Supply Chain 2005: A Kaleidoscope of Predictions

Opinion: In the supply chain, existing best-of-breed players might benefit from Oracle's buyout of PeopleSoft. More acquisitions will happen in 2005. Meanwhile, supply chain vendors will use modularity and verticality as weapons against the ERP gia

The supply chain is too large and intricate to fit neatly inside anyones crystal ball. So my predictions for the year ahead fall more along the lines of a kaleidoscope—a series of interrelated yet distinct industry trends.

Before looking ahead, lets step back and consider the meaning of "supply chain." Loosely speaking, the term refers to the processes and resources involved in getting a product out to the end customer—from sourcing of raw materials through manufacturing, distribution and logistics. But that territory covers a lot of ground, and supply chain solutions can vary considerably from one vertical industry to the next.

Moving forward, my predictions range from more acquisitions and more industry verticality in 2005 to new opportunities with ex-PeopleSoft customers and a further boom in supply chain security. Here are the specifics.

Prediction No. 1: Acquisitions will continue, probably with some surprising buyers.

Traditional "best-of-breed" supply chain players have faced increasing competition from ERP vendors such as Oracle, PeopleSoft and SAP, which integrate some core supply chain functionality with core business processes.

Over the past year or two, both markets have been consolidating quickly. In mid-2003, PeopleSoft bought J.D. Edwards, another ERP vendor. At the end of 2004, Oracle, in turn, acquired PeopleSoft.

Acquisitions were even more abundant last year among the smaller best-of-breed and trade exchange players. In January 2004 alone, Freemarkets bought Covisints automotive auctions business. Ariba then purchased Freemarkets. The same month, supply chain management and sourcing vendor VerticalNet acquired Tigris, a smaller company in a similar space.

With IT spending at lackluster levels, you can anticipate more acquisitions over the year to come. As in 2004, some buyers are likely to come from areas tangential to the supply chain. In January of this year, for instance, ECnet was acquired by R Systems, an IT outsourcer in India. In December, retail management specialist Retek bought Syncra Systems for better visibility into the retail supply chain.

Prediction No. 2: Best-of-breed players will use modularity and customization as weapons against ERP.

Larger best-of-breed supply chain players such as i2 and Manugistics will keep expanding on recently adopted modular architectures as a way of bringing specialized supply chain functionality to a broad and varied user base.

These vendors will also work on including custom consulting along with the "sell". Some sales leads will emanate from large systems integration partners, and some services will be delivered in conjunction with partners.

Smaller best-of-breeders will keep specializing in order to survive, attempting to establish dominance in niche markets.

Prediction No. 3: Verticality will keep penetrating the supply chain in intriguing ways.

Browsing the Web, youll come across supply chain verticals that run the gamut from agriculture and automotive to home building and health care, to name a few.

But verticals differ greatly in terms of the materials and business practices they use, and across levels of supply chain automation. According to one survey, the high tech and retail verticals are leaders of the pack, and forestry and mining are among the laggards.

Vertical markets are a focus of specialization for smaller vendors. Viewlocity, for instance, is sticking with auto and industrial equipment.

Other small supply chain vendors will keep finding success by adhering instead to horizontal niches—such as inventory management, logistics security or transportation management.

Next Page: PeopleSoft acquisition presents opportunities.