Growth Projected in SCM Technology
By Peter Buxbaum -- Supply Chain Management Review, 3/1/2001
This issue introduces a new section of Supply Chain Management Review called "eSupply Chain." It's intended to serve as an executive summary of trends and developments in Web-enabled supply chain management.
Supply chain management technology really came into its own in 2000, blurring the lines between supply chain management (SCM) and e-business as never before. People are apparently coming to the realization that supply chain management, to a large extent, is e-business. Expect more of the same in 2001.
Take, for example, the "B2B Top 10 Trends for 2001" from US Bancorp Piper Jaffray, an investment firm focusing on e-business. Number one on the trend list: "Expect supply chain solutions to move from the back office to the head of the class as a gateway for collaborative commerce."
"Supply-chain solutions for the most part have remained out of the spotlight," writes US Bancorp analyst Jon Ekoniak. "Well, it is a new day, and companies appear to be focused intently on getting products to … market faster and more efficiently, while reducing inventories. Especially with a tighter economy, we believe that we will see an increasing focus on these high-ROI solutions in collaborative commerce."
Putting numbers on Ekoniak's predictions, AMR Research says that e-business will continue to drive SCM technology growth in the coming year. (See Exhibit 1.) Total SCM revenue will grow by 45 percent in 2001 to $7.8 billion, according to AMR analyst Kevin O'Marah, with the supply chain planning and supply chain execution segments growing at equal rates to $4.4 billion and $3.4 billion, respectively.
A Forrester Research report issued in January showed that among 1,000 big-company executives interviewed, 53 percent were considering the purchase of supply chain technology in 2001. Among technology leaders, that figure rises to well over 60 percent. But even among the less adventurous, the number exceeds 40 percent.
i2 and Manugistics Make Strategic MovesThe turn of the century produced a flurry of activity among supply chain solution providers and their affiliates, producing a variety of mergers, acquisitions, and shifting alliances. i2 made some major moves in 2000, capturing headlines when it formed a best-of-breed alliance with IBM and Ariba, an arrangement now thought to be on the brink of demise. But the big i2 story came in the form of its acquisitions in the area of "content," a fancy term for the supplier catalogs necessary for B2B transactions.
Early in 2000, i2 merged with Aspect Development in a $9.3 billion deal said to be the largest in software history. In October, it launched a unit called Infinite Content, which aspires to become the dominant provider of B2B content searching, storing, publishing, and integration capabilities. Then, late in 2000 and early in 2001, i2 acquired SupplyBase and ec-Content, two B2B catalog providers. Collectivity, these moves suggest that i2 sees content as key in developing the supply chain integration capabilities of e-business.
Not to be outdone by its larger rival, Manugistics completed its acquisition of Talus late last year. Talus's suite of applications includes solutions for dynamic, target, and promotions pricing as well as revenue and yield management. Its customers include Ford, United Airlines, UPS, and Tickets.com.
Manugistics also entered into a strategic alliance with RightWorks. That plan calls for integrating the RightWorks eBusiness Application Suite, which supports e-procurement and trading platforms, with Manugistics' supply chain management, logistics and ExchangeWORKS applications. The two companies also will participate in joint sales and marketing activities.
IBM also has been active on the SCM alliance front. Big Blue teamed up with E3 Corp. to deliver e-business solutions in inventory management. The two companies will jointly market and deliver E3's e-business solutions running on IBM eServers. IBM and supply chain software provider SynQuest also agreed to market SynQuest One2One Solutions on IBM's e-business infrastructure.
In addition, IBM and warehouse management provider Manhattan Associates formed an alliance to deliver supply chain execution and collaborative commerce services to mid-market manufacturers, suppliers, and distributors. Under the pact, the two companies will jointly market and sell Manhattan's products on IBM hardware and software.
"Talus gives Manugistics best-in-world optimization capabilities," notes AMR's O'Marah. "It has been built up over time with client experience. The Manugistics acquisition is part of a great strategy to dominate at optimization. Revenue optimization on the sell side is a great under-tapped opportunity in supply chain management."
The i2 and Manugistics moves underscore diverging strategies in which each company is seeking to dominate separate aspects of supply chain management, with i2 going for content and Manugistics for optimization. Both companies, by the way, posted better-than-expected numbers for 2000, in terms of revenues and profits.
i2's B2B strategy also lends credence to the speculation that its alliance with Ariba, the e-procurement pioneer, soon will be laid to rest. Ariba, for its part, is likely to make its own move into the SCM space by acquiring a second-tier solution provider, perhaps Adexa, according to AMR's O'Marah.
"Adexa has top-drawer optimization logic," he says. "It has always been one of the most sophisticated in the use of algorithms for building supply chain models." Adexa has demonstrated strength in the semiconductor and textile fields, according to O'Marah, but has had a hard time selling outside of its base.
Two other Tier 2 companies may also be in play: Logility and SynQuest. "Logility has been strong in consumer- goods supply chains, but it has had difficulty being heard above the noise," says O'Marah. "SynQuest's angle is in financial optimization, and [the company] has a history of selling to discrete manufacturers."
WMS: A Market in TransitionThe market for warehouse management systems (WMS) can expect to see further growth and consolidation, according to ARC Advisory Group. The ARC analysts report that the WMS space remains fragmented with lead vendor EXE having captured less than 11 percent of the market. Number two Manhattan Associates enjoys a 10-percent market share, while Irista and Optum each hover around the 5-percent mark. McHugh has a little over 4 percent.
ARC projects that WMS sales will double from $840 million in 2000 to $1.6 billion by 2005. (See Exhibit 2.) This represents strong but slowing annual growth, as WMS moves out of its high-growth, early-maturity phase. The compound annual growth rate of 14.6 percent during the forecast period follows growth of 33.0 percent in 2000—a performance reflecting pent-up demand after sluggish sales during the two previous years. e-Fulfillment sales account for a large proportion of this growth.
In other developments, Vertex Interactive acquired Applied Tactical Systems (ATS) late last year. This marked Vertex's second acquisition of a WMS supplier in a matter of a few months. Vertex previously acquired Renaissance Software, a provider of standard WMS software. ATS provides a "middleware" solution that allows messages to be traded by WMS and ERP (enterprise resource planning) applications.
"Many ERP solutions have WMS modules, but they don't handle things in real time," explains ARC analyst Banker. "The ERP/WMS middleware RF (radio frequency) capability provides that real-time inventory status."
Meanwhile, Optum and G-Log will be partnering to provide an integrated intelligent fulfillment solution for traditional and new-economy businesses. The Web-based solution will enable businesses to optimize their order fulfillment, logistics, transportation, and inventory management processes across the global supply chain. The package combines Optum's TradeStream and G-Log's GC3 applications. The joint solution optimizes the fulfillment process for sales and purchase orders based on customer service, cost, product availability, transportation resources, and workforce plans.
"While many suppliers are building supply chain process management (SCPM) solutions that combine visibility and alerts," notes ARC's Banker, "Optum's TradeStream is the only SCPM based upon real-time aggregated inventory information from diverse trading partners."
"These solutions complement each other very well," adds ARC Senior Analyst Adrian Gonzalez. "Optum's solution provides inventory visibility across various trading partners, thereby enabling users to make more intelligent sourcing and distribution decisions. Once those decisions are made, G-Log's GC3 solution optimizes and manages the transportation process, as well as provides in-transit visibility. But the actual benefits will depend on how well they integrate their solutions."
| Author Information |
| Peter Buxbaum is a business writer specializing in technology and supply chain management. He can be reached at Pab001@aol.com. |
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