Supply Network Apps Take Off
Firms Shift Supply Chain Focus from Internal to External
Forrester Research interviewed IT and supply chain executives at 41 Global 2,500 companies about their current and future use of four different types of apps: buy, make, move, and monitor (see Figure 1). Today, firms are deploying internally-focused supply chain apps, like warehouse management and demand forecasting, that improve processes within their own four walls. But these app initiatives won't enable firms to establish dynamic trading relationships or facilitate cross-enterprise supply chain interaction.
Figure 1 - The Accenture Index - Valuations of 10 leading B2B markets
Users tell us that they will now embrace new apps like e-procurement and collaborative replenishment to support the externalization of their processes. The result? Inward facing supply chain apps spending will shift from 50% today to a mere 32% of all supply chain app purchases in 2005 as firms move from supply chains to supply networks and coordination outside the firm becomes mission critical. Today's apps that support linear, fixed supply chains won't cut it in an environment where firms reconfigure business relationships overnight. Supply networks will force units like operational planning to act as independent, cooperative businesses. These organizations will need apps that let firms reshuffle their portfolios of trading partnerships. Need a partner to develop a new product? Visit source design talent on webPRN. Looking to sell your idle capacity? CapacityWeb can find a buyer for you.
To support supply networks, firms must learn to tap the expertise of their trading partners to execute product design and inventory management. Yet in today's scenario, companies invest in an app for their exclusive use and set up expensive virtual private networks (VPNs) to provide trusted partners access to that app. As firms multiply their external connections and collaborate with more partners, apps will need to evolve from static, single-firm investments to shared services with pay-as-you-go pricing structures.
Supply Chain Apps Will Grow to $6.2 Billion in 2005
Vendors' rapid-fire releases of upgrades and a tight IT labor market will lead U.S. firms to view hosted app services as the best way to keep up with technology change and curb their maintenance costs. As industries move from supply chains to supply networks, companies will shift purchases away from inward-facing supply chain apps to a new class of apps that grows out of today's externally-facing ones. These supply network apps and services (see Figure 2) are defined:
- Apps and services that enable firms to coordinate their supply chain operations with trading partners in real time over the Internet
Figure 2 - Supply network apps differ from existing supply chain apps.
The combined total license and subscription fees for supply chain and network apps and services will rise from $3.9 billion in 2000 to $6.2 billion in 2005, influenced by two factors:
- The necessity for cross-enterprise supply management
- The complexity of the industry's supply network
New levels of collaboration required in supply networks will stretch legacy supply chain apps to the breaking point. Rather than upgrading existing apps, U.S. firms will invest in new solutions that improve collaboration with their extended supply chain. As a whole, cross-enterprise apps adoption will grow at 36% over the next five years as they morph into supply network services. Four classes of apps will lead this adoption (see Figure 3).
Figure 3 - Supply network apps growth differs by apps category in the U.S
(See Larger Image)
Buy-apps will win big in the short term. E-procurement apps from vendors like Ariba will grow at 16.6% per year through 2003 to reach $1.6 billion as industries procure through e-marketplaces. GM is heavily investing in e-procurement to trim its $87 billion procurement costs and reconcile 30,000 suppliers. But by 2003, adoption will level off, gliding the buy apps market to $2.2 billion by 2005.
Make-apps will grow only in specific industries. Today, U.S. firms invest in inward-facing apps like product data management and factory planning to plan, design, and build products. But global e-commerce will drive high-tech and auto firms to outsource manufacturing and improve time-to-market, taking the market to $1.1 billion in 2005.
Move-apps will catch up post 2003. Today, U.S.-based global traders limit their move apps spending - mostly relying on an awkward flow of paper and misinformation to manage their global logistics. But with 21% of U.S. exports and 37% of imports shifting to the Internet by 2004, multinationals like GE will massively invest in apps to push global logistics outward. By 2005, trade shifts will drive move across apps like landed cost engines to hit $1.1 billion, or 26% of all cross-firm apps spending.
Monitor-apps will take off in 2002. E-business initiatives like collaborative design and e-procurement will struggle as firms simply translate broken, off-line processes into online app initiatives. As they retrench, firms will adopt monitor apps like order processing and visibility to manage cross-enterprise processes by exception. Monitor apps will take off in 2002, hitting $1.1 billion in 2005.
The maximum penetration of an app - its highest possible adoption point - within an industry is determined by that industry's environmental complexity, market focus, and volatility. Industries with fragmented supplier bases or outsourced manufacturing will embrace outward-facing apps to gain better visibility in and control of their multi-tier supply chain operations. This year, high-tech firms will allocate 61% of apps spending to cross-enterprise apps like collaborative design. Top priority will be given to apps that curb the major process inefficiencies associated with an industry's supply chain focus, whether it is sourcing, manufacturing, or distribution. Through 2003, consumer goods firms will invest $420 million on move-apps to reduce high distribution costs, but utility firms like PacifiCorp will spend just $9.2 million on these apps, instead investing five times more on apps to curb their huge sourcing costs. And industries with high demand volatility and highly constrained supply networks will need to invest in apps that improve their production and distribution agility. In 2003, the auto industry - where demand is unpredictable and supply is limited - will account for 14% of all industry spending in make across apps like collaborative forecasting.
Supply Networks Will Depend on Services, Not Apps
There is a major disconnect between today's difficult-to-implement apps and user firms' aspiration to cultivate dynamic trading relationships. As U.S. firms edge closer to e-business networks, they will realize that incumbent vendors' offerings won't extend supply chain planning and execution processes on-the-fly to new partners. The result? A shakeout that will roll across the supply chain apps market in three ways:
Portals Rise, Level Off, and Fall (2000-2002) - Vendors like i2 and SAP, who are building Web front-ends to their inward-facing apps, will attempt to position them as credible platforms for multi-enterprise supply chain coordination.
Supply Chain Monitoring Hubs Rise (2002-2004) - Visibility apps from vendors like Viewlocity, that allow companies to track real-time activities across supply chains, will take center stage to let firms manage their business by exception.
Supply Network Services Replace Supply Chain Apps (2004 and beyond) - 2004 will see the emergence of adaptive planning and "active" business intelligence - automated decision-making based on user-configured rules.
Portals Rise, Level Off, and Fall (2000-2002)
Portal platforms like i2's TradeMatrix, SAP's mySAP.com, and Oracle's Exchange will initially gain traction because they address firms' immediate needs to integrate their supply chains within their four walls and share data with external partners. Nabisco needs to integrate its 100 globally distributed plants and its huge fleet in order to remain competitive in the low-margin food industry. A platform like i2's TradeMatrix solves their short-term integration needs by offering a single Web-based portal to manage sourcing, planning, and fulfillment for global operations. In the past, a manufacturer who wanted to electronically submit its POs for direct materials had to set up EDI connections between each plant and its suppliers. Through mySAP.com, Nestle's plants can now directly post their production plans to the Internet, and suppliers can log on to see changes to plans or adjust their delivery times.
But these proprietary platforms won't prepare firms for e-business networks because vendor specificity restricts multi-tier integration and these apps offer limited decision-support and coordination. Vendors like Oracle deliver supply network coordination through a single data model. But what if Nike wants to coordinate across its i2 demand planning app, a sewing partner's webPLAN production planning, and its yarn supplier's mainframe MRP app? These portal offerings come up short, because these real world issues require a planning engine that heeds partners' evolving constraints - buried deep into scattered data models. In addition, portals act as a bulletin board but don't provide deep, system-level integration - forcing manual re-entry to coordinate activities. Finally, while portals provide a single meeting place for all trading partners, they don't coordinate cross-enterprise processes. Today, Best Buy can post its sales forecast updates on its Retek-enabled portal to allow RCA to tune its capacity planning - but not negotiate for more sales. To collaboratively set forecasts, Best Buy must be able to interact directly with RCA's factory planning systems to jointly come up with negotiated forecasts.
Supply Chain Monitoring Hubs Emerge (2002-2004)
Portals like mySAP.com don't let firms collaboratively plan and execute orders. Instead, they require people to manually update plans and orders. Unlike portals, supply chain monitoring hubs from vendors like Descartes and Viewlocity will tie together multi-firm business processes and provide visibility and control of plans and operations across entire trading networks.
Supply chain hubs will rise to build out deep integration, extend monitoring to span the enterprise, and help manage complex decision processes. Monitoring hubs like Atlas Commerce will use B2B integration software that is built on an industry standard infrastructure to knit together systems across an entire supply chain. The result? Before Compaq accepts a big order for its printers, it can dig into its supply chain to check the availability of the resin producer who supplies Compaq's contract manufacturer.
By 2003, vendors like Baker Street and Viewlocity will extend cross-enterprise visibility upstream into product design and manufacturing processes to help trading partners proactively detect all supply chain constraints - and track each other's performance by analyzing promised versus actual behavior. And monitoring hubs like SeeCommerce will support frontline decision-making by offering strong analytic capabilities that link decisions at all levels across the extended enterprise. Strong ties to operational systems and context sources will allow these analytic services to provide actionable suggestions. If GE Plastics' hub wants to accommodate Ford's request for a delivery date change, it will look into available capacity as well as customer profitability metrics to determine how other customers' orders can be reallocated.
Supply Network Services Replace Supply Chain Apps (2004 and Beyond)
Portals and hubs act as switchboards by collecting data from and disseminating it to multiple systems and trading partners. But they can only plan and optimize business processes within a static supply chain. In 2004, fixed supply chains will be replaced with fluid, recombinant supply networks in which partnerships are formed and dissolved at the blink of an eye. In the wake of this massive restructuring, monolithic supply chain apps will be eclipsed by Internet-resident supply network services.
These network services will broker partner integration on the fly, close the look between planning and execution, and utilize "active intelligence." In 2004, firms will be able to integrate with their ever-changing trading partners' processes on the fly by tapping e-business brokers like Viacore - intermediaries who will provide B2B integration as a service. The result? Once Cardinal signs up a new contract manufacturer to address an unexpected demand spike, it can plug its order processing service into its new partner's production planning service overnight.
In e-business networks buying patterns fluctuate overnight - making today's optimal demand plan sub-optimal tomorrow. Optimization apps from vendors like i2 and Oracle who view supply chain planning and execution separately won't cut it. By 2004, startups like Bios Group will introduce optimizers that support "adaptive" planning - a technique that continuously revises a rough plan as actual demand occurs and trading partners' operational data is collected.
By 2003, vendors like Tilion and HP will offer "active intelligence" services - Internet-native agents that collect and analyze data across multiple supply networks. Subscribing firms will configure these agents to take predefined actions whenever a leading indicator signals a looming issue. If Holnam's agent concludes that a brewing storm in the Pacific Ocean could delay its regular carrier it would instantly submit an RFQ for cargo capacity to Celarix.com. Bottom line? Huge gains in firms' business velocity management.
Users and Vendors Must Reset Strategies
Supply networks will beget new players and radically alter the way firms manage their trading relationships. Users and vendors must proactively reset their strategies. As supply network services put Supply Chain Management on auto pilot, firms must train their line managers to manage their "hands-free" processes by exception. But this won't be easy since analytic tools that automate decision-making processes are perceived as a threat by middle management. To make frontline decision-making a reality, firms must revamp their performance metrics and reward systems - like linking "percent revenues from products introduced within last 12 months" to plant managers' goals.
Firms in mature markets like food and chemicals shouldn't expect e-marketplaces to streamline their industry supply chains today. These vertical hubs won't appear until 2003. Rather than wait for e-marketplaces to mature, firms should focus on developing private hubs that augment their supply chain performance with existing strategic suppliers.
Companies like chip makers that span multiple supply networks must learn how to implement e-business contracts to define the forms, terms, and processes for automating business over the Internet in multiple industries. Why? Because with more chips now being used for cars, cell phones, and other non-PC devices than computers, chip-makers need e-business contracts to seamlessly automate and streamline their e-business relationships across these new target markets.
In traditional supply chains, suppliers, and customers are addressed discretely. But in supply networks, every operation will be driven by customer demand. The result? Tighter partnerships between buy-focused vendors like RightWorks and CRM providers like Clarify, as both strive to go beyond traditional supply chain-CRM partnerships that tie demand planning to campaign management. By 2002, vendors like Manugistics and Siebel will integrate their apps to help suppliers effectively manage channels - not just customers - and factor customers' lifetime value dynamically into pricing schemes.
