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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.
PeopleSoft acquisition presents opportunities
Prediction No. 4: Supply chain players may benefit from disenchantment among PeopleSoft users over the Oracle buyout, but probably not directly.
Many PeopleSoft customers are currently less than thrilled by Oracles purchase of PeopleSoft, including those inherited through PeopleSofts J.D. Edwards acquisition. Oracle is trying to hold on to the PeopleSoft user base, but Microsoft, for one, is already out there trying to generate new business for its ERP arm. SAP senses opportunities, too.
Oracles move might also open up opportunities for best-of-breed players in 2005, particularly those with modular architectures. Companies the size of i2 and Manugistics have much smaller sales forces than Microsoft, SAP or Oracle, for instance. On the other hand, i2 and Manugistics both garner large enterprise accounts, sometimes with the help of large systems integrator allies.
Interestingly, i2 and Manugistics each count IBM among their major partners. Coincidentally, in September—only two months before Oracle completed its bid for PeopleSoft—PeopleSoft inked a $1 billion deal with IBM to add a middleware layer to PeopleSoft applications.
Prediction No. 5: RFID will remain a question mark, even as products based on the NextGen standard hit the market in the second half of 2005.
If my crystal ball was a snow globe, RFID pilots and deployments would be the snowflakes. How, where, and when RFID shakes out will have a big impact on the supply chain landscape, not just in 2005 but for at least a decade or two to come.
Big customers such as Wal-Mart, Target and the U.S. Department of Defense initially set Jan. 1, 2005 as their deadlines for RFID compliance. But with the new year approaching, large buyers show signs of softening their RFID demands. Also, as of November, product suppliers rushing to meet the deadlines found it tough to come up with the first spate of RFID hardware from vendors.
In December of this year, epcGlobal finally ratified its Next Generation RFID spec, three months later than originally anticipated. Texas Instruments unveiled plans to ship Next Generation chips in the second half of 2005. Consequently, well probably be seeing a lot more deployments toward the second half of this year. Still, though, some customers are looking at 2010 or beyond as the date for full-scale RFID rollouts.
Product suppliers are complaining that, as of yet, their return from RFID has added up to zilch. But on the other hand, theyve already spent $250 million on the still emerging wireless technology. So despite the myriad criticisms leveled against RFID—ranging from privacy and security concerns to general immaturity of the technology—RFID has indeed started generating revenues for vendors. And in this economy, thats no mean feat.
Prediction No. 6: Supply chain security will pick up steam in 2005.
Due to technological advancements, together with lingering fears of terrorism, supply chain security can only heat up in 2005.
In December of this year, the US-based National Cargo Security Council unveiled plans to expand to other continents, change its name to International Cargo Security Council, and help supply chain security pros explore new technologies for fighting terrorism and theft.
New surveillance technologies are already being used in transportation and logistics to pinpoint suspicious packages, peer inside transport vehicles and positively identify people through darkness and fog.
Other emerging tools include gamma rays, X-ray back scatter and radiological sensors.