Squeeze Play in the Supply Chain Management Market

To increase market share, vendors are expanding and offering more services to customers. On one hand, enterprise resource planning (ERP) vendors are adding such functionality as warehouse management systems (WMS) and transportation management systems (TMS) into their suites; on the other hand, supply chain management (SCM) vendors are including business intelligence (BI) or supplier relationship management (SRM) functionalities in their applications. Consequently, the IT market is seeing a convergence of functionality for ERP and SCM systems.

In pushing downward into the supply chain space, ERP vendors are incorporating such additional functionality as product lifecycle management (PLM), SRM, advanced planning, WMS, TMS, event and performance management, labor, slotting, yard management, and radio frequency identification (RFID) to their ERP product suites. This business model of ERP vendors pushing downward has expanded, and it is consuming valuable supply chain execution (SCE) market share. This is in accordance with market demand, as organizations are now expected to have one system to address all needs collaboratively.

This article examines the upward push of supply chain vendors into the ERP space and the downward penetration of ERP into the supply chain market, as well as the overall impact on the market.

The Downward Push of ERP Vendors

ERP vendors are expanding their market share at the expense of SCM vendors. ERP solutions encompass a wide range of functionality that includes most of the business processes of an organization. Traditional modules like accounting, BI, customer relationship management (CRM), advanced planning and scheduling, manufacturing, warehousing, and shipping are all standard ERP offerings today.

Most ERP functionality is usually stronger within a particular function of the enterprise (such as financials), while accommodating the other functions within its infrastructure. Other business functions within the ERP infrastructure are incorporated within the same platform, and there is no need for additional interfacing between each operation. Although ERP software covers many modules, its functionality within a module may vary widely, and may not incorporate an adequate level of detail for a particular function like an engineered-to-order product.

Many organizations have elected to implement best-of-breed SCE software on top of their current ERP system to address the shortcomings of functionality within the supply chain. An example where additional functionality was needed in the warehouse is Indigo Books & Music. Indigo implemented SAP corporate-wide, and then had to install an additional WMS (HighJump) to cater to its warehousing requirements. This is common for other companies, such as Nike, Daydots, and 99 Cents Only Stores, where ERP systems have been installed along with WMS solutions to manage the warehouse.

Companies like Catalyst, HighJump, Manhattan Associates, and RedPrairie have all interfaced to SAP successfully, and Catalyst is even approved by SAP for its interface between the WMS and the ERP. Generally speaking, new SCM functionality now incorporated into the ERP products is more detailed and stable from a platform and functionality aspect.

This new level of functionality incorporated within ERP may be the element that is currently missing to handle today’s increasing need for real-time information and accuracy. Tier one vendors, aware that their solutions were lacking in detailed supply chain functionality, have spent extensive research and development resources to improve these shortcomings. SAP, for instance, has dramatically increased functionality within its WMS offering.

Figure 1 outlines most of the traditional functionality included with most ERP and SCM systems software.

Figure 1. Traditional functionality of most ERP and SCM systems software.

The left-hand side of the chart shows traditional ERP modules, and the right-hand side displays typical SCM functionality. Within each of these modules, there are submodules, as in advanced demand planning (outlined in gray). In demand management alone, several components that were not previously included in earlier versions of ERP have now been incorporated. Likewise, within SCM software, modules such as BI, manufacturing, and SRM are now included as part of SCE software.

The SCM Push Upward

Supply chain vendors of the past only provided a single product that addressed one aspect or function within the supply chain. However, certain business requirements have become the norm, such as vendor collaboration, changes in workflow, event management, performance management, PLM, labor requirements, key performance indicator (KPI) analysis, real-time inventory, manufacturing execution systems, WMS, transportation requirements, advanced planning and scheduling, and partner-supplier collaboration. SCM vendors feeling the tightening of the market have started to address their shortcomings, and are including more ERP-like modules to expand their solutions.

SCM software traditionally employs a strategy of covering everything within the four walls of the warehouse. The addition of ERP modules aims at tying into the entire supply chain and its collaborative aspects. Trading partners (and now logistic companies) are coming together with manufacturers to unite services, products, and customer experience. Demand management and SRM are intricate parts of SCE, and tier one vendors like HighJump, RedPrairie, and Manhattan Associates have now included very detailed iterations of this module.

Since detailed information is required, most tier one WMS vendors, and even the smaller vendors (ASI, Radio Beacon, RF Pathways, and Scancode) within the SCM space, have also added and developed new functionality to compete with this shift in business model.

For example, HighJump has evolved to fit this shift in business strategy and technology. Its initial offering was a best-of-breed WMS. HighJump’s WMS competes with Manhattan and RedPrairie, and all three vendors now offer a full suite of SCE products (see figure 2).

Figure 2. The full-suite SCE products of Manhattan Associates, Highjump, and RedPrairie.

Figure 2 shows the addition of modules (outlined in gray) that have been added by tier one vendors (some tier two vendors have also added these modules). These particular additions were not part of the supply chain landscape just a few years ago. Modules like advanced planning, forecasting, trading partner management, BI, and in some cases PLM, were traditionally not included in SCE software. With the advent of these additional modules, an organization can manage its entire supply chain (and every event within the chain) down to a minute level.

Most or all of the modules offered by the SCM vendors can be integrated together or used as stand-alone applications. This allows a great deal of flexibility, which permits customers to select the exact functionality they require.

Impact of the Tier Two and Three Vendors

Let’s not forget the important role that the tier two and tier three vendors play. The lower tiers of WMS vendors are adapting to this new model, and are starting to encroach on the larger supply chain market. The tier two vendors have adapted by increasing its own functionality and in most cases can be implemented faster than a tier one vendor.

Tier two vendors have added new functionality, such as front-end web interfaces and a more user-friendly environment for consolidation and comparison of data (as opposed to tier one vendors). Draws for the WMS consumer in the tier two market usually include a quicker implementation cycle and a more attractive price point.

The tier two and three WMS vendors can offer best-of-breed solutions as well, albeit perhaps less comprehensive in scope. These solutions may lack finer functionality, such as slotting or dock scheduling.

The lower-tiered vendors usually have a competitive advantage in the development cycle. One such area is web enablement. Web enablement can take various forms, from a browser-based graphical user interface (GUI) at a terminal within the company, to portable devices enabling sales staff to place orders while on the road, to signature capture, to the storefront the consumer interacts with from home. When a modification or upgrade is needed, the tier two vendors can usually develop, test, and interface the new modification much quicker than a tier one vendor can. Development can usually be fast-tracked without going through red tape (as in larger organizations). Implementation time is quicker, as the warehouse may not have to shut down completely to have an upgrade or change applied to its system. A lower overhead cost is the result, and the savings is usually passed on to the supply chain consumer.

The tier two WMS vendors have increased their functionality by writing hooks and interfaces to packages such as SAP, Oracle, Microsoft Great Plains and Navision, the Sage MAS 90/200/500 products, Intuit’s QuickBooks Financials, etc. This makes the tier two vendors more flexible, as they are compatible with a larger number of solutions. Some are even certified as legitimate interfaces to SAP Business One (one such example is RF Pathways). With these new market opportunities for the tier two vendors, they are eroding what was traditionally tier one space. Companies are realizing that if a tier two WMS vendor addresses most of its needs, then a more expensive tier one solution may not be necessary.

With the introduction of SAP Business One and Oracle’s scaled-back product for the small to medium business (SMB) market, tier two vendors have another integration opportunity to capture market share that was once unreachable. The tier two SCM vendors can now approach larger companies with the increased functionality, and offer lower prices to consumers that may not have considered a smaller solution previously.

Tier one vendors have started to realize the growing potential of the SMB space, and are starting to target what was a traditionally a tier two market, by offering lower priced versions and scaled-back functionality of packages, such as Warehouse Advantage Select from HighJump. This seems to be a growing trend for the tier one vendors. On the other hand, a tier two vendor would welcome the association with the big ERP packages, as that could only boost its visibility.

Since ERP spending has subsided within major corporations, the large vendors are looking to increase their value by solving the more complex business issues faced by organizations. A few areas where SCM and ERP vendors can add value is in advanced integration, and in the ability to handle very complex workflows that some of the tier two vendors may not be able to address. This is a necessary requirement, as companies are examining their supply chains to see if they can improve bottom-line results.

The supply chain market is progressing toward even further granularity within each module. There are a growing number of companies that specialize in a subset of one module; Valogix and Maple Lake, for instance, offer one solution for inventory planning, merchandise planning, demand planning, scheduling, forecasting, etc. These solutions can stand alone or integrate with other best-of-breed packages, usually within an ERP application or within a larger SCM solution. These niche companies execute one task at a micro level that may not be available within an integrated SCM or ERP solution. There is increased demand for such specific requirements, as companies realize that only one part of the supply chain solution is needed (thereby further eroding the market for all SCM solutions). If a company decides that it may only use a specific functionality like demand planning or a specialty product that addresses a supply chain niche, tier two vendors may be left out in the cold, thus eroding market share for extensive SCM solutions even further. This will also muddy the waters as to where all of these vendors will fit, and as to what share of the pie they can capture.

Conclusion

With the finite amount of customers available in each space, it is clear that the market is eroding. Niche players are forming a growing demand of their own, SCM is pushing upward, and ERP is pushing down. Which vendors will emerge victorious?

Customers are faced with many idiosyncrasies that did not exist just a few years ago. Sweet spot achievement is being sought by organizations that can accurately assess their requirements, cut through the marketing hype, consider integration, and select a good fit to maximize efficiency. The overlap of modularity between SCM and ERP solutions has caused further confusion in the SCM market.

The ultimate solution will offer all the functionality needed. Ideally, the best solution would encompass ERP functionality with the addition of capabilities for SCE, down to a micro level. This would eliminate the need for separate systems.

It seems that SCM vendors have executed the upward expansion to the ERP market effectively—particularly in comparison to the way ERP vendors have handled the downward penetration to the supply chain market. SCM vendors have incorporated ERP-like modularity, and even offer these modules on a stand-alone basis if necessary.

Whether a company selects a best-of-breed SCE solution, an ERP application, or a niche market solution, it should consider its future requirements and the possibility of global operations. A good solution will provide an easy and seamless integration to the company’s current system while adding increased functionality—without disrupting current business operations.