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.

Was Integrated Planning a Hoax?

by Lora Cecere on June 20, 2014 · 9 comments

Hoax: An act intended to deceive or trick.

Integrated Planning: Tight Coupling of Enterprise Resource Planning (ERP) to Supply Chain Planning (SCP)

Was it intentional? Or accidental? We will never know. However, what is clear from our recent study of 73 manufacturers using supply chain planning is that companies using best-of-breed solutions implement faster, achieve a quicker Return-on-Investment (ROI), and are more satisfied. When companies tell me that they need to exchange their current Supply Chain Planning (SCP) from a best-of-breed provider to get a leg-up, I ask, “Why?” It makes no sense to me. In this post, I want to make my argument and stir a debate.

Let’s start with a definition. The term integrated planning, as used in this blog, defines the relationship between Enterprise Resource Planning (ERP ) and Supply Chain Planning (SCP). (It should not be confused with the term Integrated Business Planning (IBP) which is the process and technology integration of business and supply planning in S&OP.) Over the last decade, many supply chain experts advocated that tighter integration of SCP with ERP would deliver higher value. However, this is not supported by the facts of a recent study. (At Supply Chain Insights, we conduct twenty quantitative studies a year to understand the impact of technology and process decisions on business results. This is one of the studies in this series.)


Background: My Personal Experience

In the period of 1985-2000, the SCP market was defined by a list of best-of-breed vendors that included names like American Software, Chesapeake, Demantra, Fygir, i2 Technologies, Logility, Manugistics, Mercia, Numetrix, Red Pepper…. The list is long, and most are history. Today, in many organizations, these solutions are legacy.

The SCP market has consolidated. These companies were merged into other entities and/or changed their names. JDA acquired Manugistics and i2 Technologies; Fygir and Mercia rolled up into the INFOR platform, and Oracle combined the assets of Demantra, Red Pepper, and Numetrix through their multiple acquisitions. Webplan changed names to Kinaxis. Only Logility and American Software have the same name and business structure. We now have new technology players entering the market like AIMMS, Enterra Solutions, OM Partners, Quintiq, ToolsGroup, and Terra Technology. For many, it is confusing. It keeps old gals like me in business.

The period of 2000-2010 was turbulent for these best-of-breed APS technologies. Their available market contracted. There were several forces:

  • M&A: Through many mergers and acquisitions, the available market for solutions shrunk. This is a barrier for innovation.
  • Competition: The aggressive marketing of the Enterprise Resource Planning (ERP) vendors introducing planning suites (led by SAP with a product named SAP APO) took the market off course. As SAP APO skyrocketed to capture the dominant market share, the best-of-breed vendors could not shake the perception that an “integrated solution” was better. It did not matter that most of them had integrated to SAP suites for over a decade.

During this time, I worked for Manugistics. As I watched the hype of “integrated planning” swell, I asked, “Why?” It did not make sense to me. After Manugistics, I worked for two analyst firms; Gartner and AMR Research, and I continued to question if the extended ERP platform that included SCP delivered greater value. I did not see it. The implementations were longer, the purchase costs were higher, and the functionality was less robust and lacking flexibility. Yet, the positive market perception continued. It was largely sustained by consulting partners that made more money on the implementation of larger, and more costly projects of less capable solutions.

During this period of time, I tried to highlight the gap in my writing. However, it is tough for an analyst to take a stand against the larger ERP vendors. The ERP public relations machines are mighty; and they invest heavily in the larger, more established analyst firms. As a result, it is hard to take a tough stand in the more established analyst worlds. Not so today, I am independent. I can voice the truth. I can call a spade a spade. I have raised the ire of both Oracle and SAP multiple times in an effort to help businesses identify the best partner for SCP to propel their supply chains forward.

 Study Results

In early 2014, using the principles of open research, we at Supply Chain Insights hosted a study on Supply Chain Planning. We currently have 73 company respondents, representing 133 planning instances. We have left the study open, and would love to hear from you. If you share the data from your implementation, we promise to never share your or your company’s name. All of the results are reported in aggregate. Here are some of the results that we have collected so far:

  • Extended ERP Solution Implementations Are Longer with a Less Favorable ROI. The implementations of extended ERP solutions for demand and tactical supply planning is 20 months while the best-of-breed solution deployments are averaging 11 months. (The predominate ERP SCP solution for the respondent in the survey is SAP APO. There are few implementations of Infor and Oracle.) The time to achieve ROI averages seven months for a best-of-breed provider and over 13 months for the extended ERP solution.
  •  Demand Planning Implementations Are Faster with Fewer Issues Than Supply. Demand planning is less industry specific than supply. While 67% of the demand planning implementations were at and under budget, 55% of the implementations of supply planning are over budget. My take? Supply planning requires a more detailed understanding of SCP. The models are industry specific. These solutions require greater insights and understanding by the manufacturer and implementing company. Over the last decade, many consulting partners have not been equal to this challenge.
  •  Does Integrated Planning Make Sense? Really? The average company greater than $5 billion has five ERP instances, three instances of demand, and three instances of supply planning. The enterprise environment is complex. It is not as simple as one ERP instance connected to a single SCP implementation. As a result, there is a greater and greater need for a visualization layer and planning master data system. As a result, the basic tenants and assumptions of integrated planning dissolve and become less relevant. The argument is becoming less and less germane.
  • Organizations Are Not Static. If this is not complicated enough, just when many IT managers build a system for tightly integrated planning, there is an M&A event making the IT environment even more heterogeneous. In addition, with over 30% of manufacturing and 55% of logistics outsourced, it is now a business network, not an enterprise, planning problem.
  • Ability to Use Data. While the extended ERP solution architectures make look nice on paper, the reality is that line-of-business users struggle to use the data for “what-if” analysis or business analytics. The supporting analytics around the extended ERP packages have not been equal to the business requirements.

What Should You Do?

This post is part of my series of “Do No Harm” which is a focused series to help line-of-business leaders get their supply chains unstuck. (In prior posts, I have written how nine out of ten supply chains are stuck in their ability to improve operating performance on the Effective Frontier of managing growth, profitability, inventory turns and business complexity.) To move forward, I recommend the following:

-Recognize the Facts. Each of the ERP providers is at a very different place.

  • SAP. The SAP team has built an incredible system of record to enable flows from ERP to SCP, but has failed to deliver a solution to deliver SCP planning excellence. In companies with an SAP APO environment, companies should use SAP APO as a system of record and buy other optimization solutions that are industry-specific to improve decision support. In addition, line-of-business leaders should push for clarity on the SCP footprint and the supporting business intelligence strategy to ensure that they can get data in, do “what-if” analysis, and get data out. Question the consultants that come to your door stating that, “… 80% is good enough.” The study clearly shows that it is not.
  • Oracle. The Oracle solution is strong in demand and transportation, but weak in tactical supply and production planning. It is not a good system of record. Oracle has cobbled together the acquired assets from the SCP market. Oracle has delivered neither a system of record, nor differentiation. It is integrated only by the words on the contract. Instead, what you have is one throat to choke; but, by and large, the references are unfavorable.
  • Infor. In contrast, Infor has done a better job. The ION integration layer attempts to provide a system of record and the many SCP solutions acquired through their mergers are being rolled up into a framework that is starting to make progress.

-Don’t Wait. A ROI in less than a year in today’s market is an opportunity. Why wait?

-Use Talent from the Technology Provider to Implement. The participants in the study that use consulting talent from the solution providers are more satisfied than those that implement using larger consulting firms. Use the large firms for program management and change management, but let the SCP providers tune  and implement the technologies in the SCP market.

Next Steps:

Is this a fluke, or a market reality? We are trying to gather more data. We would love to hear from you. If you fill out our survey on integrated planning, we will be glad to share the results with you and your team. Your responses on our survey are always kept confidential. We do not share the survey results of any individual. All of the responses are reported in aggregate. In addition, with more responses, we want to correlate these results to the corporate financial ratios to see the impact of supply chain planning choice. We hope to hear from you!

In addition, at our Global Supply Chain Summit in Scottsdale Arizona, on September 10th and 11th, we will have a facilitated breakout session for business leaders to network with each other on the future of demand and supply planning. It is a closed-door session with no technology or consulting partners. With SAP APO moving to a HANA architecture, the business leaders have requested this, and we want to help. We would love to see you there!

This week, we also kicked off our Supply Chain Planning Benchmarking Service with a webinar yesterday. We have five customers signed up and we are hoping for another twenty. We want to kick-off this project during the summer to gather more data around “What Drives Supply Chain Planning Excellence.”  Let us know if you are interested.