SUPPLY CHAIN MANAGEMENT MORE IMPORTANT THAN EVER IN 2001

Companies are realizing that e-business is less about a technology shift and more about a business shift, and nowhere is this more evident than in the supply chain.

While many businesses spent a lot of time thinking about e-business in 2000, fear and confusion stymied most large projects. We are still at the very early stages of the e-business movement, but companies are now ready to move.

And this readiness promises to generate a lot of innovation and excitement in the Supply Chain Management (SCM) software market and its various niches like Supply Chain Planning (SCP), Supply Chain Execution (SCE), and the latest trend, Supply Chain Event Management (SCEM), which will really take off in the era of e-business.

AMR Research predicts the following events will shape the SCM software market in 2001.

E-Business Fuels the Supply Chain Management Market

• E-business will continue to give the SCM market a boost as total revenue grows 45% in 2001 to $7.8B, with the Supply Chain Planning (SCP) and Supply Chain Execution (SCE) portions growing equally at 5%, to $4.4B and $3.4B, respectively.
• Content is king. We've heard it before, but it's true, especially in the area of supply chain visibility. Vendors such as BridgePoint, Celerix, Descartes, Qiva, and Sourceree are well positioned to gather supply chain event content and most will receive many partnership proposals and possible acquisition overtures from large SCEM vendors.
• 2001 will be a critical year for Manugistics trying to sustain its No. 2 position in SCM. The pitch of a better, more time-to-benefit approach to optimization, along with more affordable integration, will be the market test. The guns-and-butter strategy of balancing private sector work with Department of Defense contracts, however, will falter in late 2001, as the defense-related business will depress margins. AMR Research predicts more acquisitions for Manugistics, most likely in order fulfillment and process management.
• i2 Technologies will purchase a Business-to-Business (B2B) vendor, probably not a gorilla like Commerce One or Ariba, but a start-up vendor such as RightWorks, SpaceWorks, or Atlas Commerce. Also expect the acquisition of a revenue management vendor to counter Manugistics' purchase of Talus. But for all this, i2 will falter in the late part of 2001 because of a shortage of good sales talent in the marketplace and growing pains. It will scuttle its efforts to build its own B2B order management functionality and will reign in rampant expansion of its software into new areas.
• Greg Brady, president of i2, will take over Ray Lane's old job as president and Chief Operating Officer (COO) of Oracle.

Supply Chain Planning Market Splits

• SCP will begin to split into two segments: high end and middle market. At the high end, dramatically more complex supply chain models will call for much faster Research and Development (R&D) cycles from vendors. Top-of-the-line products will still command big deal sizes based on value pricing mechanisms in which the cost to the user will be dependent on heavy consultative relationships and how much value the vendor and user decide it will bring to the user company. At the low end, simplified tools will be more widely available in the very under-penetrated middle market.
• One hot new battleground will be SCP in the mid-market, with the best-of-breed, Enterprise Resource Planning (ERP), and B2B procurement vendors all competing for revenue. Baseline Advanced Planning and Scheduling (APS) will become simpler and cheaper for mid-market companies. Penetration is still less than 15% for all brand name vendors in the middle market.
• B2B marketplace readiness and an exploding mid-market opportunity results in renewed emphasis on demand planning and management, as well as production scheduling.
• The SCP applications from large ERP vendors like SAP and Oracle will start showing more traction, but only in their installed bases. They will have marginal impact on the revenue growth of the best-of-breed SCM vendors. Expect SAP to be among the top three in SCP revenue. Oracle Advanced APS meanwhile will stall, not because of functionality, but because of user perceptions concerning the readiness of the entire Oracle 11i suite of applications.
• Adexa will go public and be one of the most successful Initial Public Offerings (IPOs) in 2001.
• i2 and Ariba will divorce by the end of 2001. In a related story, Ariba will acquire Adexa.
• Logility will be scooped up by another SCP vendor seeking deeper vertical penetration, an ERP vendor also seeking vertical penetration, or an SCE vendor seeking deeper planning functionality.
• Optimization component vendor ILOG will continue to struggle financially, and will most likely be in play for either increased equity investment from a top-tier SCP vendor, or outright acquisition. The arms merchant will not be allowed to stray into alien hands.

Supply Chain Event Management (SCEM) Catalyzes the Sleepy Supply Chain Execution (SCE) Market

• The newly defined SCEM market will take off in 2001, as companies focus on the velocity and agility of their supply chains. SCEM software allows a company to respond to unplanned events on an exception basis. For example, if a supplier is out of material for the manufacturing a product, SCEM software will alert the manufacturer so that an alternative product can be tracked down and adjust the rest of the manufacturing process to the change. SCEM consists of a set of integrated software functionality that supports five business processes: monitor, notify, simulate, control, and measure supply chain activities. We believe SCEM will be extremely important as supply chains move from a single enterprise controlling multiple processes to multiple enterprises controlling a single process, distributed across trading partners.
• Many new and existing software vendors are adding supply chain visibility and alert messaging as a means of offering SCEM. As vendors create more e-business products, SCEM will become standard functionality, expected to grow rapidly the next three years. Standalone sales of SCEM software are expected to top $100M in 2001.
• We will keep predicting this until it finally happens, several vendors will emerge to lead the market in the highly fragmented SCE space, leaving the masses to consolidate or disappear. SCEM will be the catalyst. Despite the vendors' best sales and marketing efforts, most companies still view distribution and logistics processes as tactical, silo-based operations. SCEM ties these operations together at a strategic level and gets senior- level managers involved. Look for EXE Technologies, HighJump Software, Manhattan Associates, and Optum to lead with their event management products and become clear leaders in the execution market.
• 2001 will be a critical year for Industri-Matematik International (IMI) and McHugh Software. Both vendors have lost significant traction in the marketplace the past couple of years because of poor sales and marketing execution Both companies, however, have impressive suites of order fulfillment functionality that make them attractive acquisition targets. Look for one or both to be acquired by an SCP or ERP vendor in 2001.
• After test driving EXE for almost two years, expect i2 to acquire the SCE vendor and get serious about order fulfillment.
• Manhattan Associates will take advantage of its large market cap and acquire additional vendors to solidify its hold on the Retail and Apparel industries. It will acquire QRS, building on the integration partnership the two vendors struck last September.
• ERP vendors will finally get serious about SCE. Oracle will come out with its own Warehouse Management System (WMS), much to the dismay of its many WMS partners, including BPA Systems, MARC Systems, and Yantra. SAP will acquire the remainder of Catalyst for its WMS product and its North American services organization.
• While most WMS vendors offer their products as hosted applications, few users will be attracted to the Application Service Provider (ASP) model in 2001. However, Transportation Management Systems (TMS) and SCEM applications are well suited, as hosted applications and vendors of these systems will generate more than half their revenue through the ASP model.
• If I receive an Internet order from an unknown customer, should I fill it? That's the question many B2B wholesale distributors face when taking online orders from customers with whom they have no prior relationship. Look for vendors such as IBS, irista, Prophet 21, and Tecsys to add Pricing and Revenue Optimization (PRO) functionality to their products for true, real-time Profitable-to-Deliver (PTD) calculations.
• For the new specialty application entrants to SCEM, there will be some consolidation and fallout. Not all the new entrants that recognized the SCEM opportunity will survive the challenges of vendorhood. Some will be acquired, others will simply go out of business. On the brighter side, some vendors, such as Vigilance, SeeCommerce, and Categoric, will experience a banner year. EAS vendors will also shop around as new SCEM vendors display a value proposition and a sales model that can fill a niche and show a viable sales model. Companies like SAP and Oracle may buy an SCEM vendor for domain expertise, but will ultimately build their own software. Finally, major Systems Integration (SI) houses will get into the SCEM act more aggressively and are also a possible candidate for acquisition of or strategic alliance with SCEM vendors.
• Being labeled an exchange will fall from graces. Independent Trading Exchanges (ITXs) for logistics and transportation will abandon the "exchange" moniker in favor of a label more suited to the evolving world of e-business. ASP services will become more prevalent for transportation and logistics, as will the traditional licensed services that are now Web-enabled. Even proven models such as that of the NTE, one of the few that has succeeded in gaining traction and profitability, will declare themselves something much more than just an open exchange. Companies offering pure exchange services will need to morph to survive.

Product Lifecycle Management (PLM)

• Ask any self-respecting product company what is most critical to its continued success and it will say innovation. As important as innovation is to new product development and profitability enhancements to existing products, few companies apply real effort to systematically managing this process. Still generally mistaken as a new term for Product Data Management (PDM), PLM stands to be one of the hottest technologies around for the next few years. Expect the excitement to start in 2001. Leading PLM vendors often come from a PDM background, but all are now following Agile Software, which has a market capitalization 10 times that of other PLM vendors with similar revenue. Agile has demonstrated the link from PLM to SCM and shown how it makes users more money. Of note also is the heavy investment currently going this way from the likes of Oracle, SAP, and i2. This is just the beginning since most manufacturers spend a lot of money and executive attention on innovation in their products. The intelligence embedded in that innovation is the content thread that runs from supplier through to customer. PLM manages that content thread.
• Long-suffering vendors Matrix One and PTC will finally get a market cap bump when people realize they actually allow collaborative supply chain management around the new product development and introduction process.
• Oracle PDX makes waves with a solid technology platform for product development collaboration that functions like a private trading exchange, complete with industrial-strength project management.
• Collaborative product development startups like Nexprise, Paraform, and IDe make attractive acquisition targets for exchange platform vendors.
• Supply chain management professionals make friends with design engineers as each realizes how much the other can help make the job easier. After some fits and starts, the same bonding will happen with marketing professionals. At least one great company will demonstrate just how powerful integrated design, manufacturing, and marketing can be. -- Supply Chain Management Services staff