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December 20, 2006

Determining If Your Supply Chain Team Is Ready To Guide the Front End of Innovation
From AMR Research/Michael Burkett
Involving supply chain in the new product introduction (NPI) process isn't a new concept, but it continues to be a point of discussion. Although most manufacturers have implemented cross-functional teams that use phase-gates to define deliverables through the process, challenges remain on what role supply chain and others should play and the extent of their involvement.Meeting these challenges grows more important as manufacturers from Boeing to Kraft look outside for sources of innovation.

Early involvement would appear clear, but resources, talent, and level of contribution are concerns. The so-called fuzzy front end of new product development is appropriately named because it is unstructured. Some fear that supply chain will constrain the brainstorming that often takes place at this stage, and therefore be a poor cultural fit. Ask what contribution supply chain will add at each stage, and then balance the resources available to fit the benefit to be achieved.

One manufacturer recently shared how it has seen value and acceptance of early involvement of supply chain. The company emphasized that the right mindset was important in order to not stifle innovation, but instead be viewed as a contributor of ideas while helping the innovation process to avoid clear pitfalls. Particularly when using external innovation, providing insight on proper supplier qualification and contractual engagement can avoid problems and identify risk that may pop up further downstream.
The net takeaway is to accept that the cultural fit and type of contribution is different early in product development, and a poor fit could have negative consequences, even when early contribution is seen as important.

How to involve supply chain early has no single answer, but the why part of the question is clear, given shorter product lifecycles and increased outsourcing of innovation. Each manufacturer must assess the supply chain impact at each phase of NPI to determine where it can provide value. It should then evaluate the skills of the supply chain team to provide the greatest value within the differing cultural dynamics that exist at each NPI phase.
http://www.amrresearch.com

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Worldwide Supplier Relationship Management Market to Reach $2.3 Billion by 2011
From ARC Advisory Group
The increased demand for Supplier Relationship Management (SRM) applications will be predominantly driven by the continued proliferation of globalization and outsourcing. The worldwide market for Supplier Relationship Management is expected to grow at a compounded annual growth rate (CAGR) of 8.2% over the next five years. The market was $1.56 billion in 2006 and is forecasted to be over $2.3 billion in 2011, according to a new ARC Advisory Group study, Supplier Relationship Management Worldwide Outlook: Market Forecast and Analysis Through 2011

The SRM market has experienced substantial M&A activity and is currently occupied by four major categories of vendors: ERP vendors offering SRM functionality, SRM suite vendors, point-solution providers, and PLM providers offering SRM functionality. "Point-solution vendors have merged resulting in a smaller number of providers offering integrated suites of supplier relationship management, or 'spend management', solutions. In addition, Product Lifecycle Management (PLM) solution providers have recently begun offering SRM solutions integrated with their PLM solutions," according to Clint Reiser, Analyst for Supply Chain Management at ARC Advisory Group and the principal author of the study.

As the practice of outsourcing increases, corporations will develop a greater level of reliance on suppliers for commodities, production, sub-assemblies, and services. As a consequence, sourced goods will continue to account for a larger portion of the cost of goods sold. As sourced goods and services become a greater portion of overall costs, there will be increased demand for software applications that enable the management of the sourcing, supplier performance, and contract compliance processes, while facilitating collaboration between suppliers, purchasing, and product development.

Providers, such as Ariba, have shifted their delivery from predominantly perpetual licenses to more subscription on-demand licensing. Proliferation of the on-demand subscription-based delivery model will contribute to growth in the market by reducing implementation costs and risk of adoption, while allowing the spend management suite providers to compete on different terms than the ERP providers. The reduction in upfront costs and the ability to "pilot" the solution can encourage investment by increasing the risk-adjusted return associated with software implementations.
http://www.arcweb.com

Achieving Total Supply Chain Visibility With RFID
From Aberdeen Group
A new Aberdeen Group report that dissects the supply chain finds that the objectives, opportunities, and best-in-class RFID solutions change as product travels from one organization to the next in the chain. This creates disparity among partner organizations and the danger that individuals will develop solutions that do not lend themselves to collaborative leveraging of the technology across enterprises. It also creates an opportunity for a new class of vendor who provides solutions suitable to every stage of the supply chain.

In "Total Supply Chain Visibility," Aberdeen Group reveals that RFID costs a distribution company nearly 30% more than it costs a manufacturer and more than twice what the average retailer spends. It is a rare technology that can address the myriad objectives and constraints of a cross-enterprise RFID initiative. However, the right flavor of the technology to address each of the business challenges, collecting data at key choke points, making use of that data to enable visibility, and informing business analytics applications, can make collaboration among organizations seamless.

According to the report, each supply chain company approaches the challenge with a different set of primary objectives, and each has its own expectations for the time it takes to realize positive ROI. Individual companies looking to multiple sources for ROI will find the time to positive ROI shorter, and the same is true across enterprises. When partners collaborate to develop compatible and complementary solution sets, everyone in the chain achieves positive ROI in less time.

"Achieving total supply chain visibility is still an elusive goal for most enterprises, even those with mature RFID initiatives," says Russ Klein, Research Director for Aberdeen Group's Enabling Technology practice. "The report finds firms that involve partners in design and implementation encounter fewer roadblocks on their way to total visibility."

The research, underwritten by Acsis, Reva, and Zebra, shows readers best practices of RFID applications in the supply chain and ways to justify the investment. This report is valued at $399; however, for a limited time a complimentary copy is available, by following this link: http://www.aberdeen.com

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Global IT Buying Growth Slows To Five Percent In 2007
From Forrester Research
After two consecutive years of 8 percent growth, global purchases of IT goods and services will slow to 5 percent growth in 2007, reaching $1.55 trillion in sales according to a new report detailing worldwide technology spending and purchases by Forrester Research, Inc.. US purchases of IT goods and services will also grow 5 percent in 2007, the slowest rate of growth since 2003, but better than Forrester had projected a year ago.

"This is a caution flag for IT vendors; 2007 will be a challenging environment," said Andrew Bartels, Vice President, Forrester Research. "Sales in the US -- the largest single technology-buying market in the world -- will be hard to come by as CIOs reduce or delay IT purchases. The single most important variable impacting future technology spending worldwide is the state of the US economy."

One year ago, Forrester projected that 2007 would see little or no growth in US IT purchases due to an anticipated slowdown in the US economy. However, it now appears that the US economic downturn will be milder than anticipated. As a result, Forrester's forecast for US IT spending growth is up from the previous estimate of 2 percent. Still, the slowdown will be enough to impact major US trading partners in Asia Pacific and the rest of the Americas.

Forrester's global IT spending and purchases forecast makes a distinction between IT purchases (purchases from vendors of IT goods like computers or software and of IT services like systems integration or outsourcing), and IT spending on an operating budget basis (the depreciated value of capital purchases in IT goods, plus IT services purchases, plus IT staff costs). Technology vendors are most concerned with IT purchases, which represent revenues for them; CIOs looking to benchmark their IT spending on an income-statement basis are focused on IT spending.

Forrester's 2007 forecast breaks down as follows:
Global IT purchases: up five percent to $1.55 trillion, compared with 8 percent growth in 2006.
Global IT spending: up 6 percent to $2.02 trillion, compared with 8 percent growth in 2006.
US IT purchases: up 5 percent to $527 billion, compared with 6 percent growth in 2006.
US IT spending: up 5 percent to 761 billion, compared with 6 percent growth in 2006.

The Forrester report includes a detailed analysis of what technology and services are being bought:
Software purchases will do better than average, growing 7 percent, down from 10 percent growth in 2006.
Computer equipment will continue to face slowing demand, up only 4 percent from 6 percent in 2006.
Communications equipment will slow down significantly, growing 3 percent from 9 percent in 2006.
IT services and outsourcing will increase 4 percent, down from 8 percent in 2006.

Also, the Forrester report includes a detailed analysis of where technology and services are being bought:
US: Up 5 percent as noted above.
Americas (excluding US): The slowdown in the US will ripple through Canada and the rest of the Americas, causing modest 3 percent growth.
EMEA: A hybrid of slow but steady growth of 4 percent in Western Europe and much stronger growth of 15 percent in Eastern Europe, the Middle East, and Africa will result in 5 percent overall growth in this region.
Asia Pacific: After blistering 12 percent growth in 2006, the slowing US economy will have a severe negative impact on both Asian economic growth and Asian IT purchases, resulting in 4 percent growth next year.

Near-term, the health of the US technology industry appears more robust. The quarterly Forrester/ITAA US Tech Sector Index posted a 3.2-point gain in Q3 to stand at 126.4, the highest the index has been in more than five years. The strong showing was the result of a surge in US vendor profits and CIO confidence (two of the 11 measures that make up the index). However, an overall weakening of the economy throughout 2006 has caused a decline in Forrester's outlook for fourth-quarter business purchases in IT.
http://www.forrester.com

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Large Organizations Revise IT Spending Forecasts to 2.8% Growth for 2007
From Gartner Consulting
Organizations with more than $1 billion in revenue have reforecast their IT spending increase for 2007 to 2.8 percent, according to a new Gartner Consulting Worldwide IT Benchmark Report. These spending projections are down from research collected by Gartner during the first half of 2006. At that time, IT spending for 2007 was forecast to grow at 6 percent.

"A number of factors have combined to force enterprises to lower their IT spending forecasts from the first half of 2006," said Jed Rubin, director, Gartner Consulting. "Looking back at the distribution of spending in 2006, enterprises spent more to support core business operations. This includes spending to support increasingly complex infrastructure and applications requirements, rising energy costs, regulatory requirements and other non-discretionary spending to keep the business running. This increased 'run the business' spending has consumed budget resources that were originally earmarked for more strategic and transformational investment. IT leaders are now planning to optimize their spending in these areas in the year to come."

According to the research, growth and transformationremain the top priorities for enterprises in 2007, but any new investments need to be funded by a significant reduction in existing 'run-the-business' spending. To support these priorities, IT organizations will subsequently need to reduce their 'run the business' budgets by nearly five percent in 2007.The new 2007 version of the Gartner Consulting Worldwide IT Benchmark Service and the Worldwide IT Benchmark report includes five volumes of comprehensive IT spending and performance data across 20 industries. The report highlights comprehensive IT spending plans of more than 1,500 companies with more than $1 billion in revenue, combined with historical spending and performance data on more than 10,000 companies worldwide. This allows companies to look at key cost and performance indicators by IT domain to gauge and manage organizational effectiveness and performance optimization.

The research shows that IT spending forecasts differ by industry. In 2007, the most significant difference in IT spending growth will be in the Media industry, up to nearly 7 percent from 4 percent in 2006. The consumer products industry will see the biggest decline in IT spending in 2007, as spending is expected to decline by nearly 6 percent, down from an 8 percent increase in 2006.

IT spend increases or decreases by industry for 2007 vs 2006 are as follows:
Consumer Products (-5.6%)
Food & Beverage Processing (-0.4%)
Insurance (0.6%)
Government (1.3%)
Utilities (1.5%)
Electronics (2.1%)
Metals & Natural Resources (2.2%)
Professional Services (2.5%)
Education (2.7%)
Telecommunications (2.8%)
Manufacturing (2.8%)
Energy (3.0%)
Banking & Financial Services (3.2%)
Information Technology (3.6%)
Transportation (3.6%)
Construction & Engineering (3.8%)
Retail (5.0%)
Hospitality & Travel (5.1%)
Chemicals (5.4%)
Health Care (5.6%)
Pharmaceuticals & Med. Products(6.4%)
Media (6.9%)
Database Average (2.8%)
http://www.gartner.com


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