This article first appeared in Electronics Supply and Manufacturing on September 1st, 2005 and can be accessed online at http://www.my-esm.com/showArticle.jhtml?articleID=170101692&pgno=1

Beyond Information

It's not enough to report data; supply-chain management software must provide intelligence

By Ken Moritsugu (1st September, 2005)

The latest supply chain management applications have chief information officers at many companies delighted at the treasure trove of data they can generate about their operations. The problem, of course, is money. The kid in the candy store has tightwad parents.

The good news for vendors is that the worst times appear to be over. Total revenue for the supply chain management (SCM) software industry rose 4 percent to $5.5 billion in 2004, after two straight years of decline, Boston-based AMR Research Inc. stated in its annual review of the industry. But a return to the go-go '90s is not in the crystal ball.

The struggles of the SCM applications sector are compounded by the state of flux within the industry itself. Just keeping track of who's who is a challenge. AMR tallied 18 mergers and acquisitions, one bankruptcy and three name changes last year. And that was before the blockbuster deal: Oracle Corp.'s acquisition of PeopleSoft Inc.

The continuing post-boom shakeout is just part of the story. New players are entering the market, seeking to fill gaps as more-established players struggle to keep up with rapid changes in the manufacturing environment. "There's no one vendor that has the depth that business users need," said Lora Cecere, research director at AMR.

The shifting shape of the industry poses dilemmas for its customers. Should you buy a promising application from a startup or a less-than-satisfying one from an established player? Should you postpone a decision until it becomes clear which way the market is headed? Is it better to develop an in-house solution instead? The market is "consolidating and growing at the same time, resulting in confusion for both the buyers and providers of SCM technology," AMR wrote in its annual review.

Information overload

Simply alerting managers to a problem in the supply chain is no longer considered sufficient. Vendors today are pushing programs that take the next step: helping to solve the problem. These solutions identify root causes, compare the impact of alternative responses and even execute the plan that a manager decides to follow.

For a delayed shipment, for example, a manager would want to know the reason-whether it's a customs issue or a congested port-and the impact of the delay, financial and otherwise. "You need to understand the impact not just in the next node but throughout your supply chain," said Karthik Mani, vice president in the solutions operations group at Dallas-based i2 Technologies Inc.

Software vendors are pursuing advances on three fronts. One is improving the ability of their software to analyze, organize and present real-time data. Another is integrating demand and demand shifts directly into SCM. The third is enabling better collaboration among the many players in the supply chain.

What vendors are pitching is the ability to go beyond the traditional planning function of SCM software. They want to help managers respond when things don't go according to plan. "You build a world designed by [U.S. quality guru W. Edwards] Deming, but you live in a world dominated by Murphy," said Randy Littleson, vice president of marketing for Canadian software vendor Kinaxis Corp. (formerly Webplan Inc.).

A company contemplating a product change, for example, needs to know what the impact would be on existing orders and on the obsolescence of existing products, Littleson said. The latest version of Kinaxis' RapidResponse application incorporates what it calls a live scorecard, which can compare scenarios or take a real-time snapshot of performance.

Mani of i2 sees inventory optimization as a key supply chain challenge. He likens inventory to cholesterol: There's good inventory and there's bad inventory. While inventory is necessary to supply customers on time, most vendors carry more than they need, he said. Finding the right balance has become more difficult, Mani said, because of two opposing forces. Companies are being asked to deliver products more quickly, pushing them to keep more inventory on hand. But shorter product life cycles are raising the financial risk of holding inventory. "Two to three years ago, nobody talked about inventory optimization as something you needed to have," he said. "Today, that is changing."

SAP AG interviewed 200 plant managers and other users to find out what they wanted. The conclusion: People in the factory didn't have the quick access to the information they needed to make decisions.

"Today, most plant managers are scrambling across multiple systems looking for information," said Andy De, who oversees the manufacturing market for SAP's Business Solutions Group.

Enter what SAP calls its manufacturing intelligence dashboard, a project in the works for about 18 months. The dashboard displays a task list for the manager and a customizable key performance indicator (KPI) watch list. With the KPI list in hand, the manager can choose which of dozens of KPIs to display. Any problems pop up in an alert box. Tailored to different users, the dashboard's first release was for plant managers. Next up are versions for production supervisors, maintenance technicians and quality inspectors.

The rapid spread of outsourcing has further complicated supply chain management, putting a premium on applications that enhance visibility. OEMs want to "see" into the factories of contract manufacturers and even check on the suppliers to the contractors.

When CSI Wireless Inc. landed a large contract for its desktop wireless phones, it needed a way to monitor remotely the quality testing at its contract manufacturer in Mexico. The company turned to SigmaQuest Inc., in Santa Clara, Calif. Its software transmits test results from contract manufacturing plants in Mexico and China to a manager at CSI's home office in Calgary, Alberta. "She can just log on in Calgary and do all this analysis right there during the day," said Bill Crook, CSI's Milpitas, Calif.-based director of test and manufacturing for wireless products.

Being able to respond quickly has become increasingly important, because demand has become less and less predicable. "The degree of uncertainty in the environment is significant, and you need the right kind of systems in place to be able to manage that," said Nadeem Syed, vice president for advanced planning products at Oracle Corp. (Redwood Shores, Calif.).

Oracle is the market leader in supplying SCM software to electronics and computer makers, according to AMR Research. Oracle extended its lead with the acquisition of PeopleSoft early this year. Over the next two to three years, the company will focus on bringing out its next generation of applications across three platforms: those of Oracle, PeopleSoft and J.D. Edwards, which PeopleSoft had acquired earlier, Syed said.

Regaining momentum

High-tech customers are still recovering from their 1990s spending binge. SCM license revenue from computer and electronics makers slid 7 percent last year, to $202 million, according to AMR. License revenue for all industries combined rose 1 percent, to $1.7 billion.

Vendors are revamping their offerings and developing new ones to adjust to a world of reduced tech spending. Today's customers demand lower costs and quicker installation.

Kinaxis (Ottawa), hit hard by the tech slowdown, brought in new management, which engineered a turnaround by changing the way the company marketed its applications. Sales representatives for Kinaxis used to show off its software's capabilities to potential clients and ask them what problems they were looking to solve. The two sides then developed a comprehensive solution to the customer's problems. Deployment typically took more than a year. Now, Kinaxis starts with a basic out-of-the-box solution that can be up and running in 12 weeks. Rather than attempt to sell the whole kit and caboodle at once, Kinaxis gets in the door with a basic package and then tries to get customers to buy additional modules for other functions.

Sales started picking up in the second half of last year, returning Kinaxis to profitability in the third quarter of 2004 and boosting license revenue a whopping 221 percent for the 12 months ended March 31, the company said. "It's a long-overdue, overnight success," Littleson said.

A growing number of vendors are offering another cost-saving option: software on demand, a trend that AMR research director Cecere thinks could take off in coming years. Less than 10 percent of companies use software on demand for supply chain management today, but 26 percent of executives in one survey expressed interest in exploring the option in the next year, she said.

In one such initiative, major electronics manufacturers, including IBM, LG Electronics, Seagate Technology and Solectron, banded together in 2000 to create E2Open. The Redwood City, Calif., company runs eHubs that manufacturers access via the Web to manage their supply chains. E2Open says its product not only is cheaper but also can be more quickly adapted to process changes. "Software as a service provides for a series of successful, rapid ROI [return on investments] projects, vs. massive, big-bang enterprise software projects," said Lorenzo Martinelli, executive vice president of E2Open. Looking forward, the advent of service-oriented architecture (SOA) in the broader ERP space is filtering down to SCM applications. The big question is how widely it will be adopted.

SAP has thrown its weight behind SOA and "is using its huge research and development investment advantage to put pressure on the rest of the market," AMR said in a report. Oracle appears to be on board, though Syed downplayed SAP's role. "We definitely buy into the SOA message," he said. "It's not an SAP message. It's an industry message.".

Ken Moritsugu can be reached at kmoritsugu@aol.com.