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The websites are swept clean. The messages are honed. The Wikipedia pages are aligned. The E2open marketing machines are spinning. The blogs, social media networks, and pundits are whirring with predictions and accolades. I watch with a bit of amusement, and want to offer a bit of caution.

Let me start with a disclaimer. The Shaman is a curmudgeon. She cannot count the number of SCM software  acquisition announcements that promised 1+1=10. In short, this never becomes the reality.  Very few software acquisitions reach their potential. The ones that do can be counted on one hand. However, I like this acquisition. It will make E2open more relevant and could accelerate the evolution of a new form of marketplace offering. The supply chain management market is troubled and needs some excitement.

icon-scm was founded in 1992. The product, a licensed offering, was designed to enable a “rapid response” of what-if analysis in material-centric discrete supply chains. The company partnered with SAP to launch a product offering, SAP Supply Chain Response by icon-scm, in 2010. SAP company passed on a thirty-day period of first refusal to acquire the asset allowing the purchase by E2open on July 31st, 2013. This licensed software offering was purchased at slightly under 3X revenues. In 2012, icon-scm had revenues of approximately $10 million. The product was used to improve supply chain decisions in discrete manufacturing companies like Avnet, Hewlett-Packard, Pratt & Whitney, and Western Digital.

Based in Germany, icon-scm and the company leadership team was driven by a very product-based mentality. The company was never good at marketing. The company name is hard to say and for client’s to remember. < I liken it to the Johnny Cash song, A Boy Named Sue. The company was born into the world with a tough name and faced a tough uphill battle. The founders bet the future of the company on the SAP partnership. The results were disappointing for both parties.>

Over the last decade, the German-based company was never able to successfully compete with the more aggressively marketed Kinaxis solution. There was a strong preference in the market for a Software as a Service (SaaS) offering, and Kinaxis was quick to claim that position. SAP’s marketing of icon-scm was one of the most confusing marketing positions in the history of supply chain software. The tension between the SAP sales team to position SAP APO and SAP Supply Chain response by icon-scm was always tough.

With all of this as a preamble, and background, let me share five reasons why I think that you, as a supply chain leader, should care:

  1. Execution is key. E2open users need to get involved. When the hype settles, it will be all about execution for E2open. With all software acquisitions, there are trade-offs. The E2open client base is a very loyal long-term user base. Now is that time the E2open client base needs to get very involved with E2open management to ensure that product roadmap trade-offs are in their best interest. Act now to avoid a surprise. I expect E2open to continue to acquire additional assets and built a stronger presence in the supply chain market.
  2. Marketplace offerings are gaining steam. The race is on. A new form of marketplace offering is emerging.  The battle lines to build inter-enterprise supply chain solutions are drawn. SAP is betting on the Ariba platform. Elemica, E2open and GT Nexus are improving their solutions, working on aggressive product solution platforms to provide new value.  Each has a different, and improved, position to improve value chain network visibility and analytics. My bet is on the evolving best-of-breed provider landscape. <I find it hard to see the value in using the Ariba network that was designed for indirect procurement to seize this market opportunity.>
  3. Validation of Rapid Response as a market is good news for Kinaxis. The Canadian planning vendor, Kinaxis, pioneered the concepts of Rapid Response early in the decade. They were one of the first SCM vendors to move to a SaaS model. It was a gutsy, but right, move. The company has waged a tough market battle for recognition. The acquisition of icon-scm by E2open now makes them official competitors and validates the space. The building of icon-scm functionality into the E2open platform should be a wake-up call for Kinaxis to move quickly to evolve their strong cloud-based architecture to a one-to-many and many-to-many data model to serve the emerging marketplace opportunity. It is my hope that they get more serious about their relationship with GT Nexus.
  4. SAP partnerships have less meaning. icon-scm and SAP partnered in 2010. It was a “preferred partner” with formally announced intentions to incorporate the Rapid Response functionality into its supply chain management capabilities as an SAP Solution Extension Partner. The partnership was on the official SAP product roadmap. It drove the buying decisions of many a CIO.  While the press will say that SAP will continue to support this application, over time, clients will have to rethink their platforms to migrate to E2open or to embrace Kinaxis. SAP is betting on their new solutions based on the Ariba Network.
  5. SAP loses momentum to drive value for supply chain leaders. The right acquisition would have been SAP’s acquisition of E2Open and public disclosure that SAP APO and SAP SNC have not lived up to their promise. In my opinion, the SAP teams need to rewrite their applications to meet clients’ needs. They are losing market relevance.

Will Arrogance Stunt your Growth?

by Lora Cecere on July 29, 2013 · 0 comments

It happened on Thursday morning last week. It will probably happen again on Tuesday. And, again on Wednesday. I am driving on a campaign to change thinking.

It is hard to change a mindset. The brain is wired to believe what it has been told for many years.

Every time that it happens, I smile. I understand. I was once there also.

Let me start with a story. Last week in the middle of a presentation, a supply chain leader made the statement, “We have solved the issues in supply through better optimization and use of data. There is not much more that we can do. The issue is demand. I think that we need to focus there.” The statement was delivered with arrogance and conviction.  Many supply chain leaders are so convinced they know the answers that they have stopped listening and learning.

It never occurred to this supply chain leader that there is no place to put “new forms” of demand data into today’s supply-centric enterprise architectures. As I mature in my work as an analyst, I am more and more convinced that the redesign of the supply chain outside-in to use new forms of demand data requires us to “blow up” our traditional, and supply-centric architectures. Why? The data models are wrong. These architectures were defined based on simple, deterministic optimization using the  principles of a ”push-based” supply chain. The systems are based on 1990s thinking.  Remember back then? It was when gasoline was 1/3 the cost of today and there was a lot of excitement about 32-bit architectures and the move to client-server systems. A lot has changed in both business requirements and technology capabilities; yet, the fundamental technologies and the definition of the supply chain footprint remains unchanged.

The Issue

We have been taught, as supply chain leaders, that over the last decade supply chain processes have improved costs, shortened cycle times, improved customer service and decreased inventory. Just ask any consultant and they will quickly tout “best practices.”  Or run the statement by any software provider, and they will share that their solutions delivered these “best practices.”

When I first started working on the book Bricks Matter, I believed it too. I sadly found that this was not the case. After two years of studying corporate balance sheets and talking to supply chain leaders, I now see things quite differently. Numbers don’t lie. Companies are stuck. Based on our recent research, we find that only 1% of process-based companies are making progress on both operating margins and inventory. As a result, I don’t believe that we have best practices. It is my belief that we have emerging practices.

Facing the Issue

Most organizations are stuck on their ability to drive improvements in operating margin and inventory cycles. Too few supply chain leaders have held themselves accountable to their balance sheet results.

Currently, we at Supply Chain Insights are working on presentations for our upcoming Supply Chain Insights Global Summit. At this conference, we are excited to share three detailed analyses of corporate performance over the last decade:

  • Performance on the Supply Chain Effective Frontier. An analysis of how companies have made trade-offs between operating margin, inventory cycles, complexity and growth. Which companies have made year-over-year improvements? And, why?
  • Results of the Supply Chain Index. Which supply chain metrics correlate to market capitalization by Morningstar sector? Which sectors have made the most progress? Who are the leaders in each sector?
  • Supply Chain Resiliency. Which companies have been the most resilient delivering year-over-year results with small incremental improvements over the last decade? What are their secrets?

To understand the current state, I built a database of twenty years of supply chain financial ratios for all public companies. (Note that the ratios are better than absolute numbers because it helps in the comparison of large and small companies and performance across currencies.) In 2012, supply chain process evolution was thirty years old, and I wanted to use the book, Bricks Matter, as a litmus test to tell the story of success. However, I could not find it. Progress was good at the beginning of the decade, but as supply chain complexity has increased, progress on operating profit and complexity has tapered off.

We find that to cope, companies have pushed costs and waste backwards in the supply chain. For example, they have made improvements in cash-to-cash cycles by increasing payables and lengthening terms to suppliers. This increase in payables has increased risk by decreasing resiliency. As we rethink supply chains, we will need to reverse this thinking and take ownership of the entire value network.

Those of you who know me well, know that I no longer believe in the Gartner Top 25 methodology. The six years of work at AMR Research on this methodology was actually the stimulus for me to tackle a new approach.  You can read some of my thoughts in my past blog posts at:

Work on the Supply Chain Index

My Thoughts on the Gartner Top 25 

Moving Forward

Where have we made the most progress? The greatest progress has been made through the introduction of new business models. E-commerce is a more profitable form of retailing. Amazon can now deliver almost every category of item to your home with no shipping cost for Amazon Prime customers. Club store formats improved retail turns and operating margins. Performance-based logistics in aerospace and defense changed the A&D industry forever. Modcloth, a fashion retailer that lets the buyer be the designer, just turned ten-years old with revenue of $100M.

Supply chain is an engine for growth and enabling new capabilities. We are at an inflection point of new technologies and processes. The technologies installed in the last decade are quickly becoming legacy applications. To move forward, in my opinion, we need to do five things well:

  • Build Outside-in. Build supply chains from the outside-in, minimizing demand latency and redefining supply processes to sense and respond to channel demand. Recognize that today, the response is inside-out based on orders and shipments. The order is a poor representation of demand. We have never had a better opportunity to build a customer-centric supply chain; but, to do this we have to recognize the difference between a marketing-driven and market-driven response. The first step is social listening and text mining of customer sentiment.
  • Focus End-to-end. Only 1% of companies have a role focused on managing the end-to-end supply chain.  The greatest synergies happen when the supply chain is managed end-to-end as opposed to management as a limited supply chain function focused on logistics and operations.
  • Move at a New Cadence. Embrace new technologies: Internet of Things, new forms of analytics, mobility, etc. It is no longer weekly data weekly… or reporting with a day latency. Instead, it is real-time data. Define and drive new processes like digital manufacturing and digital path to purchase so that our supply chains can operate at the new cadence of data flows.
  • Orchestrate Demand and Supply Market-to-Market. The traditional supply chain drives a volumetric response based on a SKU (item at a location). The future processes, based on new forms of analytics, will be based on matching product attributes to customer attributes while orchestrating price, mix and volume. Experiment with these new forms of analytics.
  • Be Accountable to the Balance Sheet. Today, only 23% of supply chain leaders can easily see the impact of their decisions on profitability. Companies that are outpacing peers have strong supply chain finance functions.

We hope to continue this discussion with you at our Global Summit. It is sold out for technology providers, but there are still seats available for manufacturers, retailers and distributors.  Hurry! The room block is lifted next week, so the best cost on hotel rooms is this week. The event is being held at the Phoenician in Scottsdale, AZ on September 11th and 12th.