Reaching Maturity
Even though the growth of supply chain software has cooled significantly since the hey day of the explosive growth seen in 2000, there is still a huge opportunity for vendors to adjust offerings to better suit the needs of clients, according to a 2004 AMR Research report, "The Supply Chain Technology Market Has Matured; Now It's the Vendors Turn".
The Supply Chain Management (SCM) market has matured to a projected growth rate of 2.5 percent for 2005 from a 36 percent growth rate in 2000, according to the report. However, a higher degree of response and innovation from supply chain vendors, especially around opportunities like Demand-Driven Supply Networks (DDSN), could put supply chain tools back on the investment map.
Ripe with Opportunity
The market today is yearning for something that combines workflow, analytics and optimization to improve the processes for DDSN, direct material procurement and service excellence. "There is still market opportunity, but the vendors must change and align their products with new needs," says the AMR Research Report.
Exact Change
Thankfully, the supply chain planning application space continues to evolve, with the impending convergence of Oracle and PeopleSoft offering an interesting opportunity for Oracle to "re-tool" and combine some of the best pieces of the old J.D. Edwards (now PeopleSoft) and Oracle SCM applications.
"If Oracle executes this well, SAP and Manugistics will have a three horse race on their hands," says Marc Tepper, director of industry solutions, Clarkston Consulting.
Tepper says that because most other supply chain vendors are for the most part smaller niche players, they can expect to face an uphill battle in 2005 with the three listed above.
"Interestingly, given this market landscape, some companies like Demantra have moved away from pure supply chain and have expanded into advanced analytics and trade promotion management on the marketing and sales side of consumer goods companies," says Tepper. For more information on Demantra's expansion in the marketplace, check out "Ripe For Integration", the December CGT cover story on Welch Foods.
The SAP Factor
Overall, SAP continues to be the leader in the supply chain planning space, not because APO and related SCM applications are the best (arguably, they are) but because SAP seems to be the one vendor that really understands the developing convergence of demand and supply in the consumer goods space.
"Every player in the consumer goods industry is going to have to adopt a make to order mindset," explains Tepper. "Procter & Gamble is going to teach their competitors this painful lesson, which, to some extent, they already are doing."
SAP, according to Tepper, is the one vendor that seems to understand the make-to-order mindset, and in the long run, SAP will continue to expand its full supply chain offerings, integrating more and more of the transactions from the ERP world necessary to operate in a highly integrated, near real-time platform, the foundation of the pull model.
Future Focus
Focused vendors with a clear message of their supply chain offerings have seen their number of closed deals grow during the past three years, according to AMR Research. And with global sourcing and more attention to service, the number of deals closed in the strategic network optimization space has increased 19 percent over the course of the past three years thanks to offerings from i2 Technologies, LogicTools, Manugistics, Optiant and PeopleSoft.
Additionally, consumer goods firms have created rules to focus on supply chain excellence, which is definitely good news for the supply chain planning software market.
Still, the general lack of understanding surrounding DDSN must first be surmounted. Unfortunately, most of the current thinking with supply chain experts operates from a supply, instead of demand, perspective. For most vendors to capitalize on this change, innovative new applications need to be constructed in order to plug into demand-driven supply chain.
Time for Change
The good news? Change is currently happening. The Campbell Soup Company, for instance, is reaping the rewards of Terra Technology's real-time demand planning (see the December 2004 issue of CGT for more on this story).
"Historical data is becoming less and less relevant as we look forward with our demand plans," says Mike Mastroianni, Campbell's vice president of North America planning and operations support. "We need to find ways to take real-time data and embed it into our processes and technology to drive that future demand plan."
Driving a Demand Plan
For Campbell, and the rest of the consumer goods market, the benefits of ratcheting up an improved demand plan accuracy could include improved employee engagement driven by improved tools; better manufacturing efficiency and less obsolete product; and increased merchandising opportunities by way of better customer relationships.