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.


by Lora Cecere on October 25, 2013 · 1 comment

Last week, I wrote about the evolution of supply chain planning. In my blog post, I commented on HOW little supply chain planning has  changed in its twenty-year evolution. As I worked with clients this week, I had a long and hard talk with myself. I am part of the problem. I, like other analysts, are stuck in the traditional software APS paradigm.

In this post, I want to pay homage to trailblazers. This post is a commentary to companies that are challenging the traditional Advanced Planning System (APS) paradigms and trying to forge a new path.  As a start-up, I understand how hard it is to pave a new road forward. Here I share insights on four enterprise solutions. (Next week, I will focus on the new forms of business networks that are evolving.)

1) Kinaxis. The Kinaxis solution is probably one of the most misunderstood supply chain planning platforms. With its origins in “fast MRP”, the company has gone through multiple name changes to establish an identity and gain market traction.  It is a flexible, in-memory model and platform that enables visibility, demand and supply balancing, what-if analysis, allocation and available-to-promise (ATP) functionality. Throwing APS tradition to the wind, Kinaxis branded under the term “rapid response” five years ago and has recently been pushing the promise of the Supply Chain Control Tower.

In leaving the Kinaxis user meeting this week, I am struck by three things.  First, their recent work on mobility and defining the user experience on a mobile application is very cool. Secondly, the flexibility of the Kinaxis solution makes the product hard to message, but the clients that have figured it out, are very happy.  (Some of the happiest….) And, third, the solution is most often deployed in material-intensive supply chains for what-if simulation and visibility. It is a cloud-based solution that scales easily for hundreds of users. It has helped many clients that were too constrained by the inflexibility of the traditional APS platform.

At the conference, Kinexions, I heard many clients speaking freely about the deployment of Kinaxis and the turning off of Oracle and SAP APS solutions.  Many were almost giddy. The ease-of-use of the Kinaxis system was freeing for their teams.

2) Logility. I like the work that Logility has done in the redefinition of demand planning. Their work on New Product Profiler (a product to forecast a new product) and on attribute-based planning termed Proportional Profile Planning is very encouraging. It should be considered by all Logility customers struggling with demand accuracy in new product launch and promotion management.

3) Solvoyo. This week, I also spent time in Istanbul discussing the evolution of concurrent planning with some of the best minds in supply chain operations research.  Many of you may recall the great work that Koray Dugan and Omer Bakkalbasi did at i2 Technologies.  They are now teamed together working on the development of concurrent planning.

Essentially, the team is removing the partitions between network design, sales and operations planning (S&OP), inventory optimization, fulfillment and transportation planning. Originally, supply chain planning had to be compartmentalized to enable optimization solvers to run within a feasible timeframe. However, with the advent of cloud computing and more advanced optimization techniques, the team at Solvoyo is using parallel processing in the cloud at Amazon to provide decisions on demand (Software as Service that delivers the output and decisions integrating with the client’s existing software). As a result, the solution is solving inventory, transportation, and fulfillment in one model across strategic, tactical, operational, and executional horizons.  Is this important? Yes for three reasons…. The depth of the solution, a more scalable solution, and the bringing of the decisions on demand helps companies that are struggling to get and retain talent.

Inventory problems solved in isolation have had little adoption. Inventory needs to be part of a deeper, more connected solution. The Solvoyo technologies allow users to evaluate the form and function of inventory in network design and connect it to fulfillment and transportation planning. For an old gal in supply chain planning, I love seeing a new definition of supply chain planning.

4) Terra Technology.  Terra Technology has dubbed its solution demand sensing and with twenty consumer goods companies using the solution, the company is attempting to gain new clients in distribution-centric industries that are not consumer goods (e.g. distribution, chemical processing. food manufacturing and apparel). The solution replaces rules-based forecast consumption improving the translation of demand from a tactical forecast to a more useable and accurate demand signal for fulfillment. Companies using the Terra solution are averaging a 10% reduction in inventory on the balance sheet and an improvement in customer service fulfillment. However, despite seven years of product marketing, the company is still not well understood by prospects requiring ongoing dialogues with the buyers.

While the replacement of rules-based demand consumption, may seem like a small thing, the impact is significant, and the math has not been matched by the several want-a-be competitors that have tried….

Each of these companies have attempted to blaze a new trail in their own way. They are fighting bigger competitors that have done less platform innovation that charge much more for their solutions, but are more aggressive in marketing. Additionally, the higher costs of the extended ERP solutions makes them much more desirable for large system integrators to implement and recommend.

As I sit in seat 16C on a packed plane winging my way to Minneapolis, I just wanted to raise my glass and applaud the innovators. Hopefully, you will check them out too….

Next week, I will be in New York on Monday and at the Consumer Goods Technology (CGT) conference. I hope to see you in my travels….