The Supply Chain Management Applications Report, 2005-2010
From AMR Research In 2005, the SCM grew 3% to $5.6B, exceeding AMR Research's forecast of 1% growth. This is the second year of consecutive growth for the market. Based upon data for the forthcoming SCM application spending report, we expect it to be the second in five consecutive years of market growth.
In 2005, four publicly traded, packaged application SCM vendors—Logility, Manhattan Associates, Oracle, and SAP—grew faster than the market in terms of total revenue growth. We estimate that SCM revenue for Microsoft and HighJump (a division of 3M) also exceeded the market growth rate. In addition, we estimate that several private firms grew at above-market rates, including LogicTools, MCA Solutions, RedPrairie, Servigistics, SmartOps, and ToolsGroup. In 2006, we expect the market to accelerate at a 7% growth rate as more and more companies refocus on SCM initiatives (see “Supply Chain Management Spending Report, 2006-2007,” to be published soon).
The turbulence in the SCM market has settled. In the late 1990s, the SCM market was fueled by vision and promises of future functionality. In 2005, we have a far more pragmatic market, with most companies building an SCM infrastructure based on a foundation of ERP investments. For many, this is either Oracle or SAP. Despite offering broad SCM suites with some integration advantages, ERP continues to have industry-specific and business-process-specific product functionality gaps. As a result, SAP is focusing on building a partner ecosystem based on NetWeaver as the de facto standard, while Oracle has continued to expand its SCM footprint through acquisitions and development.
Consolidation will continue to be a major force. Although not as many as last year, there were several strategic and market share-altering acquisitions in 2005. As a result, companies should balance the risk of future market consolidation and purchase applications with a focus on achieving an ROI within two years.
The most rapid innovation is being delivered by independent software providers that are focusing on industry-specific functionality and targeting under-serviced business problems like Jonova, Kinaxis, LogicTools, Logility, Optiant, SmartOps, Synchrono, Terra Technology, ToolsGroup, TrueDemand, Vision Chain, and WAM Systems.
While 75% of firms have supply chain organizations, only 52% have experience with a supply chain organization for more than two years. As a result, domain expertise is a limiting factor for user adoption Hosting and business process outsourcing (BPO) are slowly surfacing as viable market alternatives, as is the use of focused consultants.
Analytics is merging with optimization to drive decision support for critical processes like demand management, inventory optimization, and sales and operations planning (S&OP). Vendors following this trend now or in the near future include Adexa, Demantra, i2Technologies, Kinaxis, Logility, Oracle, SAP, and Teradata.
Several environmental factors are affecting the current SCM market:
1. Globalization and global sourcing
2. Leaner supply networks
3. Increased customer expectations
4. More mass customization
5. Increased demand variability
6. Cost volatility, inflation, and competitive pressures
As a result, the business priorities for users and software product development focus for vendors have changed in the following ways:
Movement from static demand planning to demand sensing and demand shaping—In the late 1990s, advanced planning and scheduling (APS) applications were defined by a more static demand planning signal. Typically using a monthly frequency, modeling was based on historic orders. Today we are seeing companies more actively managing their demand signals to better sense demand (think of monitoring consumption instead of orders), incorporating downstream data with a higher frequency of modeling (weekly or daily). In a recent AMR Research survey of 455 companies in Europe and North America, our research found that 38% of companies are still forecasting monthly. At the same time, we are experiencing rising inquiry volume as companies discuss plans to move to more active demand modeling.
From enterprise planning to multitier decision support—We find that the average company today has 36 contract manufacturers, and 42% of firms report that more than 25% of manufacturing output is produced by third-party contract manufacturers. As a result, most global enterprises find that enterprise planning is no longer sufficient. In response, we are seeing the evolution of multitier modeling. Inventory optimization applications are furthest along in confronting the multitier supply chain planning (SCP) challenge.
A movement from manufacturing as the primary constraint to the recognition of materials and logistics as additional major constraints—As companies move from internal manufacturing (controlled by internal teams) to outsourced manufacturing, they are incorporating a more holistic view of supply chain constraints and tradeoffs. As a result, firms are shifting their SCM strategy from tight, constraint-based manufacturing planning to a cross-enterprise, synchronized view of the demand signal that encompasses both supply and demand visibility.
Shortening of order execution cycles—Market pressure to reduce order-to-delivery lead times has fueled strong growth in supply chain execution (SCE) applications, with warehouse management systems (WMS) posting 8% growth and 4% growth from other execution applications, including transportation management systems (TMS), multichannel order management, and global trade management.
Focus on network flow analysis—Initially, network design activities were focused on cost optimization of physical networks on an infrequent project basis. As companies have outsourced more aspects of their supply chains, executives are deploying supply chain network design tools to analyze optimal flows for market response, rationalize suppliers to minimize risk and maximize profit and market share opportunities, determine postponement strategies, and conduct cost-to-serve and product portfolio analysis.
The top growth area for 2005 was the inventory configuration and policy technology category, posting a robust license growth rate of 35%. As supply chains grow increasingly global, complex, and interdependent, the need for multiechelon inventory optimization and inventory policy to buffer against supply risk, maximize in-stock positions at the shelf, and ensure continuity of supply drove spending in this category.
In concert with the trend noted above, there was also renewed interest in supply chain network design in 2005, with license growth of 21%. Leading companies are embedding these technologies into new product development and introduction (NPDI) and S&OP processes on a quarterly basis to evaluate product flows and profits and optimize flexibility and network response at the point of new market entry, factoring in demand variation and cost-to-serve.
Following up on its strong performance last year, warehouse management software license revenue grew at 8%. As warehouses have become more labor-intensive with a larger percentage of mixed pallets, picked cases, customized orders, and late-stage postponement, warehouse systems have changed, causing an increase in requirements for order visibility, task automation and pick productivity, labor benchmarking through technologies like RFID, and voice recognition. Inquiry volume for TMS has already doubled in the first half of 2006 over last year, indicative of the pressures logistics professionals are under because of rising fuel costs, capacity shortages, and the imbalance of trade flows.
While inquiries to the supply chain analysts at AMR Research on the topics of S&OP and vendor-managed inventory (VMI) increased in 2005, growth in these categories was not as high. This is because of the process-intensive nature of these projects. While VMI software licenses grew at an above-market average 7%, sales of S&OP applications were flat, reflective of the fact that S&OP software as a category is broadly defined, with supply chain planning organizations utilizing a broad scope of tools to support S&OP. However, with inquiry volume on the rise and more dedicated tools emerging, we expect S&OP software to bounce back at a 6% rate in 2006. Supply chain performance management applications and event management and visibility applications lagged behind the market growth.
SCM license revenue growth was fairly consistent across company size. Midsize companies (between $250M and $999M in revenue) grew their purchases of SCM software slightly faster than the market at 5%, while growth in purchases of SCM software among small companies ($30M to $250M) grew below the market rate at 2%. A portion of this slower license revenue growth may be attributed to companies in this segment buying software on demand or on a subscription basis versus a perpetual license basis.
Supply Chain Management Customer Trends and Market Channels Several trends were evident in customer buying:
1. Revenue from application hosting/subscription grew strongly at 16% growth, far outpacing growth of other sources of revenue (see Table 3). Sectors of SCM software are increasingly purchased by buyers on a subscription basis to avoid the capital budgeting process, more quickly achieve time to value, and avoid large upfront license commitments. We expect subscription licensing to continue to grow as a share of SCM software revenue.
2. Maintenance revenue grew at 5%, just above the market growth rate. More companies are asking the question of whether they need maintenance for SCP and SCE software that has been installed and is running bug free. In addition, many customers purchased software at a market-high in early 2000, with maintenance costs based on those higher license prices. These customers are now renegotiating for lower maintenance rates and greater value in new upgrades.
Service-oriented architecture (SOA) is here to stay in SCM. SCM applications were early adopters of SOAs because of the high rate of customization in implementations and the need to leverage data from numerous existing applications and legacy data sources. We expect this trend to continue as most vendors have either already converted or are in the process of converting their applications to the new flexible architecture.
SCM applications increasingly are shifting from a focus on transactional integration to buy- and sell-side, service-level-based relationship workflows. In high-tech, there was also wider adoption of RosettaNet PIPs for multitier synchronization. As E2open and Exostar continue to be successful in the deployment of supply and demand visibility based on the RosettaNet standards, more and more companies—in high-tech and beyond—are investing in bidirectional visibility, and looking to evolve to multicompany collaboration and planning. As a result, this will continue to put pressure on the electronic data interchange (EDI) vendors, including Descartes, GXS, and Sterling Commerce, to continue to expand their value-added services and application offerings as pure connectivity becomes commoditized.
There is use of new technologies to harmonize and rationalize downstream data to make demand sensing and demand shaping a reality. Vendors like Oracle, Teradata, TrueDemand and Vision Chain are racing to achieve market share in the hotly contested race to own and manage downstream data.
For the complete report and tables, go to: http://www.amrresearch.com/
Manufacturing Snapshot 2006: Global Manufacturing Execution...Like Déjà Vu All Over Again From AMR Research/Alison Smith, Simon Jacobson Colin Masson Between 2002 and 2003, AMR Research made a series of predictions and prescriptions about why, when, and how the MES market would evolve to support manufacturers as they assembled more complex and integrated information architectures to support globally dispersed and blended fleets of manufacturing assets.
Our advice to users then was think globally, act locally: cut your teeth on a single site project (yes, the ROI is there), but base your long-range investment strategies in anticipation of a global, multisite end game. We advised vendors to migrate their product architectures and data models for global multisite scenarios, especially for multisite operational analytics, reporting, and visibility. Four years later, we now look at some of the prescriptive—and predictive—words we've published since then.
Back in 2002, AMR Research used the term “collaborative manufacturing” to describe the need for closer connectivity between manufacturers and all their adjacent stakeholders—tiered suppliers, customers, and external (contract) and internal manufacturing resources. At that time, we focused on which functional adaptations would be required for MES applications to maintain their relevance in the rapidly evolving manufacturing operations software arena.
It was clear at that time that MES would be required to provide additional enhancements beyond the six core capabilities of execution, process, traceability, analysis, coordination, and quality. These enhancements were needed to support the following:
Design-to-manufacture—Getting new designs from engineering to the manufacturing production floor, whether capabilities are owned or outsourced, to reduce latencies in new product introduction and ramp to volume.
Manufacturing visibility—Making in-plant production schedule, performance, and quality data visible to the enterprise, suppliers, and customers. This reduces inventory surprises for suppliers and OEMs, and provides workflows to resolve quality issues quickly.
Supply chain coordination—Setting up the supply chain for a particular product, including strategic sourcing and long-term planning, and connecting in-plant status and customer order information for replenishment scheduling via linkages back into ERP and order promising.
Integrated quality rising in importance—An integrated quality process management capability to meet industry requirements, such as corrective and preventive action (CAPA) in life sciences, across business processes.
How good were our predictions? Did we nail the requirements or miss the boat totally? Read below for the overview. For our complete findings, refer to the rest of the Manufacturing Snapshot 2006 series to see where our predictions were spot on, where they were too early, which curveballs we missed, and where we blew it entirely.
“Design-to-manufacture” refers to the processes involved with getting new product designs from engineering to the production floor, whether production capabilities are owned or outsourced. The design-to-manufacture link is firming up in some industries, but levels of maturity vary dramatically by industry and by manufacturing process.
There's increasing activity in discrete industries, most notably A&D and high-tech, as PLM vendors connect the dots between as-designed information, process planning, and production execution. Computer-aided process planning (CAPP) is still a niche capability, but one that's making its way (of necessity) into MES application suites that serve the discrete segments.
Process industry manufacturers, particularly in the food, beverage, and CP segments, are struggling to get their product data under control. In contrast to the CAD/CAM-oriented world of traditional PDM (the precursor to PLM), process industries deal with product formulation data that includes everything from individual ingredients and their physical and chemical attributes, to multilevel recipes that specify processing equipment and production steps. Integrated approaches to the design-to-manufacture puzzle are emergent at best. As for software support? “Chaotic” summarizes the status quo as vendors from formulation to automation own overlapping pieces of the solution.
Visibility has become a hot topic. On the tactical front, an entire crop of vendors now provide plant-level applications that calculate OEE and other asset-related metrics. Still elusive, though, are business-oriented measurements like correlating asset and production model metrics directly to business outcomes like profit margins for specific products or customer orders. It's still on the to-do list for the majority of users, which are still wrestling with the task of identifying, prioritizing, acquiring, and aligning the many disparate streams of data being generated by their production processes and suppliers.
Evolving beyond our 2002 think globally, act locally theme, our mantra in 2005 was global coordination, local execution. This new banner reflects the continued importance of traditional production operations applications, such as MES, but acknowledges emerging application categories aimed at managing a fleet of distributed manufacturing assets, or supply network operations (SNO). It also recognizes ERP's potential role as the orchestrator of sales and operations planning (S&OP), new product development and introduction (NPDI), and product supply activities across the supply network.
AMR Research's enterprise software spending survey data indicated that for 2006, manufacturing operations software was second only to ERP in terms of anticipated investments. Combined with data on ERP market penetration and growth in manufacturing sectors, we infer the following:
The dust is finally settling on the massive ERP deployments and instance consolidations of the past four years.
Corporations are now turning their attention to product supply strategies (owned, outsourced, or blended). Those that choose to retain manufacturing as a competitive advantage are not only thinking strategically, but are prepared to act with investments aimed at extracting greater value from their manufacturing assets.
Corporations choosing to embark on demand-driven supply network (DDSN) business transformation strategies recognize that predictable product supply capabilities are pivotal to their success. The global manufacturing market has finally matured to the extent that demand for the multisite production management and supply chain coordination requirements we anticipated back in 2002 is taking off, and demand for supply network operations capabilities is going with it.
This is the least mature of the areas we identified back in 2002 and 2003, as most global manufacturers were still grappling with the implications of blended in-house and contract manufacturing strategies.
North American manufacturing isn't done yet, if you factor in the potential improvements still to be realized from a long overdue focus on operational excellence, combined with a more holistic approach to weighing the lower costs of offshore manufacturing against the higher supply chain risks and lower customer service levels that go with offshoring. SNO strategies are emerging. For now, though, most global manufacturers are baselining and benchmarking their own manufacturing as a precursor to more radical redesign of their supply networks.
During late 2003, burgeoning demand for supplier quality management functionality revitalized the quality software management (QSM) market, highlighting existing gaps between enterprise systems and traditional quality management software offerings .
During 2004 and 2005, wave after wave of regulatory compliance rulings and mandates left manufacturers reeling, and the market for quality and compliance applications blossomed. Small, stand-alone providers of enterprise quality management systems (EQMS) enjoyed substantial growth, particularly in the more heavily regulated life science markets.
MES vendors, in the meantime, have steadily been enhancing their quality management capabilities both on the in-process and procedural sides of the quality management equation. When it comes to the big quality picture, however, we find that most organizations are ill prepared to implement true enterprise quality management architectures, having dealt with quality for so long as a bolt-on versus an integral element of core business processes.
However, companies that are DDSN leaders are looking beyond MES applications for tools and technologies, such as enterprise manufacturing intelligence (EMI), operations process management (OPM), smart sensor technologies (for asset tracking across the supply chain), profit velocity analysis, and manufacturing capability modeling to incorporate their heterogeneous manufacturing landscape (which may include many disparate MES applications) into their supply network operations.
That said, we evaluated MES product offerings in 2003 based on technical architectures and the emergent requirement for global multisite deployment support. At the time, we warned vendors that if they couldn't adapt their products—and fast—they'd be relegated to single site deployments while more capable architectures scooped the large multisite deals.
Retailers and Suppliers Collaborate to Crack RFID Code From Manufacturing Insights Manufacturing Insights, an IDC company and a leader in global technology research for manufacturers and retailers, announces the launch of its a new professional organization for senior executives at supplier and retail organizations to maximize radio frequency identification (RFID) technology. The RFID Executive Council will comprise members from the nation's top retail outlets and supplier organizations for product categories such as Audio/Video, Computing, Media & Entertainment, Appliances, and Lawn & Garden Equipment, as well as thought leaders from Manufacturing Insights' team of industry experts.
Dedicated to providing a forum for retailers and suppliers to share effective practices and network on all RFID-related trends and topics, the RFID Executive Council is scheduled to host its inaugural meeting on September 28, 2006 at the Westin Hotel in Waltham, Mass. The meeting will feature a revolutionary alternative RFID technology being implemented by council participants, Best Buy and Sears. The technology goes directly to item-level tagging for the council's specific product categories.
RFID expert and Council Chairman Pete Abell of Manufacturing Insights, explains, "The retailers involved in this alternative RFID effort are not interested in a mandate, they want their suppliers to invest in the necessary infrastructure because it represents a compelling return to both parties. The product categories we're addressing are more suitable to item-level tagging because the cost of a tag is marginal when selling prices are above $10.00 per unit or as high as thousands of dollars. There are many applications where RFID can substantially improve performance."
With the primary goal of improving manufacturing performance through RFID, council members are encouraged to participate in the proposed focus areas for the Council's business cases (or forum), including:
1. Factory Data Collection and Product Genealogy
2. Warranty and Product Quality
3. Counterfeiting and Diversion
4. End-to-End Supply Chain Visibility, Inventory Accuracy, and Management
"Our council takes a practical approach to improving business through RFID. We scope the issue, determine how RFID can improve the process, and deliver a case that can be used by the members to justify investment at their organizations. This three step 'measure, manage, mobilize approach' delivers real value to council participants," adds Bob Parker, vice president of Research at Manufacturing Insights.
General membership fee for the council is $45,000. However, there is no charge for companies in the relevant product categories to attend the inaugural meeting's general sessions on September 28th.
For more information about the RFID Executive Council and/or the inaugural meeting, please contact Paul St. John at 508-935-4760. http://www.manufacturing-insights.com/
Improving and Expanding: The Road Ahead for a Drop-ship Facilitator From Technology Evalutation/ P.J. Jakovljevic The year 2005 marked several major customer wins for CommerceHub, an Albany, New York (US)-based provider of hosted supplier integration and order management services for multichannel retailers. CommerceHub's hosted platform provides one single, universal hub- or bus-like connection between a retailer's business and all its distributors, suppliers, and manufacturers. By providing a single plug-and-play connection to multiple trading partners, CommerceHub strives to enable basically any retailer to electronically integrate with its suppliers, regardless of the idiosyncratic systems and capabilities that might exist among them.
The company (now employing about seventy) also forged a partnership with Home Décor Products, a renowned online retailer of home improvement products. Consequently, revenue grew 50 percent over the previous year, and the transaction volume grew by nearly two million orders year over year. CommerceHub charges the retailer customer a one-time $75,000 (USD) charge to set up the private exchange, and thereafter both the retailer and supplier are charged $0.50 (USD) per order, whereby one can do the math and realize a healthy business model with a recurring revenue stream.
In the second half of 2005, CommerceHub introduced its Partner Relationship Management (PRM) application. As part of CommerceHub's Drop-Ship Master solution, PRM should help retailers more effectively manage their trading partner network by giving them centralized and complete visibility into many facets of their relationships. Until now, retailers have had limited visibility into supply chain and fulfillment performance patterns, partner connections, and testing status, as well as partner profile information. With the launch of PRM, CommerceHub claims that its retailer customers should gain a holistic view of existing partner relationships, and improve their ability to establish new trading connections, allowing them to manage and grow their extended supply chains more efficiently. Retailers should gain invaluable insight into their supply chain networks through reports and scorecards that will provide a performance snapshot for individual partners, groups of partners, and even the entire supply chain. Additionally, retailers will be able to directly compare a partner's performance against other partners, groups of partners, or the entire supply chain, which should enable a retailer to ensure it has the best partners possible in its extended supply chain.
The Drop-Ship Master PRM application includes the following new features:
Supply chain performance: This includes graphical performance reports, historical trends, supplier scorecards, and so on, whereby retailers can see the bigger picture of how their supply chain is performing over time.
Drop-Ship Master Executive Dashboard: This should help retail executives obtain a more complete view of supply chain performance by giving them immediate business intelligence (BI) regarding the status of their overall fulfillment operation in a single view.
Connection Status Tracker: This feature allows retailers to track partners' on-ramping activities, including connection status, testing history, and more.
Partner portfolio: This provides access to specific information about a retailer's trading partners such as up-to-date contact information, geographic location, warehouse information, hours of operation, and more.
The announcement of the PRM launch came on the heels of the announcement in late 2004 of the availability of Drop-Ship Master 4.0, which was a substantial re-engineering of the platform that provided significant new functionality, scalability, and flexibility for the client base wanting to handle larger drop-ship volumes with as few customer service problems as possible. With Drop-Ship Master 4.0, CommerceHub trading partners have been offered the following set of features that provide control over their drop-ship fulfillment networks:
1. Visibility: This provides an integrated, bi-directional view of order flow that includes a common dashboard, customizable searches, and real-time visibility to exceptions in the fulfillment process.
2. Intelligence: This feature provides enhanced management of the fulfillment process with data search and reporting tools that allow for the creation of real-time reports, summarized and presented based on user selection.
3. Efficiency: This increases productivity with more efficient navigation, and an improved layout that includes customizable work screens, multitask tabbing, quick-click data access, and reporting.
Look for more enhancements along the lines of additional wizard-driven ad hoc reporting and analytics applications, and self-service setup and testing. Also, one should expect further improvements in the user interface (UI), since a good web site design (meaning streamlined site navigation, and search and checkout processes) enables the kind of sales process that best fits the customer's and retailer's needs, as does good site performance, and intuitiveness. One will indeed never achieve proper order fulfillment without a self-evident navigational structure, the right search, help, linking of the site to the support center for synchronous user support, and so on. Front-end business-to-customer (B2C) e-commerce success also requires good product information and pricing, because it is easy for Internet customers to comparison-shop. A difference of two dollars or so in the retail price of a DVD can have a large impact on sales volume when the competition is only one click away.
While CommerceHub certainly has a leadership position in drop-shipping (although competition can also come from the likes of Vcommerce), most leading retailers (prospective and existing customers) have to provide for diverse and possibly more complex fulfillment methods, while creating true multichannel experiences for consumers. This means seamless, ongoing personalized interactions throughout the shopping process, including promotions, gift or loyalty card integration, technical specialist availability at home if necessary, real-time online availability, pricing and line item shipping status for business partners and customers, and so forth. There should also be a number of appropriate financial services available, such as payment gateway, merchant account, fraud screening, and business payment services. Thus, some other, better rounded players might provide a better fit with their offerings, especially in light of some traditional connectivity providers like Sterling Commerce, Inovis, General Exchange Services (GXS), and SPS Commerce recently acquiring value-adding applications along those lines.
Also, traditional brick and mortar retail stores still rely on store clerks and managers to support customers, while multichannel retailers must provide similar support via call centers that are adequately staffed (so that customers do not have to be on hold for overly long periods) and available around the clock. There is a trend of moving from mere case management to translating and predicting customer needs by knowledgeable staffers, which at the end of the day might result in an up- and cross-sale rather than the loss of a customer. Some contact center applications vendors such as Amdocs, Aspect Software, Kana, ATG, and Ecometry have been responding to the needs of multichannel retailers.
The likes of Best Buy, Staples, Target, and Lowe's have been carving out niches and capturing growth and profits from multichannel, customer-centric marketing in a competitive market dominated by Wal-Mart's well-oiled retail machine. While Wal-Mart can match these retailers' growth in absolute numbers just from opening new stores, it will hardly take more business in the competitive market of serving multichannel customers with personalized shopping experiences and delivery on every complex customer's requirement.
For example, Target once had a different order management system to support each of its several direct-to-customer sales channels. Nowadays, Yantra's distributed order management (DOM) product (now part of Sterling Commerce) manages orders across all these channels, and the orders range from standard pick-pack-ship fulfillment to complex multistep fulfillment and delivery processes. Some consumer electronics retailers claim that the likes of Comergent Technologies and Yantra have been responding to a stringent requirement of click-to-release time of no more than fifteen minutes per order (measured from the time the customer clicks to buy an item online to the moment the warehouse staff has a ticket to pick and pack the order). One should also not forget about the PRM and channel management capabilities of the likes of Click Commerce.
Moreover, CommerceHub should explore a way to better accommodate the trend of online buying and delivery of personalized and customized products (for example, monogramming, engraving, and the like). Also, it should investigate how to better enable delivery of computers, digital televisions, and imaging and entertainment software, which are all the high-end, configurable, service-rich products. All these products require a supply chain that delivers products and information as needed and as promised. In other words, cross-channel promotions, Web self-service and guided search, integrated sales and service 'touch points' might all be coordinated at, say, Best Buy via its DOM solution, again provided by Yantra. A threat might also be coming from the rapidly maturing PRM, order management, and fulfillment applications fro, traditional enterprise resource planning (ERP) providers such as SAP, Oracle, Microsoft, IBS, Infor, Epicor, SYSPO and so on.
One of the ways in which many successful retailers have been able to achieve the goal of a single channel for multichannel customers (as well as the goal of automating supplier relationships) has been to pay paramount attention to product data quality. The goal in this regard is to concentrate data in one location as one repository for all product information, which drives the financial, logistics, and legacy systems. Sears reportedly has one vendor master file that holds payment terms, contact information, electronic data interchange (EDI) routing and setup information, insurance requirements, and so on. In the field of product information management (PIM), Sears has worked closely with QRS (now part of Inovis) to address the problem of global data synchronization (GDS) between retailers and suppliers.
Accurate product descriptions, specifications, pictures, and so forth, should give consumers and business partners more confidence that they will receive exactly what they want. Consequently, product categories beyond traditional books, CDs, DVDs, and games are becoming more popular for multichannel retailing. QRS, which keeps a file of 90 million universal product codes (UPCs), is the bridge between disparate product information protocols used by suppliers and the single repository Sears prefers. CommerceHub's response to this requirement has so far been a casual partnership with Cardonet.
Last but not least, in the long term CommerceHub holds the promise of becoming the backbone for the bigger picture of collaborative planning, forecasting, and replenishment (CPFR), trade promotions, new product design and introduction (NPDI), sourcing, procurement, and so on, but given its current size and low global brand recognition, the vendor is still far from being a leader in these enterprise applications areas.
Retailers with a need to outsource their fulfillment operations should evaluate CommerceHub's functional capabilities as a way to leverage a single integration platform for their fulfillment chain, regardless of where goods are being shipped from. This especially includes those dealing with small and medium sized manufacturing and distribution businesses as suppliers, which have unsophisticated business-to-business (B2B) integration practices, but which need to flexibly connect with their trading partners, with demand-driven supply chain concerns. Potential customer benefits could come from a relatively quick product assortment expansion, since a retailer should be able to fairly easily plug into new trading partners (distributors, suppliers, and manufacturers) and to add new products without taking on additional inventory risks. Also, in this way all trading partners should not have to make major additional investments in technology, since the platform eliminates expensive point-to-point integration, by establishing a single connection to the supply network and enabling suppliers to easily produce the retailer's branded labeling and packing slips. Some operational improvements frequently cited by existing customers entail lower total delivered costs; improved fulfillment performance, productivity, and customer satisfaction; eliminated manual processing costs; decreased inventory, carrying costs, and customer service expenses; and reduced backorders and returns processing costs. This allows the retailer to focus on its core business competencies.
Retailers must start with an understanding of what will generate the most revenue and profit across multiple channels: e-tailing Web sites must not be seen as totally independent of other channels, but quite the contrary. Web storefront usability should be addressed first, but the focus on PIM or GDS and cross-channel inventory visibility and fulfillment infrastructure should follow soon. It is certain that multichannel retailers will attract new business, on the condition they continue with good delivery service, wide product and service selection, and reasonable price incentives.
The main challenges in drop-shipping center around electronic integration, visibility, and exception management, which the likes of CommerceHub seem to handle well. The next challenge is to optimize the set of partners that make up a drop-shipping network, where the master retailer has to pay particular attention to service level agreements (SLAs), including a clear understanding of the specific roles and responsibilities on each side, and of how the processes are going to be coordinated and how exceptions are going to be handled. For example, after how long since the supplier has not acknowledged an order should the retailer escalate the issue, or even redirect the business to another supplier? While it is important to harmonize the data that the trading partners will be sending to each other, processes will have to be fine-tuned too.
Retailers that do not have Wal-Mart's clout to impose their own vendor manual full of rules for their drop-shippers should exercise caution in partnering with drop-shippers. In addition to these businesses' viability, merchants must thoroughly research their quality tracks too. They should scrutinize facts like the missed shipping rate, how often the supplier accidentally ships the wrong product, and the quality of the merchandise (many wholesalers will accept returns, only to then put them back on the shelf for future sales, just to displease another customer with “re-gifted” defective goods). When looking for a wholesaler or supplier, the retailer should occasionally place a test order, which should determine (among other things) how the box is labeled when it shows up at the customer's door. Even after a relationship is established, some continued test ordering is advised, as well as ongoing surveying and monitoring of end shopper satisfaction. http://www.technology-evaluation.com/
