Supply Chain Technology Outlook Key Takeaways

John Fontanella and Eric Klein -- Supply Chain Management Review, 4/1/2008

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Supply Chain Technology Outlook Key Takeaways

Companies with more than $1 billion in revenue will be the most likely to increase supply chain technology spending for 2008, but mid-market buying intentions are aggressive and will represent a growing share of spending in the category. Two forces are at work to encourage this increased spending:

1. Companies of all sizes and in all industries are still under pressure to reduce cost, particularly in an environment where prices continue to climb for energy and other commodities whose price is beyond the control of individual enterprises.
2. Customers are demanding differentiated services to reduce their own costs and service their markets better. They expect their own suppliers, regardless of size, to comply with their demands, which more often than not require investment in supply chain technologies.

Every company wants to achieve profitable growth through the use of supply chain technologies. But how they get there depends on the industry. Process industries, manufacturing commodities and pushing product into the marketplace with a low price strategy, are more likely to focus on productivity improvements and cost containment strategies. Companies in discrete industries will employ technologies to increase revenue by better understanding and reacting to demand in their channels, along with providing differentiated service delivery.

Spending intentions are evenly split between replacement of legacy applications and the addition of net new technologies. Incumbent vendors who fail to deliver a modern technology platform are likely to be displaced, while new technology entrants and those with innovative solutions will have ample opportunity to make their mark.

The demise of the best of breed supply chain technology vendor is not imminent. In fact, it's likely that gains will be made against ERP vendors in areas that require multi-enterprise integration and leading edge functionality.

There is still a market for custom developed applications, either built from the ground up or heavily modified from commercial offerings. This preference seems particularly strong in Europe. While the illusion of Commercial Off the Shelf (COTS) exists where applications are installed with little modification, the reality is that few companies seeking to differentiate their services or enhance supply chain performance take this approach. We also find several technology markets that are growing rapidly but don't yet have a large COTS software vendor base. An example is in mobility, where we found in earlier studies that over 50 percent of end user companies custom build their own applications.

The trend in custom development should put SaaS vendors on guard. If vendors want to service as broad a market as possible with a single instance of software, applications that are typically the most customized are a poor target unless distinctly differentiated services can be delivered to individual customers.

The study confirms what we hear from our clients every day: the performance of the supply chain does matter to a company's success and there will always be a willingness to buy innovative applications to test the boundaries of process improvement. The technology industry has responded to this enthusiasm by acquiring and developing functionality that will complement the direction its customers are traveling, and by upgrading technology platforms that should reduce the complexity of implementation, integration, and ongoing enhancement.

The introduction of SaaS and the concept of network deployment of applications and content among trading partners is an exciting new direction for the industry, and we will be hearing much more about it over the coming year. Even with a possible economic downturn on the horizon, supply chain technology's ability to make companies more productive should shield it from the worst. Many call this a mature market. And granted, we'll never see the growth of the late 1990s again. But don't make the mistake of thinking that this is a market that has lost its vibrancy and innovation. Too many opportunities lie ahead for vendors and their customers to not answer the challenge.

Author Information
John Fontanella is vice president of supply chain planning research for AMR Research. Eric Klein is a research analyst for AMR Research.

In this article:

• The supply chain technology survey
• Companies increase spending on supply chain technology
• Spenders Seek Growth, Software Replacement
• Vendors To Boost Share and Penetration
• Companies to Swap Software
• Spending to Boost Low-Penetration Software
• Best of Breed vs. ERP—Both good canidates for replacement
• Market Share Winners and Losers
• Key Takeaways

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