Industry analyst firm Gartner (acquirer of AMR Research) issued its worldwide supply chain management (SCM) revenue forecast this week. (Gartner client subsription required for report details)  This is the first instance where there is no alternative AMR view of the market.

Total SCM worldwide revenues were reported as $6.2 billion, a 0.7 percent decline from 2008.  That’s not bad considering the state of the overall worldwide economy in 2009.  The report notes that although the first nine months of 2009 had contraction, the final three months experienced a 6 percent growth, which is an indicator of increased optimism for investing in SCM software.

Scanning the report highlights, I noted a few observations.

While new license sales declined 7.4 percent, recurring revenue associated with subscriptions and maintenance grew 10.8 percent.  That in my view is a clear indicator that most firms are dealing with the applications they have already acquired, or adopting process centered versions of hosted, subscription based applications. It also reinforces other published quantified data that most IT budgets today are allocated to just keeping existing applications operating.

The top ERP focused players, SAP and Oracle, did not grow as fast as specialty SCM software players.  SAP experienced a near 9 percent decline, and Oracle grew a meager 0.2 percent. SAP should not be a surprise, since little of SCM technology has emulated from Walldorf, but Oracle’s flat performance is a bit of a surprise.  The report also notes that software suites segment of SCM declined by 3.7 percent, yet the category of vendors beyond the top six, grew 3 percent.  Sourcing and procurement vendor Ariba’s growth of nearly 9 percent reinforces that firms still have cost reduction as an ongoing need.

These results are another indicator that firms have been seeking specialized applications which can be implemented in a rather short period of time.  Research Director Chad Eschinger notes that “competition between enterprise suite and specialist best-of-breed vendors has heightened.” Best-of-breed vendors are obviously serving a need in today’s market so let’s not count them out of the game. Gartner expects the SCM software market to consolidate, but over a longer time horizon.

A closely related point of information is Gartner’s annual supply chain study, Supply Chain Digest provides its mailing list to Gartner for a series of annual survey questions.  In his summary of the highlights of this year’s survey, Dan Gilmore notes some key observations regarding the pain points and motivations of today’s technology buyer.  The majority of respondents describe their companies as ‘mainstream’ in their approach to technology adoption.  We can take that to mean that the predominate perception it is best not to risk your career on unproven technology.  Yet, the number one business imperative was cited as ‘improve efficiency and/or productivity’, surpassing ‘reducing operating costs’, which was the top motivation for the prior three years.  Dwight Klappich of Gartner attributes this finding as an observation that firms are now looking to participate in business recovery without having to add back previous headcounts.  That in my view, is a bit of short-sighted thinking.  Technology can certainly boost productivity and speed decision-making, but it doesn’t eliminate the need for highly experienced SCM talent.

One final observation relates to the described top barriers toward achieving supply chain goals. The top three obstacles were responded as:

  1. Forecast accuracy/demand variability
  2. Supply chain network complexity
  3. Lack of internal cross functional collaboration and visibility

My impression is that the first two are known realities, lack of forecast accuracy has continuously proven to be a reality in most supply chain settings.  Instead of focusing of accuracy, the focus needs to be on best ways to sense and respond to demand.  Supply chain complexity is a reality today.  Technology, when implemented correctly, helps overcome complexity and latency of information.  Lack of internal collaboration is a question of what your firm elects to measure and reward.  Technology plays a role for all three, and I urge readers to influence a broadened horizon of needed change within your organizations.

We will share more observations regarding today’s SCM technology adoption in later Supply chain Matters postings.

Bob Ferrari