Supply Chain Spending Is On a Roll

By Jacqueline Emigh  |  Posted 2005-02-16

Supply Chain Spending Is On a Roll

IT spending might be humdrum on the whole, but supply chain technology is one area where users are making some big investments, according to a chorus of analysts.

Hot areas cited by individual analysts run the gamut from demand planning and inventory management to collaboration-oriented IT systems such as e-procurement (electronic procurement) and PIM (product information management).

The analysts findings resound across a range of vertical markets. In Meta Group Inc.s recently released Worldwide IT Benchmark Report, researchers determined that "more than 50 percent of the population" in the federal government, metal/natural resources, and retail spaces planned to spend more money on SCM (supply chain management) in 2004 than 2003.

In a recent survey by the NRF (National Retail Foundation) and BearingPoint Inc., most of the retailers questioned pointed to supply chain optimization as a "priority initiative for getting close to the customer" in 2005.

Supply chain tech was lacking in 2004. Click here to read more.

Meanwhile, a survey conducted by the Yankee Group and sponsored by GXS (Global Exchange Services Inc.) showed that 75 percent of suppliers believe PIM systems are "a valuable investment." In other results, PIM is providing suppliers with an average of 25-percent savings in supply chain efficiencies.

Internally, suppliers are using PIM data to streamline shipping processes and inventory management, said Bobby Patrick, senior vice president and chief marketing officer at GXS, in an interview with

But in a collaborative sense, companies are now starting to synchronize PIM information with retailers so as to "change prices on the fly" and reduce product overstocks, according to Patrick.

E-procurement systems, on the other hand, get collaborative use from trading partners wanting to simplify the buying and sourcing of goods and services—ranging from temporary labor and office supplies to raw materials for manufacturing processes.

"Were seeing a trend toward collaboration—and its not always just holding hands, either. Companies are telling trading partners [who dont participate in collaborative systems], Youre tough to do business with," said Dwight Killpech, a supply chain analyst at the Meta Group, in another interview.

Is RFID the key to supply chain security? Click here to read more.

"[But] the hottest topic is demand planning. Theres been a dramatic uptick in this over the past four or five months," according to Killpech.

Over the next couple of years, more retailers will also open their wallets for both demand planning and inventory management systems, said Kevin Boyanowski, managing director of BearingPoint.

Increasingly, demand planning is being performed collaboratively, too. "Collaborative planning [is viewed by retailers] as a key way to improve forecasts," according to the NRF/BearingPoint results.

The still controversial technology of radio frequency identification does play a role in spending expectations. So, too, does CPFR (collaborative planning, forecasting and replenishment). Over the next 12 months, 35 percent of retailers will deploy RFID, and one out of two will use CPFR to generate a portion of vendor orders, according to the same study.

In the Yankee Groups PIM report, 28 percent of the suppliers said that IT spending on internal PIM "continues to be a priority because it is a foundation for RFID, EPC and CPFR."

Another 36 percent replied simply that internal PIM spending "is a top priority and we will continue to invest in PIM software and services to optimize how we manage data internally."

Next Page: Spending patterns can change.

Changing Spending Patterns

Yet analysts stress that spending patterns can change quickly within the perpetually evolving supply chain.

In the inventory management arena, analytical tools are particularly popular with retailers right now, Boyanowski told For the moment, big store chains are snapping up most of these tools. But over the next 27 to 29 months, "the smaller guys will be looking to close the gap."

Last year, however, retailers responding to the NRF/BearingPoint survey cited "cost reduction" as a big priority, as opposed to supply chain optimization.

"A year ago, [supply chain spending] was all about a problem fix," concurred the Meta Groups Killpech. "The scope was very narrow, [as in] I think Ill fix my warehouse system."

IT customers in a variety of verticals had grown risk averse, largely due to the economic downturn, according to Killpech. Unsatisfactory experiences with other IT implementations, such as ERP and CRM, often added to the problem.

"Customers thought they could manage risks more effectively by focusing on specific executions in warehousing or transportation, for example. And in many cases, [existing supply chain systems] had been heavily customized, or they simply werent supporting current business practices."

Yet at this point, supply chain spending is less about "building a better mousetrap" than about "developing a well-run business," according to the Meta analyst.

Killpech credited the Sarbanes-Oxley Act—and other regulations requiring "consistency in financials"—for some of this change. Although Killpech didnt help conduct Metas benchmark report, he consults for about 250 supply chain users a year, ranging from consumer goods companies to industrial firms that sell their products to other manufacturers.

For its part, Metas benchmark study breaks out areas such as e-procurement—sometimes thought of as part of SCM—as a separate spending category.

In a total of seven different industries, more than half of the companies surveyed planned to increase spending on e-procurement by 50 percent or more between 2003 and 2004. These industries included consumer products; banking; energy; federal government; metal/natural resources; retail; and telecommunications.

Only a handful of other technologies—Web application development, business intelligence, and storage—got expectations of this spending level across eight or more industries.

In the supply chain-related area of ERP, five verticals intended to raise spending by more than 50 percent. Specifically, they included pharmaceuticals; consumer products; federal government; retail; and telecommunications. Metas benchmark study took a look at 32 different IT areas and 24 vertical markets, all told.

Check out eWEEK.coms for the latest news and analysis of enterprise supply chains.

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