New technologies

Joining Forces for the Third Act

by Lora Cecere on July 24, 2014 · 0 comments

“I read your blog, and was struck by some of your comments on Forbes,” stated the email. “Could we arrange a call?”

“Sure,” I said, and the call was quickly arranged.

As I answered the phone, I heard the voice of an aggressive investor in supply chain technology software. He seemed very certain in an uncertain market. I scratched my head because I question how anyone can be this “sure.” Since more and more equity groups are reading this blog, and sending me questions, this post is for them.

I have been writing on what I term the “Third Act in Supply Chain Planning Software.” I believe that we have seen two prior evolution periods of supply chain planning software and we are entering into a third period. I am excited about this evolution and eager to share my opinion.

Here are the questions I am getting most often:

What does it take to be successful in the supply chain planning market? I look for three basic factors. Leadership by the CEO, understanding of the business problem at the product marketing/management level, and the ability to build software. Many companies are missing one or two; while sadly, some are missing all three.

So, you write that SAP will struggle and then recover, but Oracle will not do well in what you call the “third act” of supply chain planning software. Yes, I say. This is the beauty of being an independent analyst and having the ability to call as spade a spade. I find too few analysts are able to speak the truth. They are hamstrung by their organizations.

I think that SAP has great talent to write software, but their current focus is on the analytics technology market. They put supply chain into a traditional framework of CRM, SCM and SRM and the world has moved past this. I think that SAP lacks focus and a basic understanding of the business problem.

Most of the work on SAP APO is currently focused on sales-driven initiatives or maintenance work, and as a result the company has struggled to bring supply chain innovation to market. SAP SNC has been disappointing, as has their work on inventory optimization and demand sensing. I don’t think that they understand the basic concepts of being demand-driven enough to bring new solutions to market to solve the problem. We see in our benchmarking work that SAP APO takes three times longer to install and has a lower ROI than best-of-breed software.

Oracle is different. Their solution is based on acquisitions. They have not been successful in building a cohesive architecture. While there are pieces of the software like transportation planning or trade promotion planning that are promising, today it is piece parts.

They are in worse shape than SAP. With the turnover in the organization, they are missing all three of the elements that I look for in a successful supply chain company. I just don’t see the leadership, the understanding of the problem, or the technology skills to evolve the product. The rewrite of the Numetrix and Peoplesoft supply chain planning products has been disappointing for business users.

What about JDA? Using the same model, JDA has the ability to write software, but they come up short on the other two factors. There is a shift in leadership along with turnover of talent, and both are a barrier to success. Their current struggle is to bring together different views. Some folks within JDA want to solve the problem like it is an i2 problem, while others approach it from a Manugistics viewpoint, and others from a Red Prairie perspective. None of the three views today is visionary; and it is hard for them to get a clear vision of what to build and how to go to market in the manufacturing space. As a result, we see them on-again and off-again in the market. They need to jumpstart their thinking; and no, I am not optimistic about flowcasting. I think that it is problematic for many reasons.

Which companies do I think are interesting?  I like the movement into Software as a Service deployments. I also like B2B networks. So, my list of interesting vendors in this space includes: Kinaxis and Steelwedge for SaaS; GT Nexus, GHX, Elementum, Elemica, E2open for B2B networks; Logility and Terra Technology for demand and inventory management; Quintiq and Solvoyo for concurrent optimization; Llamasoft for network design; and Enterra Solutions and ToolsGroup for Cognitive learning. I also like what Infor is doing on visualization, S&OP and collaboration.

What do I tell SAP clients? I advise clients to take advantage of their current architectures. Stabilize the investments in ERP. If the company has SAP APO, I advise them to maximize the integration capabilities of the CIF interface and then augment the platform to compensate for the lack of depth in the SAP optimization engines.

I hope that this helps. For line-of-business supply chain leaders, we will be facilitating a session at the Supply Chain Insights Global Summit on September 10th-11th to enable supply chain leaders to talk to each other about this topic in a room with no vendors or consultants. It is an informal networking session to discuss alternative strategies to build technology architectures as we transition from the second to the third act. We hope to see you there! Reserve now, because the room block is up on August 8th at the Phoenician, and there are only 48 seats remaining in the audience.

Preparing for the Third Act

by Lora Cecere on July 1, 2014 · 2 comments

The curtain is rising on the third act of supply chain planning.

Over the course of the last two decades, we have seen two evolutions of Supply Chain Planning (SCP) software. The first was the rise of Best-of-Breed providers. These first solutions were on the mainframe and with migration to client-server architectures. The market then shifted to include the extended Enterprise Resource Planning (ERP) providers. These solutions bundled Customer Relationship Management (CRM), Supply Chain Management (SCM), and Supplier Relationship Management (SRM) suites into the architectures, but there was a problem.  CRM and SRM functionality did not fit the needs for manufacturing-based companies (CRM was too lightweight. And SRM functionality, while automating indirect procurement, did not address the larger needs to automate direct material purchasing for a manufacturer.) We now know that focused, Best-of-Breed solutions delivered greater value.

So as companies start to assess the shifts in the market, here I share some tips and lessons that I learned the hard way. My goal is to enable you to be more equipped to purchase and select new forms of software for the third act.

Tips for the Road:

A) Cloud. Cloud solutions are being hyped today, but avoid the temptation to buy cloud for the sake of cloud. It is a mistake to try to automate today’s processes in the cloud. Why? The processes are changing. New forms of software provide new opportunities. Use this as an opportunity to up your ante and improve your solutions. Instead, opt for the new decision support technologies that are deeper and more specialized.

B) Get Clear on the Goals and Definition of the Architecture. System of Record, System of Differentiation, System of Reference. They all matter. A company needs all three. Build an architectural map to understand how the technologies are coming together. Refine the road map over time as the technologies shift and new capabilities become available.

C) Avoid the Hype, and Buy Consistently with Your Risk Profile. When you buy technologies, it could mean your job. If it goes well, you will be a hero. If does not go well, it can mean your job. Go slow and make the right investment, understanding the risk profile of your company. Typically, companies fall into the categories of early adopters, followers, late adopters, and laggards. If you are a laggard, don’t try to force the company to buy the newest software as a co-development partner.

Shifts in the Market.  My Predictions.

As the software market shifts, here are my predictions:

1)  Traditional Solutions Lose Steam.  JDA and Oracle become less significant in the supply chain planning market for different reasons. JDA has used the maintenance stream from customers as an annuity income base with very little innovation into manufacturing applications. While there has been some funding of retail applications, customers are disappointed.  As a result,  JDA is losing ground in the manufacturing sector, and lacks the visionaries to build the right products for the third act. The investment in flowcasting lacks the depth of analytics to rekindle market interest. (Distribution-centric industries are not all pull. The flows are a combination of push and pull based on demand shaping programs. As a result, flowcasting may be a good tool for turn-based volume, but lacks the depth of analytics to help with promoted goods and new product launch.) In a similar vein, we believe that the legacy category management technologies that JDA has made a lot of money on, will become obsolete.

2) Demand Signal Repository Vendors Redefine Loyalty, Assortment, Category Management and Digital Path to  Purchase. The downstream data technology market is too small to contain the small and fragmented vendors. As a result, look for these technology providers to start to redefine loyalty, category management, and assortment planning. They will soon become a competitor for JDA, and there will be several roll-ups and consolidation plays as this market rationalizes.

3) SAP Stumbles and Then Succeeds. SAP is an innovation copycat in the supply chain space. The forced HANA rewrite of APO will open up the market to new technology providers. It will be good news for the Dutch optimization vendors like OM Partners, Ortec, and Quintiq, and the technology vendors sitting on the sidelines like Kinaxis, Logility, ToolsGroup, et al. This is a great time for Kinaxis to redefine their solution for distribution-intensive industries. Network design technologies like Llamasoft and Solvoyo will define a new space for the design processes of the supply chain. (A new job description, Supply Chain Architect, will evolve.)

4) CRM and SRM Will Be Redefined for Manufacturers. With the evolution of unstructured data mining, and new forms of analytics for a cognitive supply chain, CRM and SRM will be redefined. Today, the ends of the supply chain are weaker than the center functions. The traditional frameworks for applications will be redefined. Get ready to draw new maps.

5) B2B Network Players Will Do Well. Solutions offering community, applications and canonical integration layers will do well in the third act as we start to build the extended supply chain. Expect that there will be consolidation and buy-outs of the players, but investments in these technologies will continue to drive ROI.

Lessons Learned from the First Two Acts. Follow the Money:

1) Understand the Funding Cycle. Before purchasing, ask how the vendor is financed. The answers usually fall into five categories: Private (Bootstrap start-up, angel investors, Venture Capital 1st Round, Venture Capital 2nd Round) and Public. If the funding is through venture capital firms understand the governance models and listen carefully to how the company plans to evolve.  Ask the question, “When you need to “turn the capital,” what are your exit strategies?”  Essentially, every five to ten years, investors in a technology firm want their money out of the firm, and the technology company will have to ‘turn the capital’ or seek new investors to buy out the original investors. When this happens, the technology company is vulnerable. They may not find new investors, or the new investment team may want to drive a change in investment strategy. Understand these cycles, and help the vendor to navigate the market.

2) Partnerships Are Marketing Hype. Partnerships in the software market should never be part of the buying decision. They are fleeting: coming and going at will and adding no real value. Companies in the software market should never view a partnership as adding strategic advantage. This is especially true of large technology vendors like IBM, Oracle and SAP. Partnerships take three definitions. Embedded technology partnerships, go-to-market partnerships where the deal is finalized on a common contract, and marketing partnerships. In the first two acts of the evolution of the software planning market, they added little value.

3) Consultants Buying Software Companies Are the Kiss of Death. I know of no instance where a consulting partner buying a software company has been good for the buyer of software. While the marketing message may sound good running a software company and managing a consulting company are distinctly different skill sets.

4) Public IPO. After a public IPO by a software company, expect employee turnover. If your software company is going through an IPO, ensure that you have clarity of key contacts for yourself moving through the IPO. Stay close to the vendor through the process.

5) Maintenance. In your work with the software vendor, understand where your maintenance dollars are being spent. Maintenance was designed to deliver against three promises for the buyer:  call–center support, bug fixes, and software upgrades and evolution. It is important for you to keep your pulse on innovation. In the discussions with your technology provider get a clear understanding of where the maintenance dollars go and what is tagged for innovation. When markets consolidate, the maintenance dollars, unfortunately, become an annuity stream for the new owners, and the rate of innovation slows down.

6) Before You Engage. Understand How You Are Going to Buy. A problem that I see over and over again is that companies are not clear how they are going to make a decisions when they start the process of evaluating software. Spend time and get clear on how you are going to buy. Avoid circular arguments and put some methodology in place before you contact the technology providers.

7) Software Sales Is Hard. While the salesman working the deal with you is getting paid well, usually a commission-based position can be $250,000 to $1.5 million, they are well-trained in strategic selling skills. What does this mean? They work the deal. Deal cycles are long, and they do not work many deals simultaneously. They play to win. As part of strategic selling methodologies, they are trained to pit team members against other team members, and change the game by going up in the organization to sway the executive team. In your work with software sales teams, out-deal the deal. Beat the team at their own tactics. Invest in reading books like Hope Is Not a Strategy, and help your team to weather the storm.

8) Software as a Service. Where possible, try to buy software as a service (SaaS) technology. This type of purchase enables companies to have more stickiness with their technology provider. The relationship is based on the term, and the software vendor is seeking to make the buyer happy so that they will renew. There is more incentive in a software-as-a-service deal to drive value. However, not all types of software are well-suited for SaaS. Heavy optimization software is not a good candidate for cloud deployment.

9) Remember Why Buying Software Still Makes Sense.  The software market is predicated on a couple of belief statements that I think are still true. The first is that a company is vulnerable with custom code. Software programmers come and go, and manufacturers are not developers. Buying software has its place in your strategy. Just as you buy, remember why.

I welcome the third act. I feel that supply chain management software is ready for a redefinition. I say, “Bring it ON!” Are there any tips and insights that you think that I missed. As always, I look forward to your feedback.