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.
The consultancy believes that ERP vendors are behind both the planning and execution vendors in the area of extended SCM. The ERP vendors will not benefit from this shift given their current portfolio of extended supply chain applications and constraints of their sales models. The demand for extended SCM, coupled with the ERP vendors' inability to deliver scalable solutions beyond the edges of the enterprise, will enable best-of-breed vendors to capture new license revenue from the ERP customer base, Yankee asserts.
According to the consultancy, among the ERP vendors, SAP, with its NetWeaver and xApps strategy, is best positioned to deliver extended SCM solutions. However, SAP customers have not successfully extended SAP applications beyond the edges of the enterprise. Yankee is recommending that customers rigorously test SAP xApps to validate functionality, scalability and interoperability within a networked supply chain context.
Yankee goes on to state that Oracle's extended SCM capabilities have been limited to a handful of industries with specific requirements. Oracle's Shop Floor Management application in the high-tech market (semi-conductor specifically) addresses a limited portion of the networked supply chain, the consultancy reports, and Oracle needs to take the technology and functionality developed in its shop floor applications and bundle it as a lean SCM solution, immediately followed by a network-oriented supply chain application focused on logistics and collaborative decision-support.
Finally, regarding supply chain communication and B2B integration, Yankee believes that as enterprises form tighter and broader electronic relationships, the volume and frequency of data and transactions will increase, benefiting integration vendors with effective enterprise net connector solutions. Sterling Commerce, Cyclone Commerce and Transentric will all benefit as extended SCM expands, according to the consultancy.
Yankee offers several recommendations to enterprises looking to take advantage of this latest trend, including:
- Buy extended SCM as a service in a subscription model. Only the very largest manufacturers and retailers will need to buy software that enables them to be the hub or center of the extended supply chain. Enterprises avoid numerous headaches and costs by opting to deploy extended SCM as a service.
- Upgrade your ERP within the next 12 to 18 months. Communicating and executing across the extended supply chain requires importing and exporting transaction-level data from supply chain systems. Moving to the most current version of SAP, Oracle or PeopleSoft will make it much easier to connect with the supply chain network. Specifically, the Web services capabilities and browser or portal-based delivery of application functionality enables enterprises to integrate data, processes and people across the networked supply chain.
- Take a holistic view of your supply chain. Understanding the flow of information and inventory within the broader supply chain network, as well as within your organization, will enable you to make better decisions and plans about capacity and inventory. Given the widely available event management and translation software and services in the market today, gathering information about what is happening in your extended supply chain is no longer technically challenging.