other. In the end it came down to who had the most cash and / or negotiable equity would win.
These application did not blaze the trail, but really cut the initial grade through the rough terrain of poor business practice. Only the huge supply chain players, like P&G, Best Buy, Unilever, and the rest of the companies that made the massive investments in the applications AND the supporting infrastructure could afford to make these systems work. There was a ROI that the vision leaders could point to for the short term to please the financial leaders of their respective companies, but the vision leaders understood that the applications were only enablers that helped take advent guard management strategy and tactics that would really deliver lasting ROI far beyond the memory of what the systems cost.
I think of the process much like the way that some of the Midwestern states build the highway system. First there is the very small two lane road that follows the terrain, makes some engineering cuts and fills for the very high and low points in the line, but only to accomplish the simple connection of the points.
Stage two is when the road is upgraded, relined, and new right of ways planned and built that use much greater engineering cuts and fills to create a line that is straight in long sections, and abandons the old road for the local traffic. The second phase road is still a two lane road, but it has reduced the grades and improved the throughput capacity and speed of the road.
The final step is when the road is widened, the right of way is expanded, and a second set of lanes added to where the throughput capacity is doubled, the safe speed of the road is raised, and the velocity of transit is doubled because all of the bottlenecks have been engineered out of the lane.
The initial legacy supply chain systems of the 70s through the early 90s are like the first phase of two land roads that followed the 'nap of the earth.' These systems were built internally, with help from large consulting and computer companies. They were built to follow the business conditions of the 'host' company, and addressed internal processes with interfaces with the outside world, and sometimes with other internal systems, through paper documents and manual data entry. They connected the points of the process, but with the hills, steep grades and stop lights of internal and external lack of discipline and communication.
I2, Manu, and the rest of the SCM applications were the second phase. The application engineered a new right of way by understanding the goals and processes developed before, and building better lines for the route to follow. Intersections with other systems were designed and automated, but there were still many stoplight intersections in the process. These systems helped spread the logic and the promise of greater integration and control, but were still when first introduced not really based in reality, both in cost and the return on the promise.
These systems still cost a pile of cash, required a pile of cash for the hardware to support, required an everlasting pile of cash for the support from consultants for the implementation and integration with other internal and external systems, and exposed the need for even more cash. These systems highlighted that the delivery of the vision would require almost all trading partners in the supply chain to be on a platform of some kind, and that the platforms had to be able to exchange data.
There was still a key missing ingredient, these systems did a great job of providing a planning template, but did little to address clean execution management. The 3rd phase is the SaaS model. Now multiple trading partners can work together in the same system environment, jointly supporting the cost for the applications and hardware. The information exchange is now real time, and the cost of entry is now much lower. Transplace, Lean Logistics, Log-Net, Shippers Commonwealth, eWMS, SmartTurn, and the rest of the new players in the market have cut away at the underpinnings of the older SCM platforms.
What is next? Well, with the multilane state highways they change from being open access to limited access roads, eliminating grade level intersections with interchanges that use ramps, allowing for even greater flow. Those roads get converted into 'interstate' specifications. On the software front at some point of time SAP and Oracle will look at the combined entities left standing, Like Manhattan, INFOR, or JDA and say 'I think I will buy their solution' to either incorporate the solution into their offering to improve, or to remove the technology off the table so that it no longer competes.
The SaaS model players will continue to be attractive to the smaller players in the market place, and will help elevate the level of execution excellence with an offering of both software and a proven process platform. The huge players will compete, offering their SaaS platforms, but the market place of the small users is huge, and diverse, and will not accept the one size fits all format of the huge providers.
The land of innovative Supply Chain Management is not in the huge companies, but in the small companies, where they need to figure out how to take the theory and convert it to reality.
David K. Schneider
David K Schneider& Company, LLC
More on End of a Software Era:
Great article-- and as such I feel compelled have to make a brief comment that endorses your hypothesis and analysis of i2.
I was recruited to i2 as one of the first 70 or so employees mostly because while at Booz Allen my work had been to deliver competitive advantage to customers using supply chain solutions. While at Booz Allen I specialized in early work weaving supply chain competitive advantage concepts into operations, IT and industry strategy projects.
Some of those projects involved major distribution intensive clients where I worked with Manugistics. I got to know many of the Manugistics team including Bill Gibson and Tom Skelton and was very impressed with the culture and change management Manu had stumbled into providing their clients. I was even was one of their references with Alex Brown for their IPO and had a late night chat while working with Frito-Lay on a project (involving Manugistics software) with Bill Gibson who shared with me why he founded Manu: the desire to help clients cut inventory costs because GAAP financial systems DID NOT.
I never thought I would be in the software biz-- but got recruited to i2 and i2 being in Dallas and me living in Dallas but never being there (projects spread all over the place) I thought what the heck and after after a few months joined Greg Brady and team. It was great fun!
i2 had quite a run for the first three years as the i2 culture led by Ken Sharma, Greg Brady, Sanjiv and to a lesser extent by execs at my level was ONLY customer results driven. I still remember an early salesman Dennie Maloy's comment in the first year of our efforts to outflank Manugistics. Denny said 'Manugistics is the worldâ€™s tallest midget' (no disrespect meant) but I think in retrospect illustrates the then market state and still wide open field of finding business competitive advantage through leveraging what we now call the use of a firm's supply chain.
But in reality Manu had a great distribution solution and i2 a great Manufacturing solution but there was a grand canyon on missing solutions left to fill.Another way to quantitatively measure the size of the opportunity that I think worked then and now is that probably less than 10% of the potential for reducing global inventory, manufacturing and logistics waste has been touched.
Last time I gave a speech and did the arithmetic and conservative calculated this slack / buffer or waste at minimum of 30% of global GDP -- a very large number. $400 Billion or so!
So what is next ? My bet is the majority of customers are going to get smarter at realizing the bottom line $$$ to being just a bit better then their competitors at achieving this supply chain business advantage. The top 5% of customers already know this and have embedded supply chain improvement into their culture and their measurement systems and is why they drive huge business advantage from supply chain operations.
I think this customer buying smarts get manifested because the average customer will know the value only becomes real through solutions that drive real culture change (that contain software but are not software alone-- maybe sparked by software?) and the advantage is as a on-going chess game / mixed martial arts game of competition.
There is no advantage buying a box of software that gives you best practice from someone else's biz, just a conclusion / prediction is that providers that deliver a SOLUTION (such as S&OP) that take the lead in sparking a mass market understanding of the supply chain business advantage potential and it is remarkably achievable with leadership and some excitement and pizazz of the early i2 and Manu years will again surprise us all-- but more importantly help us all!
Conversely, software providers who circle the wagons around an artificial 'software' segment created by a Wall Street analyst looking only at license sales or software analysts segmentation will continue to fade.