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.

Let the Design Begin…

by Lora Cecere on June 29, 2014 · 0 comments

This week, I spoke at the LLamasoft Summercon Conference. It was held at the University of Michigan in Ann Arbor. The conference was low-key. The University building was old, and well-worn. The doors hung precariously on their hinges, and the steps were uneven. The shelves needed a good dusting and the air was musty. It was far a cry from the neon and glitzy hotels of Las Vegas where I am often speaking.

On Wednesday, the theater at the Michigan League was bursting at the seams to hold over 500 attendees. The theater was packed. The attendees were sitting on the edge of their seats to hear about the next release of LLamasoft software. As I listened, I began to reflect.


I remember the first time that I met the founders, Don and Toby. Don was quirky, and the company story was different. They came to Boston to tell us the story of LLamasoft. They also brought me and my colleagues at AMR Research stuffed Llamas. We laughed, and felt a bit silly, leaving the conference room holding our new furry tchotchkes. “What a crazy name! I wonder if they will make it?” we would exclaim.  In a fit of giggles, we slapped each other on the shoulder in the coffee room and kibitzed, “Can you believe they brought US these crazy animals?” And from time to time, when we were behind deadline, and teasing each other about the looming weekly post, we would throw our llamas from cubicle to cubicle.

Figure 1.

Design as a Standalone Process

Today, LLamasoft, and the management of design processes, is no laughing matter. The company has skillfully navigated the market to survive and now thrive.

Ten years ago LLamasoft was an unlikely contender. The market for network design tools was growing at a moderate rate, and most of the market had invested in technologies from either i2 Technologies (then termed i2 Strategist) or Logictools.  With the purchase of i2 by JDA, and Logictools by IBM, manufacturing companies serious about network design started looking for a company, with a well-established community, that was more serious about network design. The reason?

Today, supply chain design has become a process all to its own. In mature companies, it is no longer under the shadow of planning. As shown in the process flow, the design of the supply chain has become a closed loop process with planning and execution.  Why? There are seven reasons:

  1.  Customer Service. Demand and Supply Variability. With the rise in demand and supply visibility, it mattered more.  It could no longer be just about inventory levels. Instead, the design needed to be more encompassing. To balance new requirements for customer service with a wider product platform, the focus needed to shift to be on the form (raw, semi-finished goods, and finished products) and function (design of cycle inventories, seasonal builds, safety stock and customized product strategies) of inventory. This analysis needed to be completed monthly and fed to newer forms of inventory optimization technologies.
  2. Mergers and Acquisitions and the Management of Global Operations. With mergers and acquisitions, and the management of global operations, it could no longer be an ad hoc process. Instead, it needed to be steps of continuous designs. As labor costs in China increased, the network needed to be more flexible. With the shifts in tax structures, the network design needed to morph. As a result, the financial and strategy teams became more interested.
  3. Ensuring Profitability. As Sales and Operations Planning became more important, supply chain design became more systemic. The goal was to translate volume and unit-based data into a profitability “what-if” analysis. The advanced LLamasoft user has a model on a computer tablet (Sherpa product) that enables the visualization of S&OP trade-offs within the S&OP meeting.
  4. Criticality of Corporate Social Responsibility. As corporate sustainability initiatives became more important, the design for carbon needed to be determined. As shown in figure 1, the gap in measurement and design for carbon is still a major opportunity.
  5. Resiliency. To build the right buffers in the supply chain, it was no longer just about designing physical flows and buildings; instead, the focus was shifting to designing process flows and decoupling points.
  6. Value-based Analysis. While discrete industries are good at the management of cycles, and process industries are good at the design of flows, as companies worked on Lean programs for value-stream analysis, they found that it was about the design of flows and cycles together. Network design tools were essential to manage the improvement of both together.
  7. Cost-to-Serve and Top-to-Top Meetings. The largest opportunities for companies lie in the gaps between the links of the supply chain. As companies attempted to implement new programs, downstream customers asked for suppliers to redesign for value.

It does not look the same at all companies; and no company is actively modeling against each of these goals. In fact, design as a standalone process is still evolving. In our research at Supply Chain Insights, we find that one in three companies greater than $1 billion in revenue has a supply chain center excellence; but only 50% are satisfied with their capabilities.

The gap is tough. Most companies are still struggling with “what good looks like” and “what defines supply chain excellence.” Most companies do not know how to manage this thing called supply chain, that is a complex system with increasing complexity. What they do know is that supply chain design helps.

Design Processes Grow Up

What is clear is that more and more companies are not willing to inherit their supply chains. They are on the journey of active design. The design of cycles and flows is becoming more important. It is serious business. So, as I cleared my throat to present at the Summercon conference, I looked into the eyes of over 500 supply chain professionals. It was the  gaze of a serious crowd.

I smiled as I began to present the story of the “Metrics that Matter.” I was excited to share that companies that more actively design their supply chains outperform against their peer group on the Supply Chain Index. I encouraged them to be aggressive.

I look forward to writing their stories…. I am convinced from three years of work on the Supply Chain Index that it matters.