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Supply Chain Matters Initial Assessment of the SAP-SmartOps Acquisition

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This Supply Chain Matters commentary is our initial assessment of the previously noted news that SAP had announced plans to acquire multi-echelon inventory optimization technology provider SmartOps.

For those unfamiliar with SmartOps, this vendor is a provider of multi-echelon inventory optimization and supply chain analytical software. The company was founded in 2000 by Dr. Sridhar Tayur, then on the faculty of Carnegie Mellon University.  Its initial software was named Multistage Inventory Planning and Optimization or MIPO. Dr. Tayur had credited this author with introducing SmartOps to the broader supply chain planning market back at that time, while I was Research Director for supply chain planning applications at AMR Research.  Later in my career, while at SAP, I helped to establish SmartOps as one of four different partners in providing SAP supply chain planning customers’ integration choices for the multi-echelon inventory optimization planning requirement needs.  SmartOps software was named as an SAP Industry Network Partner in 2006 and reached Solution Extension Partner status in 2009, one the highest levels of SAP partnership can achieve at the time.

One of the first SmartOps lighthouse customers was Caterpillar, followed later by John Deere and others.

Readers should keep in mind that since this proposed acquisitions remains in-process, neither side can provide any detailed content, although some information may be selectively shared with existing customers of both firms.  However, this author has had some general conversations to provide an initial assessment for our readers.

First, this announcement is not to be viewed as any real surprise. Effective multi-tier inventory optimization can save multi-national enterprises a ton of money, and that has fueled high interest in this software segment for quite some time. Some companies have literally been able to payback their investment in this software in less than a year, just from the total inventory savings.  The original concept was to have inventory optimization software such as SmartOps fully integrated with SAP APO, in essence, having SmartOps automatically plan inventory and safety stock target levels behind the scenes for planners.  The reality however was that very few customers were able to achieve this level of integration, because of a number of complex factors. None the less, just having a standalone inventory optimization analysis uncovered lots of opportunities for overall inventory deployment savings while maintaining or increasing customer service levels. Having certified integration with SAP’s integration stack coupled with SAP’s commitment to first and second-level software support added more attractiveness for SmartOps to be a preferable choice of SAP IT support  teams among various industry clients.

From a solution breadth perspective, analytics intelligence and demand sensing capabilities were added to SmartOps functionality beginning in 2011. The Enterprise Demand Sensing (EDS) is of special interest to manufacturers in the consumer goods sector because it determines daily sensed demand at the item, location or customer segment level, a functionality that was laggard in SAP Advanced Planning and Optimization (APO).  Thus, the acquisition announcement indicates SAP has plans to enhance both the SAP Sales and Operations Planning Powered by HANA application and the SAP Advanced Planning & Optimization (APO) application with these augmented capabilities.

By achieving SAP highest partnership status , SmartOps software was listed on the SAP price list with field sales representatives garnering significant commissions for selling either a standalone inventory optimization or combination supply chain planning and inventory optimization deal.  My sources indicate that the decision to pull the trigger on acquisition was therefore primarily advocated by SAP industry and field sales teams as a lever to increased customer interest in supply chain wide analytics.

The other more strategic aspect of this acquisition relates to an opportunity for leveraging additional cloud computing options, along with leveraging more analytics on the SAP HANA platform for the SAP Supply Chain Management installed base, especially for the SAP Sales and Operations Planning Powered by HANA application, which has a lot of potential interest from SAP customers, but needs additional springboards in deployable functionality.

SAP has thus upped the ante for existing technology players in the sales and operations and supply chain analytical applications area with particular targets being Oracle, IBM, Kinaxis, JDA, Steelwedge, ToolsGroup and others in this space. The question however remains how quickly SAP will execute on its supply chain focused cross-integration cloud and HANA based analytics vision once this acquisition is consummated.  The other open question is overall pricing of both cloud and HANA analytical offerings. If the SAP field persists in demanding seven figure deals in this area, best-of-breed vendors will continue to be a competitive alternative.

Supply Chain Matters will provide added analysis in the coming weeks when more information and market dynamics become more apparent.

Bob Ferrari

 

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