IT Budget Shift Drives Extended Supply Chain Management

Yankee sees companies moving away from internally oriented technology projects toward "edge-of-the-enterprise" applications

Boston — November 20, 2003 — U.S. companies have finally begun to attack the more than $117 billion in excess inventory and $83 billion in lost sales associated with disconnected and uncoordinated supply chains, with companies across verticals implementing extended supply chain concepts such as lean supply chain management (SCM), distributed order management, collaborative planning and forecasting and collaborative logistics, according to new research from technology consultancy Yankee Group.

Yankee recent research reveals that companies have shifted information technology (IT) dollars from core or internally oriented technologies to what Yankee is calling "edge-of-the-enterprise technologies" that enable the networked supply chain, such as supply chain planning and execution solutions or supply chain communication and B2B integration technologies.

The consultancy's research found that 71 percent of companies have increased investment in edge-of-the-enterprise technologies. The portion of the budget allocated for these technologies grew 75 percent on average, while the overall IT budget grew only 3.7 percent.

With the demise of the $1 million software deal and opportunities to sell internally focused applications drying up, supply chain software vendors have implemented several strategies to meet extended SCM requirements, according to Yankee. For example, vendors have incorporated supply chain event management, portals and other capabilities into their applications to make it easier for customers, suppliers and service providers to access information.

In Yankee's view, few enterprises were technically or organizationally prepared to embrace extended SCM during the height of dot-com mania. Similarly, no supply chain vendor had the ability to deliver edge-of-the-enterprise solutions, such as extended SCM, without substantial integration and customization costs. Client/server enterprise resource planning (ERP) and SCM applications made it technically challenging to extend processes and functions beyond the four walls of the enterprise.

Much has changed, Yankee finds. The costs of integrating with the extended supply chain are falling. Various protocols and standards reduce the technical cost of supply chain integration. Supply chain application and integration vendors have responded to customer demands that vendors make it easier for customers, suppliers and other parties to access information such as forecasts, inventory levels, order status and capacity.

The trend toward extended SCM will have an impact on four technology markets and their corresponding service providers and systems integrators. Clearly, the supply chain planning and supply chain execution markets have been affected. Additionally, the ERP market and supply chain communication or business-to-business (B2B) integration markets have also seen an impact.

In the supply chain planning space, best-of-breed planning vendors that have moved their applications to J2EE architectures have benefited from this latest trend. Yankee asserts that enterprises that are serious about collaborative planning must select and implement applications from vendors such as Manugistics, Adexa, Syncra Systems and Logility.

On the supply chain execution side, vendors that have added event management and portal capabilities are also benefiting as enterprises move to extended SCM. Synchronizing fulfillment across multiple entities requires newer releases of supply chain execution software, and vendors such as Manugistics, Manhattan Associates, RedPrairie, Optum and Provia Software will enjoy higher upgrade rates within their customer base than execution vendors that cannot support extended supply chain execution, according to Yankee Group.