Supply Chain Management Software White Paper

Supply Chain Software — An Executive's Guide

This White Paper provides an executives guide to Supply Chain Management (SCM), the market for supply chain software and the best practices for selecting and implementing SCM software.

Supply Chain Management is constantly evolving with benefits that extend beyond operational efficiencies to strategic and financial improvements. Supply Chain Planning software integrates long-term, mid-term and short-term planning. Supply Chain Execution software is made up of Warehouse Management Systems and Transportation Management Systems.

SCM is benefiting from relationship management software. Supplier Relationship Management (SRM) is a subsystem of SCM software and Customer Relationship Management (CRM) software has historically been a standalone system focused on sales force automation, marketing and customer service, however, is becoming increasingly more integrated with supply chain software.

Most companies have some elements of supply chain systems – such as warehouse management or forecasting sales. The companies that see real benefits from their supply chains are the companies that take a holistic, integrated approach to SCM systems.

Driving the investment in application software (currently about a $9 billion market) is the need for organizations to be more competitive, reduce their risks, operate in a global market and comply with management mandates, government regulations and industry standards.

Supply Chain Software Market Summary

According to AMR Research, the supply chain software market reached $9.2 billion in 2012 and is forecast to grow about 7% annually. The application software market is quite fragmented, with the top 20 vendors accounting for over half of the market.

Currently most supply chain software vendors fall into either supply chain execution (SCE) or supply chain planning (SCP). Industry analysts expect that SCE and SCP solutions will eventually consolidate and become commonplace. SAP and Oracle lead in market share and both are well on the path to fully integrated and full featured application suites.

SCM activities not addressed by Supply Chain Execution and Supply Chain Planning are relationship management and product lifecycle management; these activities are addressed by CRM, SRM and PLM systems.

Breakdown of Supply Chain Management Software

Supply Chain Planning

SCP software vendors address long-term, mid-term and short-term planning. The systems focus on three major areas: demand, supply and the consolidation of demand and supply.

Demand Management—The three main functions of demand management software are predicting demand, using what-if analysis to create sales plans and using what-if analysis to shape demand. Forecasts are typically a rolling 24 months. Modern supply chain systems are evolving to a demand driven model; thus demand management is evolving from a forecasting tool to full feature innovative solutions to optimize and shape demand.

Supply Management—The application goal in this area is to help service demand with minimal working capital for the lowest cost. Common software functionality includes Supply Network Planning (SNP), Distribution Planning, Replenishment and Procurement. Manufacturers also need production scheduling features.

Sales & Operational Planning—Sales and Operational Planning (S&OP) is a best practice that facilitates monthly executive planning meetings to consolidate and synchronize the sales, operation and financial plans, along with the related tasks. Input is collected from demand, capacity and financial forecasts. The result is a consolidated sales and operational plan.

Supply Chain Execution

SCE addresses warehouse management software (WMS) and transportation management software (TMS). Features include planning, scheduling, optimizing, tracking and performance monitoring.

Warehouse Management Systems—WMS interfaces to the material handling equipment and controls the flow of goods through the warehouse. Other labor saving features include automated processing of inbound and outbound shipments and the storage of goods. Administrative features include processing EDI transactions, planning shipments, resource management and performance tracking.

Transportation Management Systems—TMS addresses global transportation needs managing air, sea, ground and carrier shipments. Procurement and dispatching features include planning, scheduling and optimizing shipments. Tracking features include managing exceptions, managing constraints, collaborating with partners and monitoring freight. Administrative tasks include cost allocations, freight settlement, and contract management.

Financing SCM Systems

Once you add up planning, training, customization, interfaces and configuring the software, implementing Supply Chain Management software is almost always more expensive than the actual software license, generally by a factor of 2 to 4. Some of the cost can be amortized or built into a lease. In addition to the onetime charge for licensing and implementation cost, SCM software vendors charge annual or monthly fees for maintenance and support.

A new option is SaaS (Software as a Service) or cloud supply chain software. Cloud supply chains systems significantly reduce or eliminate up-front software acquisition costs in favor of subscription fees. This allows you to pay as you go as fees are based on usage. Currently most SCM vendors do not offer cloud supply chain software, however, this is steadily changing as cloud software represents the single highest growth sector in the enterprise software market. Some software vendors are expanding into the cloud by offering some of their SCM modules as SaaS.

Best-In-Class versus Single Integrated Solution

The selection of supply chain vendors with a single integrated solution is limited; but most SCM vendors are moving in this direction. Selecting one vendor for SCP and another for SCE is a viable and common alternative.

Best-In-Class software costs more to implement, because of the additional interfaces that need to be built and the effort involved in managing multiple vendor relationships. Having an Enterprise Application Interface (EAI) system reduces some of the integration cost.

Other considerations in favor of single integrated solutions are having a single point of contact, common user interface and common IT architecture.

Role of Consultants

There are three types of supply chain consultants: SCM experts (management consultants), software vendor consultants and IT consultants. SCM experts help with the planning and modeling. Consultants employed by the software vendor are application software subject matter experts (SME) and help implement the software. IT consultants help with infrastructure, interfaces and custom programming.

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