Time for SCM to Go Mid-market?

Midsize firms lag in supply chain management adoption, but not in intent to implement apps, Forrester finds

Tempe, AZ  November 26, 2002  Midsize firms currently lag in their adoption of supply chain management solutions but not in intent to implement SCM apps, and mid-market enterprises may be willing to spend more on supply chain projects than some larger companies, according to a new study from technology consultancy Forrester Research.

Forrester's survey of 124 U.S. executives from mid-market, large and "megacompanies" revealed that about four times as many mega-enterprises had adopted SCM applications as mid-market firms. But 78 percent of mid-market companies, along with 87 percent of large and 94 percent of the largest companies, planned to invest in package SCM software within the next two years, and all the surveyed companies planned to invest in the software eventually.

For the report, titled "Mid-market Opportunities for SCM Vendors," authors Jennifer Chew, Laurie Orlov and Ryan Hudson defined mid-market enterprises as those with revenues from $500 million to $1 billion, while large companies had revenues of $1 billion to $10 billion and megacompanies had revenues greater than $10 billion.

Mid-market companies tended to be in the initial phases of their SCM projects compared to larger companies, Forrester found. Overall, just 31 percent of mid-market companies reported that they had completed their SCM projects, compared to 33 percent of large companies and 40 percent of megacompanies. However, 54 percent of mid-market firms said they were less than half way done with their projects, against 28 percent of large companies and just 20 percent of the megacompanies.

Interestingly, mid-market companies led both large and megacompanies in their implementations of inventory management software: 67 percent of mid-market companies reported their inventory projects were complete, against 47 percent of large and 52 percent of the largest companies.

However, the mid-market lagged behind in other areas. For example, 20 percent of midsize enterprises reported they had completed their manufacturing planning software projects, compared with 35 percent for large and 30 percent for megacompanies. For transportation and distribution software, 29 percent of mid-market companies said their projects in this area were complete, against 31 percent for large and 35 percent for megacompanies.

Mid-market firms also were behind in implementing demand management, order management, and procurement and sourcing applications.

While smaller companies evidently are not as far along in implementing SCM applications as the larger companies, Forrester found that the mid-market companies are not stingier when it comes to spending on software projects. The mid-market enterprises surveyed by Forrester reported that they spent an average of $4.6 million in their SCM projects, slightly more than large companies although substantially behind the $7.6 million the megacompanies invest in such projects.

Perhaps more important for the software industry, fully 85 percent of the mid-market firms reported that they used the services of an outside system integrator, a supplier or both to assist in the implementation.

Based on these findings, Forrester's analysts suggest that the SCM solution providers should aggressively target mid-market enterprises. "The companies have a high purchasing intent, a low percentage of completed SCM [application] implementations and the willingness to spend money at the same level as companies up to 10 times their size," the analysts write.

Among other suggestions that Forrester offers to solution providers interested in the mid-market, the analysts recommend that the providers offer "bite-size" packaged solutions of products and implementation services at fixed prices.