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Gartner Revises 2013 IT Spending Forecast

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Last week Gartner revised its Global IT Spend forecast from that issued in Q3 2012.  Gartner views much of the uncertainty surrounding the global economy as nearing resolution and thus the firm’s latest forecasts reflect more optimism. However, the media headlines regarding these changes can be somewhat confusing in terms of expected growth rates.

Gartner now forecasts global IT spending to be $3.7 trillion in 2013, up from the $3.6 trillion predicted for 2012.  The confusion, at least for us, lies in the effects of constant currencies.  On the basis of constant currency, according to Gartner, global IT spending increased 4.1 percent in 2012, and will increase another 3.9 percent in 2013.   That is a reflection of nearly flat line growth and according to quote from a Gartner Managing Vice President published in the Financial Times, reflects that the global IT sector is maturing just a bit.

There are two other takeaways from this recent Gartner IT spend forecast.

Gartner revised downward its forecast for spending related to worldwide IT devices, which includes PC’s, tablets, mobile phones and printers.  The current 2013 forecast is now $666 billion, representing a 6.2 percent increase from 2012.  However, that forecast was reduced by $40 billion and the 7.9 percent forecast issued in Q3.  Global spending from 2012-2016 was also significantly reduced. Gartner notes that increased market competition and cheaper Android powered devices have contributed to the reduction in its devices spending forecast. The implication, in our view, is that existing market players should anticipate an increased competitive environment with perhaps more fallout of existing suppliers. The forecast also presents a strategic message for Apple, which implies it must continue to diversify its product line-up into other areas.

The other takeaway reflects the global IT spending forecast related to Enterprise Software, which Gartner believes has the highest category of projected growth in 2013.  According to Gartner, Enterprise Software spending is projected to grow from an estimated $278 billion in 2012 to $296 billion in 2013, representing a 6.4 percent increase. Gartner views hot areas as security and CRM. The firm anticipates that markets aligned to “big-data” information management initiatives will not see increased levels of investment until 2014 and beyond.

In the view of Supply Chain Matters, software related to supply chain management and B2C/B2B fulfillment should have another year of robust growth in 2013. C-level management now understands the critical role of supply chain in insuring global market penetration, successful product launches and in facilitating bottom-line business goal fulfillment. The current revolution in online fulfillment will also motivate many retail and supplier teams to increase investments in online fulfillment, advanced inventory management, supply chain wide enhanced visibility, business intelligence and cross-channel fulfillment programs.

Finally, we the enterprise software market remaining robust in 2013, look to increased acquisition activity among the major enterprise software providers as they each position to be the vendor with the broadest categories of offerings with market appeal in the coming years.

Bob Ferrari


Supply Chain Matters 2013 Predictions for Global Supply Chains- Part Seven

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Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide a series of predictions for the coming year. We have maintained this tradition since the founding of the blog in 2008.

Readers can view the entire listing by clicking on this web link: 2013 Predictions for Global Supply Chains.  Supply Chain Matters Blog

In our Part One posting, we explored our first two predictions for 2013, the overall economic and business challenges, and our prediction of inbound commodity prices.

Part Two posting explored predictions #3 and #4, which noted a continued renaissance in U.S, based manufacturing and the very important challenge of supply chain skills development and retention.

Part Three posting dived into Prediction #5, our industry specific supply chain challenges prediction.

Our Part Four posting address the critical need for supply chain resiliency and responsiveness in 2013 as well an increased penetration of Chinese companies in other industry supply chains.

Part Five predicted broader umbrella supply chain accountability in 2013.

Part Six predicted higher levels of action required in the control and mitigation of broad theft and counterfeit materials among industry supply chains.

In this final deep-dive posting, we explore our prediction related to cloud computing adoption in 2013.

 

Prediction #10: Cloud computing and managed services options, enabling supply chain business processes, will continue to gain more traction, provided that vendors resolve current lingering customer concerns.

The momentum for adoption of cloud computing technology in both B2B and supply chain business processes accelerated in 2012.  The reasons were a perfect storm of business forces.  High uncertainty surrounding the global economic climate across multiple industries drove cash preservation strategies and a consequent reluctance to expend high levels of up-front capital. Multiple disruptions and challenges affecting industry supply chains uncovered needs to quickly augment business processes and enhance needs for broader intelligence and quicker decision-making.  Cost control initiatives turned more towards aggressive reduction in IT owned infrastructure and consequent annual operating and applications integration costs.  Small and medium sized businesses were especially attracted to cloud options because of the factors noted above. All of these business and functional forces made cloud computing a more attractive option.

We expect this trend to continue in 2013 along with augmentation of cloud computing with managed supply chain services.  We concur with IDC’s prediction that industry focused Platform-as-a-Service (PaaS) information, collaboration, control and decision-making models, hosted in a cloud environment, will gain more interest and adoption over the coming months and years. The open question remains which cloud model will be preferred, private or public.

Enterprise vendor SAP, in its Sales and Operations Planning, powered by SAP HANA application, is a cloud based offering that manages one of the most critical business decision processes for any firm.  Similarly, Oracle has long-term plans to offer a full supply chain management support capability via private or public cloud platforms. IBM has been building-out a broad offering of cloud-based, B2B support applications that address mission critical processes of customer fulfillment and supply chain resource management.

However, the growth of these options in cloud computing will be dependent on the ability of technology vendors to resolve fundamental and lingering customer concerns surrounding cloud computing. Many vendors have shown a bit of arrogance in constructing legal agreements surrounding cloud computing contracts.  They insert clauses in contracts that absolve the cloud provider from any and all liabilities, and in some cases, state that the client will hold ultimate responsibility for anything that goes wrong, including data loss. Prospective customers are compelled to seek legal advice, only to discover that the customer’s maximum recovery is capped, or would have to initiate an expensive and time-consuming lawsuit to recover any business interruption or data breach damages.  In an article published in December 2012, Legal concerns curb corporate cloud adoption, ComputerWorld magazine quotes prospective customer attorneys as describing certain technology vendor contract terms are “offensive”.  Since cloud computing is a recent phenomenon, legal precedents are lacking relative to liability and recovery.

Up to now, cloud computing options directed at point applications or non-mission-critical processes may have caused procurement and supply chain functional management teams to overlook or dismiss such provisions. But, as cloud computing options involve much broader, mission critical supply chain processes, the need for legal checks and sign-off are evident, and ComputerWorld points to increased discussion and some confrontation among legal counsel, IT and functional executives, which could slowdown cloud adoption.

Another significant and related concern is that of information security. The year 2012 featured more troubling headlines of hackers penetrating critical industry systems.  Some of the world’s most prestigious banks were collectively targeted in attacks by sophisticated and organized hacking groups, as were hydrocarbon production facilities in Saudi Arabia where a virus attack almost took down production of 10 percent of global oil supply. Experts are unsure if latent time-bombs remain in these systems, set to activate a data breach at a certain date.

Higher visibility to interruption of mission critical business services also came to light in 2012.  In late December, Netflix suffered an overnight suspension of all of its video streaming services because of a technical problem at its hosted IT infrastructure provider, Amazon Web Services (AWS). This was the third major reported AWS service interruption in 2012, the others involving customer services for Foursquare, Pinterest and Instagram.

As noted, supply chain planning and customer fulfillment systems often fall into the category of a mission-critical business process, subject to internal control and reporting processes. Many of these increased security developments fuel lingering concerns among executives regarding information that may be stored and accessed in a public or hosted cloud.  Developments such as these motivate senior executives to continue to favor private based cloud options relative to B2B and supply chain needs.

While larger enterprise type vendors have the financial clout and other global resources to address such concerns, smaller vendors may be at a disadvantage.  Vendors often utilize third-party IT infrastructure service providers to host their cloud offerings, which again raises questions as to which parties have ultimate accountability and liability, and how that may relate to the customer’s declared internal control processes.

A continued highly uncertain economic environment and a need for more responsive implementation of automation directed at global supply chain responsiveness and resiliency will continue to fuel cloud computing interest in 2013, provided that vendors respond to security, control and contractual related customer concerns.

 

This concludes our series of deep dives concerning 2013 Predictions for Global Supply Chains.

We extend a loud shout-out to all global supply chain professionals for their incredible achievements and responsive actions during 2012.  Another challenging year has passed and yet another is forthcoming. Then again, supply chain is never boring.

We trust that our ten 2013 predictions help you and your supply chain teams to think about objectives and resource plans and be adequately prepared in 2013.

The full complete copy of our 2013 Predictions for Global Supply Chains, which includes even more detail, will be shortly made available in a no cost research report available for download in our Research Center. We will advise when the final report is ready.

Throughout 2013, Supply Chain Matters will be providing additional insights related to each of our ten prediction areas, including both an interim and end-of-year report card.

As always, readers are encouraged to comment on these predictions as well as add additional thoughts as to what to expect in 2013.

Bob Ferrari

© 2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.  All rights reserved.


Supply Chain Matters 2013 Predictions for Global Supply Chains- Part Four

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Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide a series of predictions for the coming year. We have maintained this tradition since the founding of the blog in 2008.

Readers can view the entire listing by clicking on this web link: 2013 Predictions for Global Supply Chains.  Supply Chain Matters Blog

In our Part One posting, we explored our first two predictions for 2013, the overall economic and business challenges, and our prediction of inbound commodity prices.

Our Part Two posting explored predictions #3 and #4, which noted a continued renaissance in U.S, based manufacturing and the very important challenge of supply chain skills development and retention.

Our Part Three posting explored Prediction #5, our industry specific supply chain challenges prediction.

In the following posting we address the critical need for supply chain resiliency and responsiveness in 2013 as well an increased penetration of Chinese companies in other industry supply chains.

 

Prediction #6: Supply chain organizations must either embrace and augment resiliency and responsiveness capabilities in 2013 or deal with the consequences of poor business outcomes.

Since its inception in 2008, Supply Chain Matters has outlined numerous events where industry supply chains became significantly disrupted.  We have provided quantification of the negative impacts to the business, either in people, service or financial dimensions, and have incorporated predictions for continuous disruption in prior years.  Many supply chain senior executives and their teams are now coming to the understanding that volatility and rapid business change are the new normal. This may perhaps be an overused term, but is one with important meaning.  Constant volatility in product demand, supply, and other unplanned events are exposing the vulnerabilities of existing planning, execution or S&OP decision-making processes. In 2013, we elevate our prediction to umbrella the more compelling need for holistic needs for supply chain wide resiliency and responsiveness.

In our polling, discussions and research in 2012 we have come to conclude that while many supply chain teams desire these capabilities, they lack articulation of a well-defined and pragmatic roadmap. Investing in these capabilities takes on important people, process, change management and technology augmentation connotations.  Process becomes an understanding that the current clock speed of business requires that supply chain planning and execution must come together as a continuous, synchronized process.  Rather than forecasting models, responsiveness requires decision-making capabilities that are anchored in predictive analytics, the ability to assess and respond to various likely business scenarios.  It implies deeper cross-functional, customer and supplier collaboration and engagement processes, and not passing the problem along to another tier of the supply chain for singular resolution. It further implies more leveraged use of social based, systems of engagement. Rather than drowning in all forms of data, it is about mining and visualizing needed insights as to what needs to occur, and when. The term “big data”, in our view, is overhyped IT and vendor term, and lacks clear understanding for action among supply chain functional teams. Finally, a smarter and more responsive supply chain requires different sets of people and team skills.

In our 2012 Predictions, we pointed to the capabilities incorporated in “supply chain control tower” (SCCT) which addresses the need for quicker, more timely and informed supply-chain wide decision-making as coming to the forefront in terms of market education and early adoption. SCCT will continue to come to the forefront in 2013. The motivation for this market interest was to insure supply chain wide resiliency and responsiveness and we predict that SCCT interest will begin to shift from user education to the initial roadmaps for enabling people, process and technology-enabled capabilities.  SCCT initiatives that were primarily originated in the high tech and consumer electronics industry will spread to other industries in 2013.

Likewise, supply chain teams must provide more visible leadership to other parts of the business as to what augmented capabilities are required to enable a smarter and more resilient supply chain, along with a time-phased roadmap of measurable milestones.

The takeaway of this prediction is that the visible gaps among global supply chains with more resilient and responsive capabilities vs. those that are not will considerably widen in 2013, and will be reflected in more negative outcomes for the broader business and for stockholders.

 

Prediction #7: Chinese based manufacturing and service firms will markedly increase their presence and influence in global supply chains during 2013.

According to a July 2012 Bloomberg article, China, which holds in excess of $3 trillion of foreign-exchange reserves, has been encouraging companies to buy assets overseas, particularly in securing commodity resources, advanced technology or building more internationally focused businesses.  We would add that by our view, the strategy includes strategic supply chain process and product component capabilities. The Wall Street Journal ranked China sixth in both number of deals and in acquisition value, behind countries such as the U.S., the United Kingdom, France, Germany and Japan.  It expects China to double its acquisitions over the next five years.

While resources and energy have been the predominant strategy to date, industry supply chain penetration strategies are also evident.  With multiple years of financial stress eating at the global economic climate and with access to cheap and abundant financing, Chinese manufacturers and other firms are primed to continue moving into other geographic regions and associated industry supply chains. Current double-digit growth rates in direct labor costs within China have motivated manufacturing firms to shift manufacturing to other countries, while Chinese suppliers are now compelled to invest more advanced process and product innovation.

The most active area to date has been in the U.S. based automotive industry, where the major financial crisis that  hit in 2008-2009 made many distressed suppliers attractive for acquisition. As we pen these predictions in December 2012, the latest acquisition prize has been Wanxiang’s acquisition of U.S. car battery manufacturer A123 for $256 million in a bankruptcy auction. Some industry groups and U.S. lawmakers immediately voiced concerns, given that A123 developed advanced battery technologies via investment from U.S. fiscal stimulus funds. Wanxiang officials are actively responding, by not including any of A123’s military business in its acquisition efforts and listening to concerns.

In the high tech and consumer electronics sector, Lenovo has set a blazing trail not only in market growth, but also in blending both owned and outsourced manufacturing presence. The company serves as the current benchmark for China’s industries in acquiring an international marketing, product and supply chain presence. Its product portfolio has widened beyond computing to include smartphones.  The company has also made significant manufacturing presence investments in both Brazil and the U.S., working proactively with legislative leaders to assuage political and economic security issues.

These strategies certainly come with major political hurdles existing in the resident acquisition focused country, as witnessed by previous acquisitions being derailed by Canadian, European, or U.S. lawmakers. However, Chinese firms have begun to exercise more patient and pragmatic approaches to appease political concerns. Some political leaders in economically distressed regions are actively recruiting Chinese companies to invest in their communities. This month, China’s energy giant Cnooc was finally able to close on an $18 billion purchase of Canada’s energy group company Nexen after a lengthy period of negotiations and concessions. This deal is being noted as a milestone toward the growing maturity of negotiation practices.

Other industries of acquisition activity have included alternative energy, where Chinese firms were able to scoop-up the assets of bankrupt companies Evergreen Solar and First Solyndra and now position for U.S. based manufacturing presence.. According to the Financial Times, Chinese firms are also turning their attention to machinery makers in Europe, including Germany. As of this writing, one of the largest homebuilders in the U.S., Lennar Corp. has secured financing from China Development Bank to develop two major residential real estate projects amounting to 20,000 homes near the city of San Francisco.  There is reported speculation that this deal stipulates that China Railway Construction Corp (CRCC) will play a role as either a supplier or contractor. CRCC is also a interested bidder for the planned project to build a high-speed rail line connecting the cities of San Francisco and Los Angeles, which is currently undergoing a delay because of lawsuits.

For these reasons, we believe that 2013 will feature even more of an outreach from Chinese manufacturers and suppliers into broader geographic and industry supply chain presence.

This concludes Part Four of our 2013 Predictions for Global Supply Chains.

As always, readers are encouraged to comment on these predictions as well as add additional thoughts as to what to expect in 2013.

Bob Ferrari

© 2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.  All rights reserved.


What SAP Supply Chain Management Users Can Expect in 2013

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These past few days, Supply Chain Matters has been featuring a series of commentaries related to what supply chain and B2B teams can expect in 2013. We trust our readers are gaining insights from this series as they think about objectives for the upcoming year.

Last week, this author also had the opportunity to participate in an interview with Dave Hannon, Senior Features Editor for the SAPinsider Learning Network.  For those readers unfamiliar with this organization, it is the premiere learning network for the SAP installed base community.

The topic of the interview was What SAP Supply Chain Management Users Can Expect from SAP in 2013. Supply Chain Matters readers can also review my response by double-clicking on the above title.

I thank Dave for the opportunity to comment and share my thoughts with the SAP community.

Bob Ferrari

Founder and Executive Editor


2013 Supply Chain Matters Blog Sponsorship Opportunities Available

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As I pen this posting it is incredible to believe that November is already upon us.  Where did the year go?  It seems like such a blur.

The month of November is the kick-off of our sales cycle for 2013 named sponsors for this blog. Loyal readers please bear with us as we take care of business.

Supply Chain Matters is able to share and publish the quality content that we provide through the support of our sponsors. For our sponsors we provide highly experienced product strategy, social media centered marketing and market research services that are individually tailored for sponsors and their brands.

We therefore remind providers of supply chain related technology and services that limited opportunities for being a named sponsor of the Supply Chain Matters blog in 2013 are now open for both the Lead and Sustaining Sponsorship levels.  Blogs have come to be very influential sources of opinion, market knowledge and thought leadership, with this site being cited as among the top ten blogs commenting on global supply chain business process and information technology developments.

We again thank our existing Lead Sponsors, Kinaxis and Infosys Limited, and our Sustaining Sponsors, E2open and Progress Software for their recognition and continued support throughout 2012.

As a sponsor of Supply Chain Matters, your company will be recognized for its products and services and as a supporter of quality thought leadership. Our sponsorships include services in spring boarding your brand recognition, enlisting social media and search engine optimized product marketing strategies, and raising educational awareness to innovative technologies and services. An investment as a Supply Chain Matters sponsor extends way beyond a single event or campaign, offering a continuous daily impression across a global, highly targeted supply chain audience. Existing sponsors have incurred web based impressions exceeding one million views annually. The web domain of Supply Chain Matters itself averages over 30,000 reader visits per month.

What sets our sponsorship opportunities apart from other web properties is the unique personal and tailored services we can provide for your brand, with a highly affordable and competitive investment. Supply Chain Matters has supplanted high profile industry analyst firms in providing independent, insightful and straightforward commentary on important global supply chain business process and information technology developments and needs.

In 2012, we simplified our blog sponsorship opportunities into two levels of sponsorships, a Lead level and a Sustaining level, each with different levels of benefits, competitively priced. Picture your brand logo and recognition of capabilities appearing on every Supply Chain Matters content page in the designated sponsorship panel.

Further detailed information can be obtained by utilizing our Sponsorship Information Request  drop-down menu located on the top menu bar, or by sending an inquiry email to info <at> supply-chain-matters <dot> com.

Bob Ferrari, Founder and Executive Editor


Gartner Confirms Healthy Investment in Supply Chain Software Technology

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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


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