Supply Managers Turn Bullish

See increase spending on supply chain solutions, increased revenues, surveys show

Tempe, AZ  May 10, 2002  A significant number of supply chain managers see their companies loosening the purse strings and spending more on supply chain solutions in the second quarter of 2002 compared to the previous quarter, according to a new survey from an investment firm.

The survey of 41 supply chain managers, conducted by investment firm SunTrust Robinson Humphrey, which covers various supply chain solution providers, came on the heels of an optimistic report from the Institute for Supply Management (ISM), whose latest poll of purchasing and supply executives indicated a generally positive outlook for the second half of 2002.

The Robinson Humphrey survey found that 37 percent of respondents were planning to increase their spending somewhat (17 percent) or much more (20 percent) this quarter, against 24 percent that said they would be spending less.

The bright outlook for the second quarter follows bearish results in the investment firm's survey covering the fourth quarter of last year, when 42 percent of respondents said they would decrease spending for Q4, versus just 20 percent that expected to increase spending that quarter.

However, the trend turned more positive during the first quarter of this year, when roughly equal numbers of supply chain managers in the survey said they would spend less or more (30 percent and 32 percent, respectively).

Moreover, in the most recent survey, of the 19 supply chain managers who said they would spend less or about the same on solutions during the second quarter as the previous quarter, just six said that budget constraints were restraining new spending, while the remainder cited "earlier software purchases, roll outs or other project-related reasons for slow spending intentions" in the second quarter.

When asked why supply chain solutions sales appear to be holding up in the face of more significant downturns in other technology sectors, four said that supply chain is a higher priority than other software projects, while another four cited competitive pressures for continuing to invest in supply chain solutions. Seven cited the return on investment (ROI) from the implementation or indicated that the solutions pay for themselves, while an additional six said that the supply chain projects were in line with their companies' focus on cutting costs.

Looking ahead, the Robinson Humphrey found 47 percent of the supply chain managers planning to spend more in the second half of the year, against 32 percent planning to spend less.

Chris Rowen, an analyst who covers B2B and supply chain software for Robinson Humphrey, said the supply chain managers surveys, as well as similar surveys of supply chain consultants that he also conducts, have proven to be good predictors of supply chain sales over the past several quarters.

"The supply chain managers are great for telling you what spending intentions are going to be," explained Rowen. "They told us the second half of last year was going to be lousy. They told us the first quarter of this year would be OK, and they said in the last survey that second quarter would be up from the first quarter."

The survey of supply chain consultants provides similar insight into spending patterns, as well as a view of the competitive landscape, Rowen said.

Rowen believes that similar surveys of chief information officers (CIOs) can understate the importance of supply chain software projects. "In one of our surveys of supply chain consultants, we asked what percent of CIOs provide budget dollars for supply chain software as opposed to just providing infrastructure and maybe a technical approval. And the number came out to be 40 percent."

In addition, because many industries  such as financial services  essentially do not have supply chains, CIO surveys that include those industries could under-represent the level of spending on supply chain projects. "If you do a CIO survey, 70 percent of them have supply chains, and 40 percent of those would know about [supply chain projects], so the best that [supply chain software] is going to poll is 28 percent," Rowen said.

Meanwhile, the ISM (formerly the National Association of Purchasing Management) this week reported that purchasing and supply executives see continued economic growth in the second half of the year.

In its semiannual economic forecast, the organization said manufacturing executives "expect their 20002 revenues to grow modestly from 2001 as they now anticipate 2.8 percent growth in revenues."

"Manufacturing purchasing and supply executives are more optimistic than at any time in the past year and see significant improvement in their organizations' prospects for 2002," said Norbert Ore, C.P.M., chair of the ISM Manufacturing Business Survey Committee and group director for strategic sourcing and procurement at Georgia-Pacific Corp.

Non-manufacturing executives in the survey were predicting revenue growth of 2.1 percent.