End of the road for SCM vendors?

Are enterprise resource planning (ERP) vendors finally succeeding in muscling out their supply chain management (SCM) competitors?

In March, ERP giant SAP announced plans to launch a new version of its supply chain software in June, while Oracle in September 2005 acquired a logistics software company to augment its own SCM portfolio.

Even ERP vendors which tackle midsize accounts, such as Lawson, have incorporated SCM tools into their offerings.

While there was plenty of hype surrounding independent SCM vendors in the late 1990s to the early 2000s, the industry now appears to be on the cusp of a consolidation trend.

In April, JDA Software announced plans to acquire Manugistics for US$211 million. Manugistics, which once flew high in the supply chain planning market, had fallen on hard times in 2004.

On news of the planned acquisition, analysts from AMR Research issued a report stating: "A new wave of SCM and retail market software consolidation is just beginning.

We know of many other SCM companies with uncertain futures that are being shopped for sale, which means companies looking to invest more independent SCM should sit tight for now."

Pure-play supply chain vendors in the market today include Adexa, i2 Technologies, Infor, and SAS Institute.

The better choice
What would compel organizations to choose an SCM product from an ERP vendor over an independent SCM vendor?

David Hope, vice president of sales at Lawson Asia-Pacific, said in an interview with ZDNet Asia that while best-of-breed SCM vendors' products tend to be "quite generic" across industries, players like Lawson have SCM solutions "that are tailored to meet key verticals' requirements", making it more appealing for businesses that have industry-specific requirements.

Hope added that while integrating best-of-breed SCM software fully into a company's IT backbone is possible, it could be costly and complex. And some organizations may not be prepared to fork out money for the software integration.

One industry observer holds a different view.

According to John Brand, research director with consulting firm Hydrasight, SCM offerings from ERP vendors lack the depth provided by independent SCM players.

In an interview with ZDNet Asia, Brand said: "The difference is that while the ERP-related vendors are getting quite good at managing basic information about products, parts, and their movement throughout the supply chain, they don't make much of an effort to understand what is actually happening and how analytics can be applied to drive substantial preventative or performance benefits."

Brand further stressed that with supply chain optimization being a complex and demanding area of information management discipline, it is not enough to simply have a good schema and some "track and trace" discipline.

Understanding the potential impact on increased demand, short supply, and other common scenarios requires complex modeling of information from a number of related

parties, and this is something that ERP vendors are not really focused on at this point, Brand noted.

"They're still struggling with data exchange in many cases and nowhere near the level of modeling and analytics capabilities that the best-of-breed vendors can supply," he explained.

But Brand agreed that compared to five years ago, there is now less hype surrounding independent SCM vendors.

He said: "We saw a huge amount of hype in the late 90s early 2000s where companies saw pieces of technology and thought these all applied to their own unique and individual businesses…It was simply an unrealistic position to take."

Still alive and kicking
However, Brand does not see best-of-breed SCM vendors going away any time soon.

"Sure, the ERP vendors will continue to encroach on their (SCM vendors) space but they have a huge amount of domain expertise that is still valuable, as well as the flexibility required to quickly adapt to customers' ever-changing needs. That's something the ERP-fashioned market simply doesn't have yet," he noted.

There is at least one independent SCM vendor which has been busy working with businesses in the Asia-Pacific region.

Tokyo-based Hiten D. Varia, executive vice-president of i2's Asia-Pacific division and chief customer officer, told ZDNet Asia, that a few years ago the company's CEO "decided that it was time for us to get very close to Asia".

"[Manufacturing] moving to China and India is changing the way supply chain dynamics work," he noted, adding that i2 is now focusing on the supply chain industries in Greater China, India, Japan, and Korea.

"We spent the last two years working with leading-edge customers such as Samsung and Toyota, figuring out which is the next-generation [supply-chain tools] to drive competency and efficiency," he said.

i2 is also eyeing "fast follower" companies, and market opportunities of small and midsize businesses (SMBs).

"Fast followers like Huawei and Lenovo are going into global operations, and thinking of how to move their productions operations [outside of China]," said Varia. And while many SMBs are still in the ERP implementation phase, he is confident that "some activity will grow in the years to come".

As for ERP vendors encroaching into i2's domain, Varia remains unperturbed, pointing out that i2 is already on to next-generation supply chain planning. He said: "The problem with ERP vendors is they're trying to get to where i2 was eight years go. They're still trying to solve simple problems based on MRP (material requirements planning) and ERP knowledge."

In fact, he does not consider ERP vendors as direct competitors. "In the region, our biggest competitors are not the ERP vendors but in-house systems," he said.