The drought in technology spending that last year gave the supply-chain management market its first ever revenue decline may be coming to an end. New investments, however, will take place in a competitive landscape very different from that of pre-bust days.

One of the major and likely permanent changes in the market is the growing prominence of enterprise resource planning vendors, which long have worked to develop supply-chain solutions that compare favorably with best-of-breed. Through continued spending on research and development, or through acquisition, major players like SAP, PeopleSoft, Oracle and SSA Global - as well as ERP vendors that specialize in the mid-market and specific industries - are making significant inroads in the SCM arena.

SAP, the world's largest ERP company, was second only to best-of-breed vendor i2 Technologies last year in terms of revenue generated from supply-chain planning applications. While this was in large part attributable to drastic revenue declines in 2002 for the two former market leaders, i2 and Manugistics, there is no denying that ERP vendors are improving their competitive position. In fact, according to AMR Research four of the top 10 supply-chain planning vendors in 2002 were ERP companies - SAP (#2), J. D. Edwards (#3), PeopleSoft (#6), and Oracle (#7). i2 Technologies held on to the No. 1 position, while Manugistics, its biggest best-of-breed competitor, came in at No. 4. It is possible, says Larry Lapide, vice president at AMR, that SAP will overtake i2 to claim the lead in this sector when this year's revenue count is in.

More surprising, perhaps, is the fact that SAP already is No. 1 in supply-chain execution applications. With around 5,000 customers, it has the largest number of warehousing system installations in the world, Lapide says. "It isn't really a best-of-breed warehousing system, but is provides the basic stuff and by selling it with their ERP suite they have managed to put a lot of them in." SAP is way ahead of other ERP vendors in this regard, being the only one to make the list of top 10 supply-chain execution companies.

"The ERP vendors initially went after planning and they did pretty well establishing themselves in that area," says Lapide. "But now we are in a market where execution is seeing a little more action than planning, so the ERP players have been chasing the execution market." Spin the world ahead about three years, he says, "and the ERP guys will be as competitive in execution as they are today in planning."

SAP's approach is to so tightly integrate planning and execution that the distinction between the two disappears, says Bob Ferrari, director of SCM product marketing. The 4.0 version announced earlier this year of APO (Advanced Planning and Optimization), SAP's core supply-chain planning application, introduced a collaboration hub for working with partners on inventory issues as well as supply-chain event management.

The emphasis is squarely on "bringing together capabilities from across various functions to support internal and external supply-chain collaboration," says Lapide of the offering. The combined capabilities support Vendor-Managed Inventory (VMI), Collaborative Planning, Forecasting and Replenishment (CPFR), and Supplier-Managed Inventory (SMI) applications. "SAP wants to change the SCM game from one led by high-powered planning applications to a more balanced approach that emphasizes integrated execution," says Lapide.

Investments in R&D
Ferrari notes that SAP did not cut back its R&D investments when the market slowed down "and we currently have over 500 developers dedicated to supply-chain management. We will see the fruits of those investments as we go forward," he says.

Lapide sees SAP's position as comparable to that of IBM 20 years ago. "If you are a big company and you need software, you think of SAP," he says. "And once you are committed to SAP, you will pretty much eventually come around to APO or you will wait for SAP to develop whatever you need because the intent is to move to a single platform."

Procter & Gamble, a long-time SAP customer, illustrates that point. P&G has worked with SAP over the years on a number of solutions in their suite, in some cases in co-development, says Jake Barr, associate director of supply chain. "This ensures that the capabilities we need within the consumer packaged goods industry are adequately represented," he says.

While having strong partners that tailor their products to meet emerging market needs "simplifies the decision around how many partners you ultimately need," he adds that "anything we use needs to be interoperable. At the end of the day, there are no partners that can do everything."

Ferrari agrees. "We realize and have told our customers that the world will be heterogeneous and we have to support that," he says. SAP's Net Weaver integration technology framework enables the integration of information not only in an SAP landscape but also in a heterogeneous world, he says. "We were to do that before, but Net Weaver allows us to do it even better."

In 2004 further supply-chain enhancements will be introduced, Ferrari says, including support for RFID, deeper collaborative processes and dedicated solutions for the service parts business.

Total Ownership
PeopleSoft, which will gain additional supply-chain capabilities with its pending acquisition of J.D. Edwards, emphasizes the total ownership experience of its integrated suite. To develop SCM Version 8.8, which will ship this month (December), PeopleSoft had 500 engineers dedicated to running usability tests, says Steve Roop, vice president of supply-chain marketing. "We developed 40,000 automated test scripts to run against the system to ensure higher quality than ever before." The company also tested novice users to reduce the time it takes for a new user to learn the system. "In some cases we have seen a 100 percent improvement in the ability of a novice user to operate the system without prior training," he says. "PeopleSoft always has put a high priority on ownership experience and we now have made an even bigger investment in that."

SCM 8.8 also includes new functionality in component parts tracking, trade promotions management, pricing flexibility and cross-docking. In addition, new analytics will address the needs of every level of the supply chain from the executive office to the shop floor, says Roop. "Solutions need to be tailored for both business processes and metrics," he says. "Business processes are important to the everyday users of the system - whether a plant manager or planner - and executives need a set of metrics that show how well the business is running and the health of the supply chain. If you are running in a lean mode, as many companies are today, you need metrics that will show how well you are doing at that."

PeopleSoft's new release includes a set of analytics around throughput and demand-driven manufacturing, designed specifically for lean operations, he says. "We are the only vendor, ERP or best-of-breed, that has announced and shipped lean analytics for these manufacturers."

The integrated, single-platform advantage is a key part of Oracle's marketing story, according to Jonathan Colehower, vice president of supply chain. "What we are finding is that there are some companies that seriously require the very deep functionality that a best-of-breed player can offer, but 95 percent of the population is really looking for an integrated set of applications that take the sweat out of having to maintain those deep functional applications. Most companies don't want that headache, so they are turning to suite vendors that bring it all together on one integrated platform. They are willing to say, 'I don't need 16 different ways to track my demand variability. I need one, maybe two.'" With Oracle's applications, he says, users "have much better access to business processes, information and people across the entire enterprise than if they had a patchwork of applications."

Vertical Solutions
Colehower says Oracle currently is focused on building out its suite beyond the core elements, particularly developing industry-specific solutions in areas like automotive, life sciences, and consumer packaged goods. "We also are building out our transportation management and developing an offering in order fulfillment," he says. "And we continue to enhance our warehouse management with technologies like RFID."

An aggressive acquisitions strategy is behind the emergence of SSA Global as one of the top five ERP players. Through purchases of Baan, EXE Technologies and many other software companies, SSA has increased its customer base from 6,500 to 16,000 companies and built up revenues to a projected $645m in less than three years.

Most of its customers are mid-market manufacturers, says Ernie Eichenbaum, head of the industry marketing team, "and they are very interested in the supply chain and transportation/logistics."

Unlike the '90s, he says, these companies no longer have the money or staff to do big IT projects and to take different components and put them together. They have smaller staffs, who are less well paid and who are measured on operational improvements. "That's the reality we are responding to."

SSA's answer, says Eichenbaum, is to own all the components that customers need to control their end-to-end business processes and to combine those components in an integrated package. "For example, a company might need a combination of manufacturing, warehousing, distribution/logistics and delivery that creates an end-to-end chain from manufacturing order to the hands of the user. We own components that play nicely in each of those areas, we own the middleware, and we own the technology integration capability. By providing an end-to- end answer, not only on the planning side but on the execution and fulfillment side, as well in manufacturing, we create an answer to the needs our customers are expressing. They don't want to own the business integration or the technical integration. They want to say, 'This is the performance measure we need to improve; what can you do?'"

AMR's Lapide acknowledges that SSA has a huge base of manufacturing companies - "real customers with real products." However, he says, "whether they will be able to integrate all their acquisitions remains to be seen."

Also playing in the mid-market, discrete manufacturing arena is Glovia. Described by supply-chain engineer Jim Errington as "the best kept secret in ERP," Glovia lays claim to being the first-to-market with an ERP product. Now owned by Fujitsu, Glovia began life as Xerox Computer Services, which was spun off and marketed as a time-share before introducing an application designed to convert IBM mainframe customers to a client/server environment. This software, called Chess, was designated the first ERP application by a Gartner Group analysis in the early 1990s.

Chess was marketed under the name Glovia in Asia and the vendor adopted that name worldwide when Fujitsu took it over. Customers include Fujitsu, Pioneer, Panasonic and Dell, among many others.

"Chess was originally designed to support Xerox, so it is a multi-client planning system for lean, repetitive operations," says Errington. In response to customer demand, Glovia has been expanding into supply-chain solutions, he says. "For example, we have developed an application we call Intelligent Order Management that is in use at Fujitsu. They use it to take orders for their PC business and explode that information through the supply chain to determine whether the configuration ordered is 'buildable' and, if so, where it should be built," he says. The information then is sent to the appropriate manufacturing plants. "This helps Fujitsu determine whether to accept an order immediately, or, if it falls outside given parameters, put it in a holding pattern for manual intervention."

Parts Visibility
Daktronics, a Glovia customer that makes big display signs for sports arenas, high schools and shopping malls, selected the software because of "the full breadth of its solution," says Carla Gatzke, EIS manager. But she particularly points to its capabilities in project management and parts visibility. The latter is important to Daktronics "because a particular part might be used for make-to-stock inventory or for make-to-order," she says. "Glovia allows us to hard peg every component to a particular make-to-order job, and we also know all the components expected to be needed for make-to-stock assemblies. The system tracks expected build dates and expected component receive dates form our vendors, so we can see, in one place, if a part will be satisfactorily supplied or if it is going to be short and which end-users will be affected."

Glovia is unlike other ERP vendors in that it does not have its sights on the supply-chain execution area. "For transportation, we would depend on a best-of-breed vendor like G-Log to feed us information," says Errington. "It's not our specialty and we don't want to go there."

As far as warehouse management is concerned, Glovia limits its involvement to an inventory system. "We can define locations within the supply chain and track inventory at the item, serial number or lot control level," Errington says. "But true warehouse management, with putaway logic and so on, is not us. We can take data from warehouse systems and update inventory balances and we understand multi-warehouse operations, but for operations inside the warehouse we prefer to work with a specialist partner."

Lilly Software Associates, on the other hand, is a mid-market specialist that provides a complete line of supply-chain management solutions that often are categorized as best-of-breed. Its VISUAL Enterprise suite includes advanced planning and scheduling, radio frequency-enabled warehouse management, and distribution modules. "Lilly recognized early on that the greatest impact to customer service and meeting customer expectations is on the execution side," says Joel Stachowski, senior account manager-distribution. "Our founder, Dick Lilly, was a pioneer in understanding bottlenecks and increasing throughputs in manufacturing," he says. "And our Visual DCMS product takes that same approach toward eliminating bottlenecks and increasing efficiency and throughputs and applies it to distribution operations. Both these things line up with our core business goals and objectives - to increase revenue for manufacturers and increase their customer service."

Lilly also offers advanced planning and scheduling. "APS is a very important piece, but the planning and scheduling part of the application is only as good as your ability to execute on it," Stachowski says. "So companies traditionally have had to add on best-of-breed capability to do the execution. Lilly is unique because we are filling those gaps, oftentimes in other enterprise packages."

For the most part, trends in the SCM market will not change drastically this year, except that the market will grow once again after a 6 percent decline in 2002, says AMR's Lapide. The large ERP providers will be the most prominent vendors to watch, he says, as SCM becomes an element provided as part of a full business application suite. "We expect to see best-of-breed vendors, such as i2 and Manugistics, fight back with specialized functionality, especially with extended supply-chain capabilities, a weak spot of the ERP vendors," he says.

However, he warns, to remain competitive, best-of-breed vendors need to learn to sell in to the ERP installed customer base and be able to demonstrate how their functionality can be implemented seamlessly into an ERP environment.