Supply Chain Management

The challenges associated with delivering products and services at the right time and at the lowest cost are increasing as companies face tighter pressure from their competitors and work to expand their global reach. In an effort to maximize revenue amidst competition and globalization in the 1990s, companies delivering products and services began looking at supply chain management (SCM) as a new piece of the puzzle; improving internal efficiencies was no longer enough. As competition and globalization continued to increase companies realized the importance of streamlined supply chains and turned to SCM solutions for help. Forrester Research, which in the past few months has issued several reports on the topic, defines SCM as, “the business process of managing the complex interaction of products, materials, equipment, labor, and cash as they flow through the supply chain and fulfill customer demand.” This, according to a recent article in The Journal of Computer Information Systems, is something to keep an eye on: “The understanding and practice of Supply Chain Management (SCM) has become an essential prerequisite for staying competitive in the global economy and for enhancing profit.”

However, despite the current market for SCM solutions, research indicates that companies in need of solutions are often disappointed with their options and results. Forrester reports that according to a recent survey, “manufacturers and retailers stated that they face . . . persistent disappointment with returns on current technology investments. Worse yet, firms realize that widely accepted supply chain strategies are inherently ill-suited for these new challenges.” As those in need wait for improvements beyond their control, they are doing what they can to cut down on associated costs. In an increasing number of scenarios, particularly among small and medium sized businesses (SMB) where IT constraints are tighter, the need to control expenses has lead to increased adoption of a model that until recently was perceived as unworkable; hosted or Software-as-Service (SaaS) solutions.

In hosted or SaaS solutions a third-party provider is paid to host, implement, maintain, and upgrade an application. This model, which puts the burden on the provider, offers substantial benefits; it saves on implementation costs, cuts down on in-house IT man-hours, and ensures that the most up-to-date version of the application is being utilized. As Network World puts it, “Going the software-as-a-service route lets companies avoid the capital investment and complex deployment associated with conventional licensed applications.” However, due largely to the fact that this model introduces third-party handling of proprietary data into the equation, it has, until recently, been adopted only with hesitation.

A piece appearing in this month’s issue of CIO magazine has Beth Enslow, Aberdeen Group's senior vice president of enterprise research, saying, “concerns about data getting lost or stolen and system reliability prevented companies from entrusting their mission-critical supply chain activities to third parties.” Now this perception is changing; the same article quotes Bill McNee, founder and CEO of Saugatuck Technology, “Security is a baseline requirement . . . Whereas that was more of a concern two to three years ago, virtually all software-as-a-service players have overcome that.” At the same time the security of hosted solutions is improving, the SaaS model is getting attention in the SCM arena because it has proven itself outside of it. The most notable proving ground has been in the Customer Relationship Management (CRM) space where the success of companies such as NetSuite, Salesforce.com and Salesnet has proven the viability of SaaS.

In November of 2005 Forrester, “surveyed 603 technology decision-makers and enterprises in North America to find out how they plan to invest their supply chain software and services budgets in 2006.” Overall 17 percent of companies surveyed stated that they will invest in supply chain software-as-a-service deployment; the number jumps to 25 percent for smaller companies with limited IT bandwidth. In reporting the numbers, Forrester points out that companies are more likely to implement a SaaS model for ERP and CRM than for SCM, and in doing so makes the growth in this area seem somewhat less substantial. However, AMR Research sees it in a different light. AMR reports that 26 percent of companies are considering hosted solutions as an option and that in 2005, application hosting, “was the fastest growing SCM delivery model, at a 16 percent growth rate.”

In whatever light the growth of hosted SCM solutions is seen in, it remains only one option. What is clear is that there will be a continued need for SCM and that this will drive innovation in both hosted and non-hosted solutions. However, it may be a while before things take root. According to Mark Hillman, senior research analyst at AMR Research, “New business focuses and pressures are driving pockets of vendor innovation and renewed corporate spending in supply chain initiatives . . . However, spending is tempered by the fact that corporate supply chain organizational maturity is still relatively low, limiting adoption.”