Trends in Supply Chain Software

Stephen DeAngelis

January 25, 2011

Mary Shacklett, founder and president of Transworld Data, writes, “Supply chain management is adopting cost cutting, optimization, speed of deployment, agility and real-time process information and automation, with 21st century software leading the way—and as the economy begins to rebound, companies are starting to spend on software again.” [“Supply Chain Software: The Big Spend,” WT100, 1 October 2010]. Shacklett reports that companies are looking forward to growth in the coming years but are also looking warily back at the recession. As a result, she writes, companies are purchasing software that helps them “address both cost reductions and global growth.” Most of her article takes “a look at the supply chain software market, what companies are telling their software vendors, and how the supply chain software industry is responding.” She continues:

“Across the board, the supply chain industry is seeing a resurgence of buying activity in software. This comes after several tough recession years (2007-2009) in which buying activity literally slowed to a crawl, with companies seeking to ‘make do’ with what they had. … Many organizations [now] find themselves in positions where they must update supply chain software that is out of date or at the end of its current life cycle—or they have business concerns that when the economy does come back, they will not be able to ramp up their supply chains with the kind of agility, analytics and efficiencies that will be needed in order to compete.”

Shacklett asserts that the present “focus in the supply chain software market is on fundamental functions such as transportation and logistics, product capability and even warehouse upgrades—but above all else, companies are looking at their global supplier networks as a major source of the agility, time to market and cost efficiencies that they hope to gain.” Certainly it comes as no surprise that coming out of a recession companies are focusing on fundamentals. Now is not the time to be either fanciful or frivolous. Time and again, however, you hear supply chain analysts talk about the importance of agility, collaboration, and cost efficiency. Todd Walker, Director of Supply Chain Solutions for Exostar, told Shacklett, “Companies are pursuing collaborative networks and platforms for their suppliers. … These companies are realizing that their existing portal solutions do not provide the flexibility or scalability to meet today’s complex supply chain requirements.” Shacklett goes on to describe what she believes companies really want. She writes:

“If companies are going to adopt a supply chain strategy that goes from cost reductions to laying a foundation for economic recovery that doesn’t forget about cost, they most definitely are headed for revisions in business processes, software, and corporate thinking. … [One way to keep costs down yet improve performance is to purchase] supply chain software that can eliminate some of the labor intensiveness in both end business functions and corporate IT. ‘Today’s systems offer new analytic capabilities that help companies observe market conditions and respond to these conditions quickly,’ says [Dwight Klappich, a Gartner supply chain analyst]. ‘These analytics also bring efficiencies to processes like labor management.'”

Few supply chains today fail to have some international dimension. With oil prices steadily rising, global supply chains are coming under greater scrutiny. Chad Collins, Vice President of Marketing and Strategy for High Jump Software, told Shacklett, “Regardless of where companies are operating, they are rethinking how their supply chains work.” In addition to rising transportation costs, Shacklett reports other challenges facing businesses include:

Time to market—Time to market is a major factor, especially in extremely competitive industries with high rates of new product introductions (e.g., technology, retail). Supply chain agility and efficiency are central to the process, meaning that companies must have ways to rapidly onboard new suppliers and also have full visibility of supplier orders, from purchase order approval through manufacturing, shipping and delivery.

Supplier communications and information—In a global market with thousands of potential suppliers, companies need new ways to reach potential suppliers, in addition to being able to rapidly communicate with their existing supplier bases. Social networks are becoming a way for companies to find and communicate with potential and existing suppliers—and also to research them.

Supply chain streamlining—Organizations that have grown through mergers have found themselves with the burden of managing multiple ERP and supply chain systems that are difficult to integrate into a single platform. A second challenge for these organizations, and also for organizations with a single, internal ERP and supply chain solution, is that the software may be well oiled and integrated for internal business processes, but there are gaps when it comes to fielding software for business processes that occur outside of the enterprise. …

Coalescing business channels—Increasingly, retail and banking businesses are consolidating e-tail and brick-and-mortar retail into a single line of business. This requires them to present the same face to the customer, regardless of channel. It also creates impact for the supply chain.”

Each of those challenges is worth a post by itself. Because corporations’ are focusing on fundamentals and global growth, Shacklett claims that “hot software” includes products dealing with “transportation and logistics, supplier collaboration and communications, inventory management (especially regarding visibility) and cloud-based solutions.” She continues:

“In step with expanding and changing global supplier bases is software that both researches and keeps track of suppliers and their activities. This is the major impetus behind companies buying in the area of supplier collaboration solutions that include the use of social networking. … As part of the supplier management push, companies are also looking for improved visibility of inventory that will simultaneously optimize both cost control and order fulfillment. Software primarily contributes in the areas of inventory visibility and analytics, and in the ability to reallocate inventory to where it is needed, when it is needed.”

Most of the challenges described by Shacklett are found in the so-called “white spaces” between software solutions currently being used by companies. Since Enterra Solutions is directly involved in this area (i.e., helping fill in the white spaces), I’m pleased that Shacklett recognizes that software solutions that address this area and provide visibility and analytics are a good investment. Shacklett continues her article by providing a few software trends to watch. She writes:

“Just as companies are making dramatic shifts in their supply chain strategies, software also has to keep pace—and it is. One of the most monumental shifts is a move away from traditional corporate thinking that a high degree of software customization to the business produces competitive advantage. Instead, contemporary thinking is that packaged software in a ‘vanilla’ form can do an adequate job for the supply chain, as long it incorporates industry-wide best practices. Customization for corporate business processes still occurs, but it occurs via technologies like services oriented architecture (SOA), which splits off pieces of business logic that can be assembled to support any end-to-end business process without altering the core software. … A second software trend is more built-in capability for analytics that assist managers at different levels of an organization with visibility, reporting, metrics, and analysis of what is (or isn’t) going on in the supply chain. Software development is focusing on increased intelligence embedded in the software, as there is a demand for visibility, which can facilitate the accuracy of forecasts. … The third and most publicized trend is the migration to cloud-based supply chain solutions.”

I believe Shacklett is spot on when she describes current software trends. The supply chain solutions we offer at Enterra are agnostic when it comes to the IT platforms they support. They complement rather than replace current programs and processes. Shacklett concludes her article with these observations:

“Supply chain software is in transition, and it is virtually impossible to predict when we will ever again see some of the ‘mature’ periods of this software that we were accustomed to in the past. Cloud computing will continue to expand as a solution, and may even be an entire end-to-end solution for small- to mid-sized companies. Large enterprises will initially opt to deploy cloud-based solutions where these systems provide the greatest immediate benefit, most notably in the business processes external to the company. Meanwhile, vendors will be asked by companies to provide suites of supply chain software capable of running every area of the supply chain, not just the warehouse or logistics. … Big deals come with a catch for software vendors, though: companies are comprehensively vetting the software before they purchase. The process includes detailed RFIs and RFPs, demanding SLAs (service level agreements); and pilot tests that run the software against prepared scripts that emulate actual business conditions that the company encounters with its supply chain. This can be challenging for software providers, which must not only survive the initial scrutiny, but continue to produce software with significant enhancements every three months.”

Along these same lines, analyst Lora Cecere has posted a blog containing her thoughts about supply chain trends (including software trends to watch). [“Ring in the New Year …” Supply Chain Shaman, 22 January 2011] She begins her post by noting that she conducted a phone survey of dozens of companies. Some of her observations are a result of that survey. She indicates that the following are the trends she will be watching during the coming year:

ERP Hangover. As the year progresses, I think that the ERP Hangover will hang over companies like a heavy cloud of dysfunction. In my survey, 23% of the companies surveyed had multiple-year ERP programs extending past 2015. While the ERP programs are the necessary to support global expansion, the organizations are tired. Many expressed frustration at the cost/value relationship of the project and the lack of supply chain innovation by ERP technology providers. In 2011, as inflation rises, budget pressures escalate, and IT costs get squeezed, I expect to see an ERP hangover. … As a result, large consulting houses that have had a strong dependency on ERP implementations –Accenture, Cap Gemini, IBM and Infosys– will increase their focus on bringing software solutions to market and providing differentiated Business Process Outsourcing Services (BPO). Many companies in the survey were already backing away from the extended ERP vision giving room for new start-ups with innovative approaches to solving supply chain problems to get a foothold. In 2011, I think that we will see a rise of a new niche set of supply chain technology vendors.”

This is not the first time that Cecere has written about challenges involved with ERP. Watch for a future post on this subject. She continues with her next trend to watch, which also involves ERP systems:

End-to-End Supply Chain. Not as easy as an Erector Set. I remember over my many years as an analyst sitting across the desk from many CIOs that would waft-on and on about using ERP to assemble the inter-enterprise supply chain platform. The logic was if all companies had ERP system XYZ then it would be easy to connect ERP to ERP to ERP along the supply chain. It is now clear–even to this set of die-hard CIOs– that this erector-set approach is not going to work. It is just too simplistic. There are three quick stumbling blocks:

  • Data model and system of record. The ERP data model is a back-office data model designed primarily for order-to-cash, revenue recognition and procure-to-pay. Companies are quickly realizing that ERP is not an enterprise data model, and that there is no system of record for changes in compliance, tracking sustainability goals (energy, water and carbon), or multi-party bifurcated trade to support demand shaping activities.
  • Data translation. To be useful, the data layer between companies needs to be harmonized, synchronized and cleansed to ensure data translation. Key areas of emphasis are the product hierarchies, customer master data, calendar definitions, and item attribute information. Without translation, there cannot be the connection of usable data.
  • Connectors. As companies do this work, they quickly find that Supplier Relationship Management (SRM) and Customer Relationship Management (CRM) are inadequate connectors for the end-to-end supply chain. The inter-enterprise supply chain needs a new set of connectors to support supply chain relationships. Look for social networking and community technologies to start to fill this gap.”

As noted above, Shacklett also believes that social media is going to have a role to play in the supply chain. Social media also plays a role in Cecere’s next trend which touches on another of her favorite topics — customer service. She writes:

Listening Posts. How do we listen and then respond? While all agree they should listen to the customer, none have systems–despite the evolutions in technology–to truly listen to customer. Sadly, in companies today, there is no REAL customer service organization. We have an order management group that is often named customer service or we have a service/warranty organization that does service, but less than 1% of organizations surveyed have listening posts to actively listen to their customers and use the voice of their buyers in supply chain decisions. This outside-in approach is most often found in short-life cycle, high margin high tech and electronics goods where companies are using Business Intelligence (BI) tools to synthesize consumer sentiment from reviews, social media networks and blog posts. I find this shift exciting and plan to follow it closely over the course of 2011. It is ironic that supply chains want to serve the customer, but have no real way to listen and then drive the response.”

Since Cecere believes that listening is important, you won’t surprised to learn that she believes that sensing and responding are just as important. In fact, those are the next trends she will be watching during the coming year. She writes:

Sensing. How do we sense and then respond? 99% of the supply chain effort in today’s supply chain is about response. It is sad, but true that supply chains have little sensory capabilities. Historically, the focus is on response; and in most organizations, it is a blind, inflexible response. While companies talk about sense and respond, the focus is on respond not on sense. In 2011, I will continue to look at the evolutions in demand sensing. I am excited by Market 6’s new work, the evolution of the Terra Technology platform for demand sensing, the deepening of optimization and pattern recognition in SAS Demand-driven Forecasting and the continued evolution of pattern recognition usage in downstream data repositories like RSI, Relational Solutions, and Vision Chain.”

Cecere’s next trend to watch deals with rising commodity prices. She writes:

Demand Orchestration. Buckle your belt. It is going to be a tough ride. For many companies surveyed, commodity prices are undermining their abilities to hit Wall Street. Oil will be $100 a barrel. Cotton is at a record price. Food companies are facing rising prices of food ingredients. Shortages abound in rare minerals. As leaders face this problem, demand orchestration–the mapping of sourcing and demand shaping alternatives horizontally and bi-directionally within the corporation to maximize profitability with the goal to balance customer facing-market decisions with commodity market conditions –will grow in importance. To accomplish this, the use of what if analysis and simulation of demand variability will increase as companies try to rise above inflationary pressures. Interesting technologies include Jonova, S&V Management Consultants, Signal Demand. To meet this need, companies will need to invest in manufacturing flexibility –alternate formulations/bill of materials, agile supply chains that can flex sourcing based on changes in supply, and parallel sourcing–to rise above getting caught by fluctuating commodity markets. Today, we see demand orchestration capabilities the most frequently in high tech and electronics and food manufacturing companies like Del Monte, Intel and Samsung. As the year progresses, we expect demand orchestration to grow in acceptance.”

I agree with Cecere that the use of “what if” analysis is important as companies prepare themselves for the unknowns that are inevitably going to cause disruptions in the future. For more on this topic, read my posts entitled Modeling “What If” Scenarios and Examining the “What Ifs” in Life. For reasons that will become obvious, I like the next trend that Cecere will be following. She continues:

New Forms of Supply Chain Intelligence. One of my favorite trends that I am following is the changing world of supply chain intelligence. New capabilities are evolving that can deepen our abilities to design, sense and respond value networks. Historically, supply chain intelligence has been limited to simple work rules, optimization and simulation. The use of Software as a Service (SaaS) changes the game for optimization. The use of SaaS enables parallel processing, expert tuning, data cleansing, and benchmarking opening up new horizons. I am also following the use of artificial intelligence to map “multiple ifs” to “multiple then” conditions, advanced pattern recognition to drive listening and sensing platforms and the use of optimization in combination with simulation to model the feasibility of solutions to drive the best answer. Technologies to watch include Enterra Solutions, Predictix, Revionics, SAS, Sockeye Solutions, Solvoyo, and Terra Technology. This is a great trend to watch in 2011.”

Outside recognition is always nice to receive for the work you are doing. Cecere’s next trend to watch contains several trends within a trend. She writes:

Organizational Design. Twenty-five years ago, there was no supply chain organization. Today, the supply chain organization has matured, but is squarely focused on supply. Over the next ten years, supply chain organizations will bridge to end-to-end processes expanding to cover the design of buy and sell-side relationships. When it comes to organizations, one size definitely does not fit all. There are five trends that I am watching over the year:

  • “Design of supply chain centers of excellence.
  • “Cross-functional promotional ladders that cross IT and Line of Business.
  • “Extension of supply chain thinking into relationship definition of both buy and sell-side relationships.
  • “Reporting relationships and how they are changing.
  • “How companies are organizing to build buy and sell-side relationships.”

Cecere concludes her list with an area that is not usually described as a separate supply chain.

Integration of the Financial Supply Chain. In the past year, I have completed two surveys to understand the advancements in the management of bifurcated trade: multi-party trade agreements for trade promotions, rebates, and new product launch. I am surprised that in both consumer products and health care that the management of these flows is in the financial organization with little influence by the supply chain. The profit leakage to streamline bifurcated trade is a large opportunity. As revenue management grows in importance in demand orchestration, it is my hope that we will start to systemically tackle this important area at the interface of finance, sales and supply chain. Interesting technologies to watch in this are include Accenture (CAS), Adesso, Demandtec, IRI, MEI, M-Factor, ModelN, Oracle, SAP and Synectics.

Shacklett and Cecere have certainly provided supply chain professionals with plenty to think about over the coming year. But if your company is considering purchasing supply chain optimization software, their views should prove valuable.