In conjunction with its Supply Chain Executive Conference being held this week, Gartner indicated that the worldwide supply chain management software market grew a healthy 12.3 percent in 2011, reflecting two years of double digit growth.  This author has been involved in quantitative SCM software forecasting for many years and I can share with Supply Chain Matters readers that this growth in investment is the highest since the boom times of Y2K.  It also provides ample evidence of the fact that many companies are investing in advanced supply chain technology in multiple areas. Another significant takeaway is the uptake in SaaS (software-as-a-service) revenues, which Gartner pegged at a 21 growth rate, contrasted with 15 percent growth associated with perpetual license sales. That implies a higher uptick in SCM cloud growth, in-line with our Supply Chain Matters 2012 prediction related to technology adoption.

According to Gartner, 79 percent of software revenues were generated in Europe and the U.S., however European growth slowed in 2011. Asia/Pacific experienced robust growth, outpacing the market average. We would anticipate that given the current business climate, European based SCM investment will continue to decline in 2012.

Gartner also declared the top five SCM technology vendors by revenue, with SAP leading the list, followed by Oracle, JDA Software, Ariba and Manhattan Associates. We caution our readers to not place significant attention to which vendor is the top revenue generator.  The reason is that many of the enterprise software vendors such as SAP and Oracle do not formally breakout revenue reporting by application type, such as SCM.  Thus, industry analyst firms such as Gartner must estimate actual revenues based on any vendor input, internal analysis and estimates.  Categories of SCM software are also categorized differently, especially in areas of overlap with ERP related software, along with software associated with sourcing, procurement and contract management.

Suffice to state that supply chain software technology vendors for the most part, celebrated a healthy year of growth in 2011.  Many manufacturers and retailers also recognized the importance of augmenting supply chain business processes with advanced technology.

Bob Ferrari

As we transition into the final month of 2011, we are revisiting the Supply Chain Matters 2011 Annual Predictions for Global Supply Chains which were outlined a year ago.  Our annual process is to first re-visit past projections made for the current year, in this case 2011, and declare some projections for the upcoming 2012 year, which will come in a later series of postings before the end of the year. In this Part Three posting, we will revisit predictions five through seven. Our earlier scorecards can be accessed by clicking on the following links:

Part One- Predictions One and Two

Part Two-Predictions Three and Four

Prediction Five: The year will bring a new wave of turmoil, acquisition and market consolidation in certain supply chain and enterprise technology areas.

The year 2010 brought a wave of consolidation and acquisition in the supply chain technology area and we predicted that this trend would continue in 2011. Although there was some activity in 2011, it was not a new wave, as we predicted.

We anticipated consolidation acquisition and consolidation fueled by needs to tap growth potential in emerging markets, adjust strategic focus, fill-in solution areas or take advantage of opportunities.  In essence it was a somewhat quiet year with the exception of perhaps the procurement, sourcing and 3PL areas  Worth noting was:

Sourcing, Supply and Contract Management

Emptoris acquired both telecommunications expense management vendor Rivermine, and later, provider of supplier lifecycle management support vendor Xcitec.

B2B E-Commerce and Supplier Networks

GXS acquired supplier information and community management provider Rollstream

ERP

Oracle acquired information search and intelligence provider Endeca.

3PL

Transplace acquisitions of both Celtic International and SCO Logistics.

There were no major supply chain related acquisition plays concerning major players (IBM, Google, Microsoft, Oracle, SAP) in 2011, and no major acquisition announcements concerning SAP itself. It was perhaps a year of digesting previous acquisitions of 2010 and a keen concentration on mining business from existing applications.

Manufacturers and retailers continued to have heartburn regarding annual maintenance fee burdens  placed on them by the major ERP vendors but that did not impact the revenue streams of the major players in 2011. Make no mistake, the heartburn issue of high recurring maintenance fees for enterprise software will remain an issue among both IT and supply chain functional teams for some time to come, and will lead to different alternatives in the market.

One rather big surprise in the services area was the announced acquisition by PwC of supply chain benchmarking firm PRTM.  We note surprise since the announcement seemed to be rather low-key and even missed our keen eye. The long-terms implications of this acquisition on benchmarking services are somewhat unclear.

Prediction Six: Cloud computing options directed at supply chain business process enhancement will explode in popularity and adoption.

We believed that the adoption wave of cloud computing alternatives would likely accelerate in 2011 and the largest benefactors would be small and medium sized businesses. The momentum and reality of adoption continued in 2011, however is was not as originally hyped by vendors. Buying trends were motivated by larger companies that needed to either springboard overall IT adoption or required specific tactical fixes to supply chain problem areas such as procurement spend or broader supplier integration, visibility and collaboration.

Adoption favored larger vs. smaller or mid-range companies because on the whole, price points remain at higher enterprise software levels. Smaller organizations still remain interested because their larger key customers require more electronic integration. More importantly, in our view, the mid-market continues to experience confusion as to what processes lend themselves to cloud computing alternatives. As Jim Cantrell of Hubspan noted to us in a recent briefing: “not all clouds are created equal.” Having a comfort level with software vendors hosting supply chain mission critical applications on a multi-tenant cloud, and persistent concerns regarding data security remain barriers to further adoption.

A significant announcement in this area in 2011 was the market launch of Kenandy, a new vendor conceived from the stewardship of salesforce.com founder Marc Benioff, Perkins Caulfield & Byers partner and former Oracle executive, Ray Lane, and former Ask Computer founder Sandra Kurtzig.  Kanandy presents itself as a social based manufacturing management cloud-based application that embraces a new paradigm of networked manufacturers, suppliers and partners. Also announced was salesforce.com financial investment in privately held ERP provider Infor, with the specific purpose in jointly developing a global marketing and order management system that will reside on the Force.com platform. The goal here is to make cloud computing more attractive for smaller companies.

We also predicted mixed buying signals relative to options for deploying private vs. public clouds.  Private clouds, where sufficient controls and security measures are monitored, continued to be favored by larger companies.

Prediction Seven: Wider scale leverage and adoption of in-memory computing, coupled with broader application of information discovery platforms could be game changing influences on supply chain wide business analytics.

When we framed this prediction, there were two important technology developments that had the potential to have significant impact on predictive analytical capabilities in 2011.  The first was incorporation of integrated in-memory technology among software and hardware appliances. The second was the wider adoption of Google-like information discovery tools that can mine hidden data, especially unstructured data and information.  If technology providers were agile enough in 2011 to incorporate these technologies not as tool sets, but rather incorporated into turnkey supply chain planning and analysis application appliances, we could have seen some dramatic uptake in customer interest levels in the second half of the year.

More importantly, converging forces of a more rapid clock speed of business, along with senior management imperatives for quicker, more-timely decision making have been motivating companies to re-look at sequential supply chain planning and execution in favor of merged planning and execution, and augmenting planning with more predictive analytical tools to support predictive vs. more reactive decision-making.

The reality was that many vendors got ensnarled in hyped product development initiatives that were too broad and multi process focused.  The biggest player with the highest game-changing impact in this space was SAP and its HANA development efforts. SAP’s efforts in 2011 became too broad and ran into the reality of scope and impact to existing application landscapes. SAP’s supply chain related applications therefore received little benefit in 2011.  Information discovery vendor Endeca lost its dedicated focus to manufacturing and supply chain process needs earlier in the year, and was recently acquired by Oracle.

The closest vendors to supply chain predictive analytics are JDA Software, Agistix and Kinaxis, with the latter having more of a focus on response management and a new initiative of supply chain control tower applied to overall supply chain planning and key decision processes. Progress Software is another vendor attacking predictive analytics and supply chain control tower from the business process management platform perspective, with an initial offering in supply chain execution control.

The bottom-line is that while game-changing in potential, predictive analytics capabilities will need more market education and more concentrated supply chain focus. Stay tuned for our 2012 predictions for more in this area.

This concludes our Part Three scorecard update of our Supply Chain Matters 2011 Predictions for Global Supply Chains.  In our Part Four update, we will revisit or other predictions.

Bob Ferrari

©2011, The Ferrari Consulting and Research Group LLC and Supply Chain Matters, all rights reserved.

ERP market analyst Michael Koploy alerted me to his recent 2011 Warehouse Management Systems Market Trends report which provides some rather interesting observations. (Summary findings preview or Free download after user registration)

The report notes that an improving economy is giving buyers the confidence to tackle long-postponed logistics upgrades.  It notes that many smaller businesses have outgrown their current systems, or their ability to operate without a robust WMS. Also noted is that ERP vendors have managed to close functionality gaps and that their account control is tipping selection decisions towards the resident ERP.

Even more interesting is that the report also concludes that while a lot of small and medium businesses are leaning toward cloud-based WMS options, significant concerns remain for prospective buyers.  The report rightfully points out that logistics and operational managers are sometimes slow to adopt new software deployment models, favoring instead applications that have had a solid track record of successful deployments. Security of data within systems that are hosted off-site remain a potential deal breaker. I have heard this observation from other analysts, and I wonder whether these objections stem solely from operational teams, IT teams, or senior management itself.

Supply Chain Matters has been an advocate for cloud computing options in various supply chain applications, both planning and execution related. The potential savings in implementation time, required IT infrastructure and life-cycle software maintenance can be substantial. However, these lingering buyer concerns need to be adequately addressed by technology providers.

In an effort to provide some further clarity on buyer concerns related to cloud based applications, we have initiated a new Supply Chain Matters interactive poll which is displayed in our right-hand panel, about mid-way down.  We would appreciate readers taking some time to respond, and we will publish the results in a few weeks.

Bob Ferrari

Over the coming weeks, we at Supply Chain Matters plan to broaden our commentary to include specific supply chain business process and technology challenges being experienced by mid market manufacturers, distributors or service providers.  The supply chain challenges being experienced by small and medium (SMB) businesses are indeed different and unique, and our goal will be to open various channels of specific themes and commentary relative to answers to needs.

To get started, I reached out to John Brandt, CEO of MPI Group, an organization that conducts annual proprietary research projects on manufacturing best practices, including the Census of Manufacturers for the U.S., China, Mexico and Canada and the Census of Distribution. John called my attention to the  recently published Next Generation Manufacturing Study (NGM), developed in conjunction with the American Small Manufacturers Coalition, to identify strategies necessary for world-class performance and success.  More than 2500 U.S. based manufacturers, located in select U.S. regions, were included in the responses.  The study was conducted in the spring of 2009 at the height of the severe recession and consisted of a questionnaire to assess awareness of designated NGM strategies, progress in implementing best practices, and operational and financial performance.  To give our readers a sense of survey demographics, the average participant had been in business for an overall average of 41 years, had an average of 445 employees, and average revenues of $159.6 million.  For those readers with further interest, the report is priced at $95 USD and can be downloaded at this web link.

The report summarizes responses to capabilities in four broad areas:

• Customer-focused innovation
• Engaged people/human capital acquisition
• Superior process improvement
• Supply chain management and collaboration
• Green/sustainability
• Global engagement

In this commentary, we will focus on some rather interesting findings brought out in the supply chain and global engagement categories.

While the majority of small manufacturers acknowledge the importance of having superior processes, these same organizations are ill prepared to deploy advanced supply chain process and technology competencies. Only 6% of manufacturers report a perceived world-class status for supply chain management and collaboration, and only 38% deem these capabilities as important.  However, exploring some other responses reveals some important indicators. Slightly over 17% of respondents indicate little regular monitoring and review of metrics with the CEO, senior staff, or key suppliers and customers, a process most would describe as active sales and operations planning process (S&OP).  The report cites 57% of national respondents reporting no measurement systems or reviews.  That alone is a significant finding to consider. Few consider themselves at or near the capability for being competitive in global markets, with over 50% not having any direct workforce located overseas, or a domestic employee responsible for global business activities.

Almost 50% indicate that the percentage of workforce dedicated to supply chain management and collaboration lies between one and five percent.  Based on the overall average of employees, that would equate to a rough average of 11 people spanning the entire spectrum of procurement to customer fulfillment. To no surprise, few indicate confidence in the ability to quickly respond to any sudden changes in customer demand  Most report minimal or ineffective inventory management strategies, with an implication that inventory practices equate to shifting inventory to lower-tier suppliers.  Keep in mind that many SMB’s are already lower tier suppliers.

After reviewing this data, I came to some further observations.  First, SMB’s have to obviously step-up their awareness of best practices and competencies in the important areas of supplier collaboration, inventory management, product demand forecasting and S&OP.  The data points to a pattern where preserving cash and working capital remain a dominant need, no doubt dictated by current business environment and the CFO. You cannot fault SMB’s for this condition since this past, unprecedented recession has severely restricted flexibility to raise working capital in financial markets.  Larger companies stretch out payables to smaller suppliers, who are obviously feeling the effects of being squeezed by the needs to be profitable as well as agile to business opportunities. SMB’s probably realize that new top-line revenue growth may lie in expanding presence in global markets, but currently lack the supply chain expertise to tap such markets.

A general observation is that supply chain operations probably falls under the responsibility of a single manager, and that manager probably has other responsibilities such as procurement, planning or other activity.  In most cases, process knowledge has to be broad, and includes some aspects of business IT applications support.

Many supply chain and other enterprise technology providers continue to view the mid-market as the new area of customer growth.  It should be no surprise that cloud based services or software-as-a-service (SasS) can gain favor in this segment, if they can add to best practice adoption.

From my lens, this MPI survey data is another reinforcement that needs in the segment are not solely technology alone, but a combination of best practices adoption and specialized supply chain services that are coupled with technology.

We will continue to add to this theme of supply chain process capability for mid-market companies in the coming weeks and months.  In the meantime, you can share your own observations or experiences regarding this market segment in the Comments section related to this posting.

Bob Ferrari

It occurred to me that it has been some time since we communicated our guidelines regarding briefings from supply chain technology vendors.  First, Supply Chain Matters welcomes vendor briefings. It fulfills our role to bring awareness and education to the broader global supply chain management community.  Our goal is to provide commentary spanning two market segments:  Fortune 1000 companies and small and medium businesses.  We are interested in providers who are offering innovative and leading-edge supply chain related technology that may be a bit constrained by marketing resources in getting the word out to a broader community.  One advantage we have over fairly large analyst firms is the personal attention we provide.

Our briefings are not a one-way exercise where you have a limited time to convince an analyst that your firm has the coolest technology.  Our briefings provide some value for both parties. We encourage a two-way interchange of information, so do come prepared to articulate and defend value to prospective customers.

Because of attention to personal service, we cannot assure that all vendor briefing requests will be able to be fulfilled. To provide a bit more structure, we are setting aside some dedicated days each month just to schedule briefings. Although we cannot assure that every vendor will get some mention in Supply Chain Matters commentary, those that have an interesting role to play in the market most definitely will. Finally, Please remember that Supply Chain Matters commentaries mentioning specific vendor capabilities are not licensed and cannot be reproduced for marketing purposes.  Only designated sponsors of Supply Chain Matters have that option.

If you would like to schedule a briefing, please send an email to info <at> blog1 dot com.  In your email, provide us a short description of the firm, the supply chain aspects of the specific technology, along with email and phone contact information.

Bob Ferrari, Executive Editor

I had the opportunity to attend the annual Emptoris Empower 2010 customer conference held in Boston this week. Overall it was an interesting and well attended event that provided some significant announcements and certain considerations for the installed Emptoris customer community.  I was pleased that I attended.

This strategic sourcing, procurement and contract management technology provider has been on a roll of late, taking maximum advantage of the need to control material costs across many industry settings, and that was certainly reflected in the communication from CEO and President Patrick Quirk.  He noted a 91% improvement in sales bookings growth during the first half of 2010 with more than 100 customers going live with Emptoris applications. The two biggest competitor’s for Emptoris are of course  Ariba and to some extent, SAP. Since Emptoris is a private company, actual revenue numbers are not shared, which is somewhat of a shame, given this type of momentum in a slowdown economy.  Quirk described the past year as one investing in the company, its relationships, and the customer community. He also described the company as embarking upon a global presence with new and planned presence in many new countries and geographic regions, including Latin America.  Emptoris already has a significant presence in China and India.

Among the multiple announcements made in conjunction with the conference, the most significant  in my view, was that Emptoris has signed a global agreement with SAP regarding the use of SAP Business Objects technology for business intelligence reporting and analysis needs across the Emptoris suite of applications.  I suspect a good majority of Emptoris customers also have SAP installed, and that most likely drove the decision to go with the Business Objects decision.  No doubt, the IT communities among these customers will be pleased with this decision, from an overall integration perspective.  The announcement, in my view, is also reinforcement that Emptoris is responding to customer feedback, namely that data mining and business intelligence needed to be enhanced across the entire suite. There was however no mention of any SAP attendance at this year’s conference, which perhaps is understandable, given that SAP has its own offering of sourcing and procurement technology.

The keynote and customer presentations were all rather informative, but by far, the most interesting and thought provoking was delivered by Geoffrey Moore, author of ‘Crossing the Chasm’ and ‘Inside the Tornado’.  Every time I get the opportunity to hear Moore, I come away with a much better understanding of the big-picture as it relates to business and consumer information technology trends, and my sense is that I was not alone.  Moore spoke to the profound changes occurring in “Systems of Record’ or traditional ERP applications and “Systems of Engagement”, which are evolving person related applications. I will be posting a separate commentary related to this presentation.

Other very informative presentations from my perspective were delivered by Cardinal Heath Inc., Novartis, and United Health Group,  Both Accenture and PRTM shared rather interesting and updated research data on the state of procurement and supply chain risk management across industries, which we will also provide commentary in a separate posting.

Regarding Emptoris itself, a new and transformed management team has been clearly focused on getting closer to customer needs, while making implementation of its technology easier for customer to navigate and manage.  A five step transformation framework was adopted and I was not able to discern specific customer feedback on the benefits thus far.  I suspect that is because this methodology is rather new.  The current Emptoris product release is Emptoris8, but from the presentations I attended, there have been some scalability issues which Emptoris product development teams are addressing. Last year, the company acquired the former Click Commerce contract and service management business which is now re-branded as Emptoris Services Procurement, and after sitting in on the product development session, my sense is that more important functionality will come in future releases.

Some final thoughts relate to other observations.  There has been some debate regarding current customer preferences in deployment options for Emptoris software, specifically whether traditional license of Software-as-a-Service has been garnering the most attractiveness for current deployments. Some of this debate naturally relates on the fact that competitor Ariba tends to favor the SaaS approach.  The feeling I got was that behind-the-firewall or private cloud continues as the preferred option for Emptoris customers.  In the area of sourcing and contract management, it seems that companies are much more sensitive toward keeping confidential and legal content data behind the firewall.

Bob Ferrari