Supply Chain Management Technology LandscapeTechnological developments, especially the drop in information communications costs, have led to improved coordination among members of supply chain networks.11
To compete in global markets and the networked economy, enterprises increasingly find that effective supply chains are essential. Management gurus such as Peter Drucker clearly saw this coming before the turn of the century; they extended the concept of business relationships beyond traditional boundaries by positing a paradigm that organized business processes on a scale heretofore unimagined into a “value chain” of multiple companies. In this scenario, supply/value chains are the main actors in competition.9
In the first decade of this century, changes in the business environment facilitated the development of supply chain networks. As a result of globalization and the rise of multinational enterprises, joint ventures, strategic alliances, and other business partnerships, new success factors have been identified, complementing the earlier Just in Time, Lean Manufacturing, and Agile Manufacturing practices.10 Further, technological developments, especially the drop in information communications costs -- a significant component of SCM transaction costs -- have led to improved coordination among members of supply chain networks.11
Factors altering today’s landscape include globalization and global sourcing, leaner supply networks, increased demand variability, greater market fragmentation, and increased mass customization. Leaders in SCM are now deriving substantial gains in profitability and stakeholder value by creating value networks (an echo of Drucker), called demand driven supply networks (DDSN) by AMR Research/Gartner. While SCM technology is pivotal to bringing DDSN best practices to scale, its presence must be matched to the intangibles of strong executive leadership and careful process redesign.12
The change toward globalization and rapid market acceleration has altered the business priorities for users and the software product development focus for vendors in a number of ways, including:
- Movement from static demand planning to demand sensing and demand shaping. The advanced planning and scheduling (APS) applications of the late 1990s were characterized by a more static planning signal for demand. Today, companies more actively manage their demand signals to better sense demand, incorporating downstream data with a higher frequency of modeling, typically daily or weekly.
- Movement from enterprise planning to multi-tier decision support. By 2007, the average company had nearly 40 contract manufacturers, with 42% reporting that more than 25% of manufacturing output was produced by third-party contract manufacturers. Not surprisingly, most global enterprises find that enterprise planning is no longer sufficient. Filling the void is multi-tier modeling, with inventory optimization applications furthest along in confronting the multi-tier supply chain planning (SCP) challenge.
- A changing view of manufacturing as a constraint, from it being the primary constraint to adding materials and logistics as other major constraints. A more organic view of supply chain constraints and compromises has emerged. The result is a shift in SCM strategy from tight, constraint-based planning to a synchronized, multi-enterprise view of the demand signal that encompasses both supply and demand visibility.
- Shrinking order execution cycles. Rising pressures to reduce order-to-delivery lead times have fueled the growth of supply chain execution (SCE) applications, including warehouse management systems (WMS), transportation management systems (TMS), and multichannel order/global trade management solutions.
- An increasing focus on network flow analysis. As companies have outsourced more aspects of their supply chains, they increasingly deploy supply chain network design tools to analyze optimal flows for market response, assess suppliers to minimize risk while maximizing profit and market share opportunities, determine rescheduling or deferment strategies, and conduct cost-to-serve and product portfolio analysis.
- More widespread recognition of the value of service. Those selling product are finding that greater attention to aftermarket services improves profitability and customer satisfaction, but also yields insight into managing the business better and developing new service offerings.13
Throughout the turbulent financial denouement of the last decade, the SCM market remained relatively stable, perhaps in large part due to its pragmatism. Companies continued to build SCM infrastructures based on a foundation of ERP investments. Independent software providers that are focusing on industry-specific functionality and targeting under-serviced business problems are delivering the most rapid innovation. As noted before, they are looking to capitalize on the “blind spots” of suite providers.
Software-as-a-service (SaaS) offerings are becoming a significant SCM factor, having gained market share in the CRM and ERP spaces. They are attracting the attention of manufacturers who wish to benefit from hosted software for supply chain functionalities such as demand planning, collaborative sourcing, and factory scheduling. The reason for this interest is the need for applications that can aid in streamlining activities within highly fragmented supply chains, along with the perennial attraction of SaaS to reduce capital costs and deployment times.14
- Drucker, Peter F., “Management’s New Paradigms,” Forbes, Oct. 5, 1998.
- MacDuffie, John Paul, and Helper, Susan (1997). “Creating Lean Suppliers: Diffusing Lean Production Through the Supply Chain,” California Management Review, Vol. 39, No. 4, pp. 118-151; Monden, Yasuhiro (1993). The Toyota Management System: An Integrated Approach to Just In Time, U.S., Productivity Press; Womack, J.P., and Jones, D.T. “Beyond Toyota: How to Root Out Waste and Pursue Perfection.” Harvard Business Review (September-October 1996), p. 140-144.
- Coase, Ronald (1998). “The New Institutional Economics,” The American Economic Review, Vol. 88, No. 2, Papers and Proceedings of the Hundred and Tenth Annual Meeting of the American Economic Association (May 1998), p. 72-74.
- Hillman, Mark, and Hochman, Stephen. “Supply Chain Technology Landscape Has Radically Changed for Everyone,” Supply Chain Brain, Jan. 1, 2007.
- “SaaS for CRM,” April 30, 2006, http://www.blogcrm.com/saas-for-scm.php.