Enterprise Software

Chain reaction

Supply chain software is making e-commerce happen. Find out if changes in the industry mean it's time for you to reevaluate whether your software makes sense.


By John Desmond

As businesses large and small rush to set up shop on the Web, supply chain software has emerged as a key e-commerce enabling technology. This is creating vast opportunity in the traditional software market, and at the same time causing upheavals. Supply chain software suppliers in historically strong positions are seeing demand for their traditional products arrest or decline, and they are scrambling to announce new e-commerce products. Forward-thinking suppliers that saw the changes coming are being rewarded for being in place with responsive products.
In this article, you’ll learn how changes in supply chain software are improving e-commerce. Next week, part two will examine tips for IT managers who are choosing this software product. This content originally appeared in Wiesner Publishing's Software Magazine and appears on TechRepublic under a special arrangement with the publisher.
For IT professionals who deal with supply chain issues, it is a time of re-evaluating existing relationships, considering new ones, and ascertaining what software architecture makes sense.

"The IT community needs to take a lead," says Julie Fraser, principal and director of market strategies, Industry Directions, Newburyport, MA. "The operational folks are baffled and in the dark. IT needs to take a studied view and recognize where certain software capabilities will be critical. You need to look at how Web-enabling will transform the IT infrastructure, if you are really talking about collaborating through the Web site."

Drive toward efficiency
With more firms buying and selling online, the goal of achieving supply chain efficiencies drives demand for technology that lets companies configure products, track orders, and respond rapidly to market changes.

This is a niche with a number of established players in various categories, including supply chain execution, supply chain planning, delivery, optimization, and ERP. Each is affected by the new options that existing companies have for product manufacturing, the cycle time between order and fulfillment, and product delivery to customers.

In addition, suppliers are emerging that enable and exploit the Web-based supply chain. Some of the new vendors offer alternatives that replace what the established suppliers have offered and sometimes overlap with functionality the established suppliers are adding.

"Everyone in this market has recognized that for supply chains to be competitive, they need to be Web-enabled," says Fraser.

AMR Research   , in Boston, projects that today's $3.9 billion supply chain software market is poised to quadruple over the next five years.

Key trends
Analysts and vendors in the supply chain software community point to collaboration, flexibility, fulfillment, disintermediation, disaggregation, integration, procurement, cultural change, and industry adoption as the necessary characteristics for today's market.

Collaboration:

The Web enables trading partners to collaborate to satisfy customers. Thus for many e-business players, collaboration is replacing the central command and control business process model, which trades off rapid response and cooperation.

"Proactive, collaborative connection is what we want," says David Burdick, vice president, engineering applications, Gartner Group, Stamford, CT. "Instead of just transmitting documents back and forth, we want to use the Web in a more real-time fashion. So in a designer network, if the auto manufacturer finds the supplier to solve a specific problem, they could take it to the next level to initiate a real-time, collaborative design session. They would be working together to provide high-level design ideas and knowledge. So the currency we trade is not just off-the-shelf products; we are exchanging ideas and knowledge."

Flexible software architectures, often with a real-time messaging backbone, are optimal for responding in the new environment. This is also called agility.

Flexibility:

"We are trying to find ways to build flexibility into the business processes. In many cases, we may have streamlined the business process, but we also hard-wired it, decreasing the flexibility," says Burdick. "So we have moved the pendulum back a little so we can make course corrections in response to changing market conditions. Rather than hard-wiring business process into automation, you soft couple it in to make it easier to recombine based on business opportunities. New EAI tools can make this easier."

Fulfillment:

The fulfillment process is radically changed. For example, shipments today are often smaller and more frequent. Fulfillment is where the credibility of the supplier is made or broken.

"Velocity is key," says John Fontanella, research director, supply chain execution, AMR Research. "Real-time systems electronically connected to one another will develop information from the whole trading community, to make a commitment to a customer at a Web site who is ordering something." Contract manufacturers can commit to when customers will receive a product to a higher degree of accuracy.

Disintermediation:

Disintermediation of middlemen is forcing many companies to rethink their value in the chain.

Says AMR's Fontanella, "A prime example is the PC distribution channel. The Dell model of shipping direct disintermediates all the resellers, such as Circuit City, and distributors, such as Merisel. We're going to see that happen more and more in the future." Fontanella predicts an increase in the percentage of customer returns, because the infrastructure in the past would buffer companies from variability in demand.

Disaggregation:

Manufacturers are trying to focus on their core competency and outsource what partners can do more efficiently; this is also called selective outsourcing.

For example, "The strength of Wal-Mart is in logistics, moving products from their distributors to their stores," says Hollis Bischoff, senior program director, electronic business strategies, Meta Group, Burlingame, CA. This is not readily translatable to Internet models of distribution, and Wal-Mart did not want to miss another Christmas without a competitive Web presence. So they outsourced the order fulfillment logistics to Fingerhut, which specializes in delivering to individuals. "This is a win-win. Wal-Mart got instant availability to one-to-one ordering, and Fingerhut is making revenue off excess capacity," she says.

In another example,Quantum Corp   ., the disk drive supplier, concluded their true expertise was in designing high-quality disk drives, so they outsourced the manufacturing, says Bischoff.
What’s the most important trend related to your e-commerce efforts? How would you advise software vendors to respond to changes in the marketplace? Post a comment below or send us an e-mail.

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