After Y2K: Shippers shift focus to supply chain software

Now that the "Millennium Bug" is under control, companies are free to focus time, attention, and money on supply chain technology.

By John Paul Quinn -- Logistics Management, 1/1/2000

Perhaps nothing in history has preoccupied business and industry as much as--or consumed more time and financial resources than--recent efforts to prevent an end-of-millennium global computer crash.

For the past two years or so, information technology professionals worldwide have devoted most of their resources to thwarting the so-called "Millennium Bug," delaying investments in such software as supply chain management (SCM) systems. Now that the specter of computer failure has been banished, many industry observers say they will likely spend more of their technology budgets on SCM software than they have in the past.

"Across the board in supply chain management, we are going to witness new levels of growth in those applications that have been somewhat stifled because of the investments people had to make to revamp their financial systems for Y2K," predicts Rich Sherman, senior vice president of visioneering at EXE Technologies, a supplier of supply chain execution systems in Westborough, Mass.

"We saw a huge ramp-up of interest in SCM as the Y2K situation drew to a close," confirms Karen Peterson, analyst and research director with the Gartner Group of Stamford, Conn. "Companies are putting together their requirements and starting to shop around."

If they go on the kind of shopping spree analysts like Peterson are predicting, market growth over the next five years may reach between 45 and 50 percent. That represents an enormous amount of money, given that SCM vendor revenues for 1999 totaled nearly $4 billion by some estimates.

Changing Expectations

Experts say that not only will manufacturers be purchasing more SCM software than they have in the past, but they'll also change the way they buy it.

"Change has already begun to set in as far as the SCM field is concerned," reports Steve Gold, partner in KPMG's Supply Chain Solution Practice in Chicago. "We're starting to have clients ask us about optimizing their supply chain through state-of-the-art technology and asking questions that we haven't heard before," he says. Their expectations and objectives are far beyond what they were just a year ago. Some of them are talking about global implementations of procurement systems and global supply chain tracking systems."

Implementation, in fact, will be the key word from now on, adds John Pulling, vice president of Provia Software of Grand Rapids, Mich. "Up to this point there has probably been more attention paid to SCM planning, but now we're seeing a shift into the execution area," he observes. "Planning systems are fine, but if you can't execute them, they don't really matter."

Sherman agrees that there's a strong move toward practical applications that focus on the concrete rather than on abstract applications. "The ability to create a supply chain process that is truly electronically enabled is where a lot of companies are going to be spending a lot of time and effort now that Y2K is behind us," Sherman says. "What SCM will be focusing on now is the integration of the 'infostructure' into the physical infrastructure and developing technological applications for that purpose."

John Fontanella, research director for supply chain execution at AMR Research in Boston, also believes that companies will place greater emphasis on implementation, execution, and performance, at least in the short term. "The thrust of SCM technology after Y2K is going to be based on benefit realizations--tactical solutions to tactical problems with very rapid implementation and payback," he says. Gary Cross, Americas SCM consulting practice leader with IBM Consulting in White Plains, N.Y., agrees: "Y2K compliance drove a lot of people to make ERP [enterprise resource planning] expenditures, and now they're looking to SCM as a way to derive more benefits from those investments."

e-Commerce Drives Change

The reason for this new emphasis on SCM software implementation and benefits--and for increasing sales--is the growth of electronic commerce. That's because e-commerce is likely to force companies to focus on how they'll link SCM applications together in an extended supply chain to meet customer demands.

Supply chain management software can help companies manage those demands, says Steve Banker, director of research and supply chain solutions at Dedham, Mass.-based ARC Advisory Group. "The solutions to the problems of e-business order fulfillment," he notes, "lie in the areas of online order management, online product configuration, e-specific types of warehouse and transportation management, and constraint-based available-to-promise solutions."

Indeed, says Sherman of EXE, the ability to deliver goods as promised will be the key differentiator between companies that sell goods and services on the Web. The Internet's transparency forces businesses to compete largely on price, he says, so the only way to avoid continual price wars is for an organization to distinguish itself in terms of speed, accuracy, and completeness of order fulfillment.

"...[W]e have to remember that the Internet is a wonderful technology for creating the illusion that product can move at the speed of light," Sherman observes. "Unfortunately, it's only the information about product that moves at the speed of light. Products themselves still have to be physically moved. So all of the SCM activities associated with manufacturing, distribution, and execution take on a whole new sense of urgency in an e-world."

Another reason sales of supply chain systems are taking off is that they can provide the enhanced visibility that companies engaged in e-commerce need. "Customers are recognizing that because of e-business, they'll have to be more agile, have to operate more quickly, and have to have better visibility of their supply chains--with the capability to optimize throughout the process," says Peterson of the Gartner Group.

To do so requires the construction of what Sherman refers to as a "glass pipeline" that allows all participants in a supply chain to see what's happening at any point along the line. Again, supply chain systems will play a key role in helping companies develop that capability, and the companies are likely to pour significant resources into such projects.

Essential to the development of such a "glass pipeline" of demand visibility is closer cooperation and collaboration all along the supply chain. That, too, is influencing what manufacturers are expecting from post-Y2K supply chain software. "A lot of the new SCM systems being developed include building in customer-configured rules and workflow processes to track key events across the life cycle of a particular order," observes Fontanella of AMR. "These systems are starting to watch the business process much [more closely] than in the past."

That is why, Sherman contends, industry will move away from its preoccupation with the internal systems that are driven by enterprise resource planning and instead will concentrate energy and resources on collaboration with the entire supply chain, including suppliers, contract manufacturers, and third-party logistics providers.

IBM's Cross sees collaboration as being essential to meeting the new fulfillment expectations of the e-marketplace. "This collaboration involves the ability to share knowledge up and down the supply chain, thus allowing each player to make more effective decisions," he says. It also allows companies to share near-real-time information about production schedules, resource allocations, and customer demand. Having such information readily available to all participants in a supply chain will open up new horizons in supply chain management, he says. "E-business has, in effect, jumped over the time and information constraints represented by electronic data interchange and will allow SCM to operate more like a workflow process."

Where the Action Is

Although the Y2K episode disrupted companies' progress in implementing other information systems, industry analysts say, it's important to understand that Y2K was a temporary, external diversion in the development of the evolving marketplace for execution software. Even if there had been no Y2K crisis, the market still would have been shaped by demand for SCM systems as well as by the all-pervasive force of e-business, they say.

Now that the Y2K threat is largely past, the industry's focus will likely shift swiftly to what Dan Gilmore, senior research analyst at the Meta Group of Stamford, Conn., calls "customer-touching application areas," such as supply chain management, customer-relationship management, and e-business applications. "This is where the action will be for the next two to three years," he believes.

Ultimately, it may be the move toward electronic commerce that will make companies painfully aware of the importance of cooperation among trading partners to meet online demand for products. Not only will companies have to install software to manage order fulfillment, distribution, and customer service, but they'll also have to learn how to collaborate for the good of the entire supply chain. "E-business requires that the entire supply chain work to satisfy the customer through collaborative execution--the management of multiple enterprises through one process," Fontanella says. That will radically change the way we do business today, he adds. "To build a supply chain capable of operating at such high levels of performance and efficiency demands a revamping of how we think and operate."

Freelance writer John Paul Quinn reports on a broad range of business topics for magazines in the United States and Europe.