Supply Chain Management Systems

IOM 538 Information Systems Strategy

Professor C. Schlueter-Langdon

Industry Overview

Market Size and Growth

Electronic business is forcing more companies to scrutinize their supply and distribution channels, looking for new ways to deliver products faster, more accurately and efficiently. The trend is generating a flurry of activity in the market for supply-chain management applications, which are used to coordinate the flow of material between businesses and their suppliers and distributors. In 2001, the $3.9 billion market is poised to quadruple over the next five years, according to AMR Research Inc. [1]

There is ample room for SCM market growth. Although only about a quarter of manufacturers have already installed SCM software, a large 14% expect to implement some sort of SCM application. The surge will be led by pharmaceutical manufacturers, representing 43% of their industry (source: AMR Research survey in June 2000). The market will grow at a 20% compound annual growth rate (CAGR) to more than $11 billion by 2006, according to a study by ARC in November, 2001. [2] Based on the forecasted CAGR from ARC, the SCM market growth is estimated and graphed as below.

Market Segmentation

According to Venture Development Corp. (VDC)’s study in 1998, the WMS industry is being viewed as a key segment of the larger supply chain execution markets. The study shows that systems integration generated the most revenue for WMS suppliers in North America in 1998, followed by software licenses, consulting and support, and hardware (see the chart below).

Source: Venture Development

Suppliers expect software license revenues to grow at the fastest rate because of increased standardization of software packages and interfaces, and a greater emphasis on the development of integration partner networks. VDC's study in 1998 anticipates the WMS market to grow about 20% annually for the next two years, with a 17% fly year cumulative average growth rate through 2002. [3] Furthermore, the expected use of the Web as a facilitator of inexpensive real-time access to salient data on the part of all participants in any given supply chain is expected to accelerate SCM market growth to $18.6 billion in 2003. In another word, Web-based SCM is another piece of the business-to-business (B2B) e-Commerce market which, according to the Yankee Group, is expected to grow at a compound annual rate of 41% over the next three years, reaching $541 Billion (source: NetApp Press Release).

Fragmented Market Standards

As enterprises ramp up supply chain collaboration initiatives, standards will lower the cost of collaboration and enable trust among trading partners. However, standards for e-commerce and extended trading relationship are immature, and many are still in development. This hurdle is a stark reality for enterprises racing to reap the acknowledged benefits of extended supply chain relationships. There are four categories of standards evolving for collaborative SCM, each at different rates (see exhibit below): content (e.g., XML.org, BizTalk.org, Open-Applications.org), framework/registry (e.g. UDDI), technology-based (Ariba, Commerce One, i2 Technologies and Microsoft), and industry-specific.

Source: Gartner Research

Standards development is still in a nascent state, but Gartner Group expects it to mature rapidly during the next five years, with integration between various standards occurring after 2005. Enterprises in industries with existing standards initiatives should become early adopters for competitive advantage, realizing that incremental rework will be required as they mature. Enterprises in industries with no standards initiatives should work with trading partners and competitors to begin standards development immediately.

Technology Overview

The Supply Chain Management (SCM) market has been been driven by industry trends over the past two decades, forcing companies to reduce costs while at the same time trying to meet increasing customer demands. During the early years of SCM development, software focused on these two targets - costs & customers. The latest versions of SCM software have been focusing on creating an integrated Supply Chain that manages the whole process, starting with the raw materials all the way through to the customer.

Internal Processes

Supply chain management software was initially targeted towards internal process refinement and coordination. The goal was to regulate the flow of raw materials, decrease the amount of inventory on-hand, while at the same time ensuring enough materials were available to manufacture the products demanded by the market. As a by-product, the bullwhip effect would also be reduced, reducing costs even further.

Source: IBM Global Services

Systems View

By its very nature, an integrated supply chain ties together different business functions and outside partners with the goal of delivering the product to the consumer with minimum cost. The supply chain management software accepts input from all of these sources and coordinates the flow of raw materials and finished goods. At its core, it functions as an information hub and triggers actions based on current business needs. Different software modules are optimized to perform various functions. For example, Manugistics has separate products to address facilities locations, freight payment methods, and shipment monitoring via e-mail, fax, and phone.

Transactions/Standards

At its core, Supply Chain Management software acts as the intermediary between the Manufacturer and the Supplier. During a typical transaction, the SCM software will tie into the Enterprise Resource Planning (ERP) system to update and retrieve data in the Accounts Payable system. In addition, the SCM software will connect to a third party financial system to verify a supplier is a good credit risk before the SCM software completes a sale. All of these communications are built upon EDI standards that facilitate the data transfer and help to complete the transaction. The following illustration identifies the logical components of a typical Supplier/Manufacturer transaction.

Source: http://www.edifecs.com/downloads/Edifecs_Enablement.pdf?Download=Download

IT Components

As mentioned earlier, the SCM system does not work in isolation. A typical partner in a Supply Chain will have an ERP system running on a mainframe or other high-powered server. The ERP system will coordinate activities for all other systems (SCM, Payroll, Transportation, Warehouse, Planning/Scheduling, Sales Force Automation, and Customer Relationship Management.) Typically, the SCM system itself runs on a less powerful system and exchanges information with the corporate ERP system.

The company is able to join the partnership by transacting with another company. In the example below, we are using the Internet as the communications medium. Prior to the Internet, many companies used private links to connect to their partners. While private links were more secure, they limited the number of partners that could reached since the links were point to point connections. The Internet allows companies to reach a limitless number of suppliers since it is a many to many network configuration.

SCM System Comparisons

The following table compares the SCM software applications provided by some of the major players in the industry. This set of vendors and applications is not exhaustive, but provides a sampling across various vendor type such as best of breed, ERP-oriented, and web-based. Other players in SCM include: Adexa, Aspen, Baan, FreeMarkets, JD Edwards, Intentia, Logility, RockySoft, and Synquest.

Vendor/App	Vendor Type	Market Position*	Key Capabilities & Features	Training
i2 Technologies i2 Supply Chain Management	Best of Breed	Leader	· Creates and manages a network of customers, suppliers, and partners working together in real time · Includes solutions for planning, collaboration, service management and supply chain execution · Supports industry standards such as XML, HTTP, SOAP, RosettaNet	Classroom (i2U)
Manugistics Manugistics Supply Chain Management Suite	Best of Breed	Visionary	· Creates and manages a network of customers, suppliers, and partners working together in real time · Includes solutions for network design and optimization, manufacturing planning and scheduling, sales and operations planning, fulfillment management, service management · Secure trading networks	Classroom (Manugistics University)
SAP mySAP SCM	ERP Oriented	Visionary	· Includes solutions for networking, planning, coordination, and execution · Supports industry standards such as XML, HTML, and WAP · Provides a unified architecture that can be tailored to specific industries and companies	Classroom, E-learning
PeopleSoft PeopleSoft 8 SCM	ERP Oriented	Niche Player	· Includes end-to-end solutions for order capture, collaborative planning, fulfillment, service management, and supply chain analytics · Supports real time web based access · Allows for flexibility and custom solutions · Provides a modular architecture for integrating other PeopleSoft modules	Classroom, E-learning (including live webcasts)
Oracle Oracle Supply Chain Management (E-business Suite)	ERP Oriented	Visionary	· Includes solutions for product development, planning, procurement, manufacturing, and order fulfillment · Supports real time web based access · “Intelligent” notifications based on user-defined tolerances · Provides a modular architecture for integrating other Oracle modules	Classroom (Oracle University), E-learning
Webplan Webplan CeO	Web Based	Visionary	· Customers get real-time order visibility and instant capable-to-produce information · Suppliers have real-time visibility and instant demand and production and can simulate the impact of different fulfillment scenarios before making commitments · Enterprise users can optimize plans and production, track performance across multiple sites, and collaborate with all stakeholders · No infrastructure required	E-learning

*Note: The competitive landscape for supply chain vendors as of 2Q01 is depicted in the figure below, according to Gartner [4] .

Source: Gartner Research

The four quadrants of the marketplace are defined as follows:

• Niche Players: Focus on a small segment of the market and do it well, or are unfocused and do not out-innovate or outperform others.

• Challengers: Execute well today and may dominate large segments, but are not "in synch" with the market's direction.

• Visionaries: Understand where the market is going or have a vision of changing market rules, but do not yet execute well.

• Leaders: Execute well today and are positioned well for tomorrow. A vendor in the Leaders Quadrant must have 10 percent of the overall SCP license revenue.

Acronym Key

1) CIDX The Chemical Industry Data Exchange

2) CPFR Collaborative Planning, Forecasting and Replenishment

3) EDI Electronic Data Interchange

4) ERP Enterprise Resource Planning

5) HTML Hypertext Markup Language

6) HTTP Hypertext Transfer Protocol

7) RosettaNet Originally founded to address requirements within the high-technology electronics industry, it now involves new initiatives to encompass the entire semiconductor manufacturing process.

8) SCM Supply Chain Management

9) SCP Supply Chain Planning

10) SOAP Simple Object Access Protocol

11) UCCnet Nonprofit organization developing a standard for item synchronization between trading partners

12) UDDI Uniform Description, Discovery and Integration

13) WAP Wireless Application Protocol

14) WMS Warehouse Management Systems

15) XML Extensible Markup Language