Media Coverage
What Supply Chain Execs are Buying, Where They’re Skimping
4 September, 2006
While dollars are pouring into technology, lack of spending on other critical products and services is troubling.
When we began talking with supply chain executives a few months ago about what products and services they were investing in this year, the prevailing answer was software and technology—Enterprise Resource Planning (ERP), Supply Chain Risk Management (SCRM), Transportation Management Systems (TMS), RFID implementations—and everything in between. In addition, an increasing number of executives have begun turning towards on-demand as the preferred method to acquire these software solutions.
However, what our conversations also revealed (and various industry surveys confirm) is that supply chain executives aren’t buying enough of certain products and services, which may be the real story.
Where the dollars are being spent…
Although many companies investing in supply chain software and technology this year are doing so as a way to further streamline and enhance existing systems that are already performing well, just as many companies, if not more, are playing catch-up. These are ones that are still working in a manually paperwork intensive environment with limited supply chain visibility and high degrees of risk, exposure, and vulnerability.
According to AberdeenGroup’s Beth Enslow, vice president of enterprise research and author of the recent “Global Supply Chain Benchmark Report,” of the 150 companies surveyed, “three-quarters of respondents report they don’t have enterprise-wide automation for supply chain processes.” Furthermore, “on average, large companies report that their global supply chains are only 50 percent as automated as their domestic supply chains.”
To be fair, many companies have expanded their international operations so quickly, be it sourcing, selling, or manufacturing, that they’re just now being able to address the lack of visibility across their entire organization. But the costs of not having sufficient visibility in place are high. “An astounding 90 percent of all enterprises report that their global supply chain technology is inadequate to provide the corporate finance organization with the timely information it requires for budget and cash flow planning and management,” says Enslow. In fact, many of the cost reductions that companies seek from manufacturing and souring in low-cost countries are being diluted by global supply chain uncertainties, such as delayed or incomplete shipments leading to higher inventory buffers and freight expediting expenses.
Like many other companies, Stryker Instruments, a provider of surgical instruments and other medical technology, has invested in technology to get a better handle on its supply chain. The company has expanded its use of TradeBeam’s Global Trade Management (GTM) software suite, relying on the Vendor Managed Inventory (VMI) application to dramatically reduce inventory levels and stock-outs by enabling the company’s suppliers to proactively manage the replenishment process.
The system has helped Stryker reduce its direct material inventory by 30 percent, while the company’s suppliers have been able to reduce their component inventories by as much as 25 percent.
Another company, Brown McFarlane, one of the UK’s largest carbon steel plate processors and distributors, chose Epicor’s (ww.epicor.com) Vantage ERP suite to replace its aging software system. The company was attracted to the product’s ‘out-of-the-box’ capability and large installed user base.
John Hiraoka, CMO and senior vice president of worldwide marketing for Epicor, says that the renewed interest in ERP is being driven by globalization, increased integration with suppliers and other partners, along with other factors such as the need for more stringent compliance with regulations like Sarbanes-Oxley as well as various Customs initiatives. And while many companies have been continuing to extract value from ERP systems that they invested in years ago, many are finding it necessary to upgrade in order to maintain control over increasingly complex operations and supply chains.
Spending on Global Trade Management (GTM) and Enterprise Resource Planning (ERP) solutions has really taken off—not only are more companies recognizing the benefits of these powerful tools, but on-demand or software-as-a-service (SaaS) arrangements means it’s not limited to the financial reach of big companies alone.
Last year, the GTM market expanded to $222 million, and that figure is expected to swell to $405 million by 2010. CEOs and CFOs have been slow to understand the role of GTM relative to financial performance and strategic objectives, says ARC Advisory Group’s Adrian Gonzalez. But this is beginning to change, he notes. “The Sept. 11 terrorist attacks and the 10-day shutdown of West Coast ports in 2002 showed many executives that disrupting the flow of global trade can have significant financial consequences.” At the same time, the worldwide market for ERP is forecasted to grow from $16.7 billion in 2005 to $21 billion in 2010.
The good news is that these software solutions are increasingly being used by smaller companies because they can literally ‘pay as they go.’ By making the software available over the Internet, companies are spared the time and expense of installing and maintaining software or hardware. The savings are significant. A recent study by Triple Tree and the Software and Information Industry Association (SIAA) found that SaaS deployments are 50 to 90 percent faster with a total cost of ownership five to ten times less expensive than installed software.
…and where they’re not
The rush to new markets, the increased use of outsourcing, and the proliferation of players within the supply chain (from suppliers to transportation providers), has obviously increased risk and exposure, yet this is one important area that many companies are not adequately addressing.
Aside from the series of bomb blasts that killed nearly 200 people and injured twice that number in Mumbai in July, there have already been 121 terrorist attacks during the first six months of this year alone in India—almost a record for such activity. During the same month, tensions in the Middle East escalated. Bombs decimated most of Lebanon’s infrastructure. A Procter & Gamble distribution center was hit, as were many other commercial and industrial buildings.
And it’s not just developing countries that are terrorist targets—last year it was London’s subways and in 2004 it was trains in Madrid. Add to that natural disasters—hurricanes, tsunamis—even a strong winter storm has the potential to throw a sizeable wrench into a just-in-time operation. Is it any wonder supply chain executives are unprepared, and a little anxious?
A study by FM Global, an insurance company that specializes in risk management, found that more than 600 financial executives around the world identified supply chain risk, more than any other, as having the greatest potential to disrupt their top revenue driver. In addition, Georgia Institute of Technology Professor Vinod Singhai and University of Western Ontario Associate Professor Kevin Hendricks have calculated that it can take at least two years or more for companies to recover from a supply chain failure.
Sidebar: How to Size up SaaS
Software for the masses—that’s essentially the promise of the software delivery model known as on-demand, or Software-as-a-Service (SaaS). Rather than purchasing software and worrying about the installation and maintenance, companies can opt for an on-demand arrangement, which means they can simply access the software via the Internet and pay via a subscription or per-use charge.
According to Tim Minahan, senior vice president of marketing at Procuri, there are a few things to think about when sizing up Saas:
- Pricing Model. Look for clarity in pricing, ensuring that the model is usage-based and offers a flexible, pay-as-you-go subscription and avoiding any hidden start-up or support fees.
- Managed and Expert Services. In addition to on-boarding, training, and round-the-clock technical support, look for value-added services such as supply market intelligence, category and contract templates, and expert services support.
- Security. Ensure security certifications, such as SAS 70 Type II audits.
- Integration. Assess the provider’s application integration framework to ensure support for current and future requirements for back-end system integrations.
- Service Level Agreements. Demand well-defined SLAs on system uptime, performance, etc., that include “teeth” in the form of explicit rebates or recompense for non-compliance.
- Customer Satisfaction. Check customer renewal rates and ask for references.
Minahan stresses that technology alone is never a panacea. “Supply management success requires the right organizational structures, strategies, and processes—in addition to enabling technologies. However, early indications suggest that on-demand solutions offer rapidly deployable and cost-effective applications, content, and services that can fill key gaps in capabilities and solution architectures and accelerate supply management transformation.”
