Supply chain management applications market is springing back, says latest AMR research report

By Sarah Bowling, Web Editor -- Logistics Management, 9/5/2006

BOSTON—The market for supply chain management (SCM) is rebounding, posting a 3 percent gain in 2005, with forecasted spending of 7 percent in 2006, and 5 percent in 2007, according to the latest report by AMR Research, a Boston-based advisory firm focused on supply chain, enterprise applications.

The report, dubbed The Supply Chain Management Applications Report, 2005–2010, says that several environmental factors are affecting the current SCM market:

• Globalization and global sourcing,
• leaner supply networks,
• increased customer expectations,
• more mass customization,
• increased demand variability,
• and cost volatility, inflation, and competitive pressures.

The result: Business priorities for users and software product development focus for vendors have changed.

“It’s a perfect storm,” said author of the report and Senior Analyst of the Supply Chain Team at AMR Research, Mark Hillman. “All of these environmental factors are interplaying and working together.”

The key findings in the report include:

• The SCM market in 2005 is a far more pragmatic market than the market of the late 1990s. In 2005, companies are building a SCM infrastructure based on a foundation of ERP investments. For many, this is either Oracle or SAP.
• Consolidation continues to be a major force. Due to strategic and market share-altering acquisitions, companies should purchase applications with a focus on achieving ROI within two years to balance the risk of future market consolidation.
• Rapid innovation is being delivered by independent software providers. Companies like Jonova, Kinaxis, LogicTools, Logility, Optiant, SmartOps, Synchrono, Terra Technology, ToolsGroup, TrueDemand, Vision Chain, and WAM Systems are focusing on industry-specific functionality and target under-serviced business problems.
• Only 52 percent of firms 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), however, are surfacing as alternatives.

The top growth area for 2005 was the inventory configuration and policy technology category with a license growth rate of 35 percent. As supply chains become increasingly global and complex, the need for multiechelon inventory optimization and inventory policy drove spending in this area.

The report also notes there was a renewed interest in supply chain network design in 2005, with license revenue growth of 21 percent. Warehouse management software license revenue grew at 8 percent.

“The biggest factor is globalization and cost and capacity constraints in terms of domestic trucking capacity or fuel costs,” said Hillman. “Companies need to know if their network is optimized to serve demand.”

SCM license revenue growth was fairly consistent across company size, the report says. Midsize companies (between $250 million and $999 million in revenue) grew their purchases of SCM software slightly faster than the market at 5 percent, while growth in purchases of SCM software among small companies ($30 million to $250 million in revenue) grew below the market rate at 2 percent. 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.

“It is not going to get any easier to compete in this world,” Hillman told Logistics Management. “Fuel prices and commodity prices are going to be here for the next few years, and customer demands are not going away. Supply chain and logistics has to become a real core competency for companies.”