SCE Leaders Partner To See Beyond Their Portfolio Part Two: Market Impact

Market Requirements

Lately, some supply chain execution (SCE) leaders, not wanting to rest on their laurels of recently outperforming the entire enterprise applications market (if not many more other markets across the entire economy spectrum), have entered a number of partnerships with the aim to thereby extend their value proposition far beyond their expertise on the execution side of the supply chain management (SCM). Part One of this note detailed these developments.

Much has been said lately about the SCE market thriving and its SCP counterpart being one of the worst performing enterprise applications segments during the still ongoing economic downturn. While core back-office ERP and possibly even more cumbersome SCP systems might have traditionally excelled at planning, conceptual optimization and financial integration functions, they have not, however, addressed warehousing, yard management, distribution network planning, or transportation/logistics management. Yet, increasingly, every user company's success is contingent upon its ability to make almost immediate finished product or service delivery to customers

The demand for near real-time supply chain collaboration will, in turn, place an increasing emphasis on any company's ability to immediately commit itself to promising orders' delivery dates on a global basis and to consistently meet those commitments ever after. This available-to-promise (ATP)/capable-to-promise (CTP) aptitude will be made more complex as companies rely on an increasing number of business partners and suppliers to procure raw materials, assemble and deliver finished goods. SCE is therefore gaining increasing awareness among companies that realize that planning can do only so much without the ability to make the right and timely decisions and execute on the shop floor, in the warehouses and/or within the entire distribution chain.

However, it would be too nave to dismiss the need for proper planning, because regardless of how responsive a SCE system may be, waiting for a chaos to happen and only then trying to act, would be equally disastrous as it has been with compiling nearly ideal plans (through cumbersome algorithms) and never doing anything about executing them or obtaining a feedback about their outcomes.

As supply chains become more dynamic and operate in near real-time, the lines between planning and execution continue to blur, which bode well for their functional convergence. Companies need real-time information from execution systems to develop and adjust optimal plans, while the execution side should benefit from more realistic plans for some readiness sake, rather than to merely react after the fact in a firefighting fashion.

We believe that planning and execution will become much less inseparable in a trend that will see SCP, SCE, Supply Chain Event Management (SCEM), Manufacturing Execution System (MES), and analytics/Enterprise Performance Management (EPM) (i.e., decision support tools and multidimensional analysis on information aggregated from all levels of the commerce chain, and an extensive sets of predefined performance indicators, as well as strategic planning/forecasting and balanced scorecard functions) coming together into an adaptive system. Leading SCE vendors will thus continue to move beyond their current SCE functionality to more collaborative and optimized holistic supply chain management (SCM) solutions, which will include more consistent functionality at all levels of the organization, including collaborative planning, forecasting, replenishment (CPFR), order management/customer relationship management (CRM), warehouse/yard/transportation management, integrated business intelligence (BI) and performance measurement, as well as industry-specific functions. Vendors lacking the technical expertise for the development of integration and business process management (BPM) platforms, and analytical planning engines will find it necessary to preferably OEM-embed or just loosely partner for this functionality.

Having said all the above, to be able to react to fluctuating demand, respond to customer specifications, and coordinate real-time event messages from multiple disparate systems, the SCE systems are being further enhanced with decision support capabilities and planning engines aimed at order fulfillment and inventory and order status visibility. Therefore, while many original WMS suppliers have lately added transportation and order management to their core products, and others have developed optimization or value-added service options, the most regular and justifiable enhancement has been Web-based order-fulfillment modules, which typically include near real-time SCEM, alert messaging, order tracking, and complicated workflow management.

Harnessing this technology should lead to the so-called "self-healing" or adaptive supply chain — when a software engine monitors all the numerous events taking place supply-chain-wide, identifies and escalates exceptions, sends notification, and reacts appropriately to those exceptions, ideally without human intervention. Thus, users will require the ability to adapt to the difference in process flows on a particular order-by-order and customer-by-customer basis. The ability of the tool to support workflow throughput during the execution cycle, including record locking as activities progress up the value chain, is particularly beneficial to organizations requiring the ability to manage and automate the SCE process across multiple organizations.

Real-time Web services (e.g., pricing, order status, inventory lookups, ATP/CTP) will further drive external focus of transaction and fulfillment systems, whereas order management systems on their hand are also evolving to support complex shipment routing, based on intelligent understanding of profits, service requirements, and capacities.

As a proof of concept, the other vendors still doing well in the segment are those that enable companies to efficiently manage trading relations and fulfillment processes. Companies such as Prescient Systems, Escalate, SoftChain, webplan, VCommerce, Ortems, SeeCommerce, and Teadec in demand planning, supply chain event management (SCEM), visibility, and/or performance monitoring are able to connect disparate systems to provide all the parties with near-real-time information on current movements and trends. True collaboration will continue to focus on planning-related activities but significant integration among all supply chain participants will be necessary to enable the event-driven execution necessary to meet irregular customer demand. In addition, companies participating in new collaborative commerce chains will seek out supply chain partners with similar technology that have comparable SCM functionality and the level of complexity.

This is Part Two of a three-part note.

Part One detailed recent announcements.

Part Three will cover Challenges and make User Recommendations.

Market Impact

Continued acquisition, partnerships, and internal development will continue to accelerate offering a much-richer level of functionality throughout the entire commerce chain software market, as seen in the past with maybe not that fruitful partnerships like those of EXE Technologies and i2 Technologies and of SAP and Catalyst, albeit the reasons for suboptimal alliances' results would be outside the real need for SCP and SCE convergence, such as poor performance of some of the vendors in case (see Catalyst International to Tread Water With SAP Through 2000 and EXE and i2 Advance Relationship). Still, the result of tighter integration between traditional planning functions and operation/execution systems will continue to be pursued, as seen in case of many major SCE vendors (i.e., HighJump, RedPrairie and Manhattan Associates) closely partnering with PeopleSoft. This should also indicate PeopleSoft's serious strides of late in the SCM market within certain industries like consumer packaged goods (CPG).

Despite the move toward more integrated suites, pure SCE players should be able to continue offering SCE components as standalone products for some time to come. The market is seemingly not yet ready to just abandon well-crafted SCE components for one-size-fits-all SCE suites, for a number of reasons. One would be the mere complexity of warehousing operations, which has demanded serious customizations of earlier generations of warehouse management systems (WMS), making upgrades almost impossible. Further, despite the efforts of companies to integrate their supply chains, most still have functional silos between planning and execution, manufacturing, accounting and logistics. The reality is that logistics cost data and constraints are required to develop truly optimal financial and manufacturing plans. Also, packaged suites may come in handy for highly repeatable, conforming processes in the back office, but that is not necessarily the case for more fluid, customer-specific, distributed processes, like distributed order management across geographic boundaries.

Therefore, Manhattan Associates' and RedPrairie's areas of focus still largely remain out of enterprise applications giants' reach, as opposed to their annexation of SCP or customer relationship management (CRM) areas. Market wide, the growth of industry specific, vertical solutions continues with concurrent internal development, acquisitions and partnerships, and the notion of an "end-to-end" solution continues to evolve, though. At the same time, best-of-breed SCP vendors have been stripping down and streamlining products sets, given their cumbersome and confusing offering in the past, which have consequently resulted with a bad image in many cases.

Thus, as the demand for more integrated collaborative SCE suites abounds and industry consolidation increases, vendors offering standalone, complexity-handling SCE applications will face increased competition from ERP and SCE suite vendors for middle-to-less-complicated environments, such as HighJump (see HighJump Grows in a Period of Low Growth Through Adaptable, Broad Function Products) , Provia (see Provia Proves Its Way To Success), Irista, SAP, Oracle, J.D. Edwards, Lilly Software, SYSPRO, and Adonix, to name some. While the WMS market is expected to continue to grow modestly but faster than many other applications, it appears the customer order fulfillment process management as an add-on solution to WMS will experience much higher growth. Look for all the above vendors to continue increasing functionality, through increased product development budgets, alliances and/or acquisitions.

Manhattan Associates and RedPrairie

It should not be a surprise that Manhattan Associates, as an undisputed leader in the SCE market, nearing $200 million in annual revenues, would be best equipped to build, buy, or assemble the above-depicted adaptive SCM system. Also, the recent array of positive results have allowed RedPrairie to overtake EXE Technologies, and while its ~$75 million annual revenue figure and narrower geographic coverage are far from that of Manhattan Associates, it still outpaces the slew of small and midsize WMS-based SCE vendors, which are all at less than $50 million revenue mark. Continued global expansion, increases in research and development (R&D) investment, and a notable portion of revenue coming from new product initiatives and new markets, have long been refuting even some pundits' claims that Manhattan Associates or RedPrairie would be a short-lived market irregularity that would disappear as soon as large enterprise applications providers notice it.

Spending increasingly on R&D in an effort to develop enhanced products is one of the key tenets that have led to the continued success of both vendors. They have so far focused most of its R&D on enhancing execution capabilities for specific industry requirements, on real-time collaboration and visibility within the extended supply chain, and on delivering more functionality from its suite of optimization products. The software market for WMS has consequently become more and more competitive as the technology has evolved to address the lion's share of customer requirements.

Like any software technology that has reached a plateau in the maturation curve, WMS have evolved to a point where there is little differentiation among them. For example, rules-based dynamic route determination feature that Manhattan Associates can boast now, or very recently released constraint-based Dock Door Scheduling module, with streamlined shipment loading and increased distribution center (DC) throughput capability of RedPrairie will likely soon be emulated or even leapfrogged with another functional nuggets by their peers.

This environment has prompted forward-thinking companies to take action, extending their solutions to include applications complementary to WMS. Of these, transportation management system (TMS) has also been one of the most prevalent simply because users instinctively regard logistics operations as the "spokes" through which goods are conveyed to and from the warehouse and distribution center "hubs". While nearly all of the SCE market leaders have either acquired (see Becomes The Newest Of Manhattan Associates) or internally developed transportation management systems (TMS) and other applications to enhance total solutions, there is still a marked lack of cohesion between products in their suites let alone in a heterogeneous environments.

Namely, although it had maintained that its Pickticket Management System (PkMS) application provided functionality for both transportation and warehouse management, Manhattan Associates had generally long been regarded strictly as a WMS vendor. Its product, PkMS, was originally developed as an order picking system for warehouses and distribution centers. Consequently, over time, Manhattan Associates had added functionality beyond the strict boundaries of order picking and warehouse management, such as outbound distribution, work order management, and freight management. Further, although Manhattan Associates acquired Intrepa in 2000 (see Manhattan's Footprint Grows With Intrepa Acquisition), the company had still lacked a strong TMS solution relative to the best-of-breed likes of G-Log (see Who's Who? Sorting Out the e-Logistics Players), and thus the recent acquisition of Moreover, in the process of expanding its functionality and likely of non-selectively satisfying customers' requirements, Manhattan Associates has also released disparate versions of PkMS running on different platforms (i.e., IBM iSeries, UNIX, and Windows) and featuring different functionality, as well as a lighter version of its flagship system, called Pronto, which offers small to mid-sized warehouses a full-featured system that can be implemented in an easier, less complicated fashion.

The circumstantially prudent approach the company has taken for the last several years to expand its footprint and to guarantee system upgrades to meet evolving industry standards (such as the most recent case of including any new and emerging RFID standards in its retail compliance guarantee, to help speed the adoption of RFID in the retail supply chain so that all supply chain participants can benefit from this nascent but possibly very important technology, while helping to ensure customer service levels do not suffer), while ensuring consistent growth, have also resulted with an unwieldy number of disparate products running on different technologies and having different functional strengths. Enter the fact of sporadic analysts' criticism for lagging in web-enablement, and Internet strategy, and one could see the need for Manhattan Associates to resort to a partnership with an integration specialist.

While RedPrairie has had its share of acquisition-based product expansion, it has done it in a much more orderly way. To that end, a product acquired from Software Architects a few years ago provides the fundamental component integration architecture for RedPrairie DLx suite. This platform imparts uniformity among the various modules that, though drawn in some cases from different sources, speak the same data language. Hence, RedPrairie can offer diversity of scope with uniformity in presentation, data structure, and business objectives. This is an important differentiator in a market characterized by a host of competitive offerings that are sometimes slapped together with little thought to ensuring connections make sense.

Many features of RedPrairie's DLx Integrator are aiming at achieving the functional decomposition of existing software applications (i.e., separation of data transactions from business processes), and then exposing the limited transactions or process steps as industry-standard Web services, orchestrating the transactions together using BPM tools, and managing these via policies, rules, etc. While in a much better situation than Manhattan Associates when it comes to products' multiplicity, RedPrairie has still only recently released the unified version of the product that features equal strengths for both discrete and process manufacturing industries (see RedPrairie - New Name For A Brave New Value Proposition Paradigm).

This concludes Part Two of a three-part note.

Part One detailed recent announcements.

Part Three will cover Challenges and make User Recommendations.

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