With a slowly-but-surely growing demand for consumer and industrial products under way in the U.S. and around the world since the beginning of 2002, business analysts and supply chain consultants are projecting an economic rebound this year. It may not be the explosive growth of years past, but at least a mild recovery seems now in the offing. An accompanying shift toward reinvestment in technologies that can help generate improved efficiencies is good news indeed for supply chain solutions providers.
A recent Gartner Group report, "SCM [Supply Chain Management] Software Forecast, 2001–2003," for example, predicts that market growth will increase from 4.2 percent to 6 percent in 2002, and to 12 percent in 2003. Spending is more careful than ever in these times, however, noted Gartner; manufacturers are demanding rapid implementations with greater vertical industry functionality. Midmarket manufacturers and the software vendors serving them, interviewed for this article, agree that a mild optimism is indeed in the air, but demonstrated value is the order of the day.
The midmarket is looking more inward than outward, noted Mark Lilly, senior associate in charge of New England sales and service for Lilly Software. "There's definitely been a slowdown since 9/11, because of the uncertainty," he said. "But manufacturers have been working to improve internal processes, so our business has remained relatively strong.
"In December we had a special on optional modules, and CRM did well. Sales office automation, quality management, and customer service were also priorities. Clients who bought six or seven years ago are also doing some re-implementation. They're putting up a Web presence, both in sales and for customer visibility. But as with EDI [electronic data interchange], it has to be clearly perceived as a customer benefit."
New clients, noted Mr. Lilly, are most interested in functional integration: "They often come from manual or spreadsheet-based operations, dealing with islands of information. Often the goal of companies that can't come up with a requirements list is simply to get everyone off a spreadsheet and onto a system. But they don't see as quick an ROI [return on investment] as do those whose goal is, for example, improved customer satisfaction."
Manufacturers are getting back to basics, commented Scott McMaster, national sales manager for Syspro Impact Software. "The euphoria of technology for technology's sake has given way to fundamentals, such as inventory control, job costing, effective forecasting, and other business essentials that enable the manufacturer to operate more efficiently and cost-effectively."
"It's true that manufacturers' budgets have been affected," said David Austin, Manugistics' director of industry marketing. "They're re-evaluating project priorities and modifying their criteria for purchasing software. Projects that quickly impact the bottom line, such as supply chain planning and optimization, are still being funded, and upgrades or projects where ROI is less obvious are being delayed. We continue to see activity in a number of sectors—automotive, industrials, and aerospace, for instance."
In the apparel industry, to take one example, midsized manufacturers are targeting forecasting and supply chain efficiency as areas where improvements will have a positive impact on production problems, observed Bob McKee, fashion industry director for global markets at Intentia International. "By streamlining supply chain processes, midsized companies can improve productivity and customer service while reducing costs and preserving profit margins," he explained. "To minimize risk, midmarket manufacturers should look for two things: rapid ROI and low total cost of ownership (TCO). Rapid ROI can be achieved by choosing software designed to fit [your] business model. A good fit leads to rapid implementation, with fewer modifications. Low TCO demands that the software be affordable and scalable, requiring minimal hardware investment and ease of maintenance."
Chris Newton, senior manager for strategic alliances at Manhattan Associates, agreed. "Midsized manufacturers want systems that can be implemented quickly, that are intuitive to use, that don't required extended training, and that are easy to configure to their unique operational requirements. This is owing to their generally small IT departments and budgets."
Competitive advantage, and laying a foundation for future functional improvements, are key goals, noted one spokesperson for Best Software.
For Hubspan CTO Andrew Dent, as well, there's no time like the present when it comes to IT investment: "Thought leaders are finding it's a good time to invest in infrastructure projects that contribute to operational efficiencies, in part because the recession has caused a lot of price compression among software suppliers. When the uptick does come, those manufacturers will be ready for it."
"The most forward-looking [midmarket companies] know that an economic slowdown is the ideal time to do an [ERP] implementation," added Bill Pisarra, executive vice president of marketing at ROI Systems. "The new product will offer significant opportunities for cost savings, improved customer service, and a company-wide focus on best practices. Implementation can be a catalyst for renewed enthusiasm. The new processes can be a key to gaining market share when growth kicks in again."
Celia Fleishaker, director of product marketing for Epicor Software, is also seeing renewed activity in her company's targeted segment of the midmarket (companies with up to $5 million in annual revenues): "Our customers are leveraging our core manufacturing products in place by adding functionality like CRM [customer relationship management] or MES [manufacturing execution systems]. Some are moving toward lean manufacturing to take advantage of increased efficiencies. They're reducing order cycle times to increase responsiveness to their customers."
In addition, observed Jeffrey Read, vice president and general manager of PeopleSoft Midmarket, clients are shifting away from best-of-breed solutions and toward fully integrated suites. "There's a heavy emphasis on single-vendor accountability," he noted. "[Yet] clients also want the ability to implement a system in chunks." Modular products such as PeopleSoft's Accelerated Solutions, he said, offer "the best of both worlds."
According to Hubspan's Mr. Dent, a recent supply chain initiative for a number of manufacturers is implementing portal-type interfaces for online connectivity with their smaller business partners. "EDI has a price point where it doesn't make sense for a midmarket company to integrate," he noted, "and a Windows-based portal offers a cost-effective alternative."
Portals enable a direct link to a customer's ERP infrastructure, but from a supplier's perspective, orders coming in this way are processed manually, "and consequently when you get beyond four buyers, processing orders is less effective," explained Mr. Dent. "You can't aggregate the data, and there's significant duplication. This can reduce the supplier-adoption rate that manufacturers are looking for."
When it's no longer effective to manage orders via portal, or when collaboration is necessary for forecasting, exchanging price and availability data, and so on, Hubspan provides a connectivity service similar to an Internet VAN (value-added network), linking ERP systems on an XML (eXtensible Markup Language)–based network.
ImageX, a commercial printer headquartered in Kirkland, WA, is a recent convert to this service. ImageX supplies stationery and business cards and forms to midsized customers as well as to tier-ones like GE and Merck. "Initially, ImageX attempted to design and build its own e-commerce infrastructure," said Mr. Dent. "On top of system expenses, they costed out each connection at several thousand dollars each. We're processing several customers for them at a fraction of that price with many more to come. We offered them a secure trading network that accepts and sends documents in EDI, XML, flat-file format, or Excel; we map and transmit all those orders to ImageX in XML."
"We were spending a lot of IT dollars developing interfaces to offer our customers an e-procurement system operable from their desktops," recalled Cory Klatt, ImageX's CTO/CIO. "But they weren't particularly interested in paying for a bootstrap R&D effort of up to $250,000, just to order business cards. Most of our large corporate customers are implementing their own e-procurement systems and were asking us to integrate with Oracle, SAP, Ariba, their EDI systems, and so on. So we asked Hubspan to manage the integration piece. The economics of this ASP model work out far better for us.
"Mapping a business process is much more than just mapping data. For example, every firm has a different PO [purchase order] exchange process. Now when we walk into a brand-new customer site we can connect without massive R&D."
According to Mohan Thiruvadi, Exact Software North America's product marketing manager, Web-based CRM is a key route to competitive advantage. "To improve customer satisfaction, decisions have to be made quickly. This means that information should be accessible anytime, anywhere. Web-based solutions also help reduce costs compared with traditional client/server solutions; customers thus prefer Web-based solutions."
Epicor's Ms. Fleishaker reported that her firm's midmarket clients are increasingly reaching out along the supply chain in both directions. "On the customer side, they're implementing customer portals, or offering online storefronts," she observed. One Epicor customer, Midwest Homes for Pets (Muncie, IN), markets through various customer Websites and pulls XML orders directly from retailer sites into its own back-office fulfillment system. "It's cut order turnaround from 14 days to three," she said.
Clients also want supplier relationship management (SRM), she noted: "Those moving to lean manufacturing are negotiating agreements with their key suppliers, so that when a certain inventory level is reached, the system automatically fires off an XML replenishment document to the supplier."
Jump-Starting a Project
At least one major ERP software vendor, Baan, has been on the forefront of integrating supply chain and manufacturing functionality since the early 1990s. "We've continued to address manufacturers' requirements by developing greater functional depth on the shop floor, integrated with both front- and back-office systems," said Richard Ryan, vice president for indirect channels. "As a slowdown strategy we're serving our midmarket customers by unbundling our application suite. We offer specific price-point solutions that enable them to grow."
Baan's midsized customers are looking very hard at ROI, reported Mr. Ryan, and the timeframe is no longer one to two years but four to six months: "They're looking at point solutions for specific problems—for example, scheduling or logistics. Typically they already have an ERP system, but during the slowdown they're maintaining their older ERPs and adding functionality. The midmarket may be smaller, but they have problems that must be addressed."
A new Baan offering geared specifically for the midmarket is QuickStart, an iBaan sales force automation application bundling SalesPlus software with an installation and training package that can be implemented in 30 days. The product automates sales procedures and communications, shortening sales cycles and cutting the order-to-delivery cycle for make-to-order environments. (For more on the needs of engineer-to-order versus repetitive manufacturers, see "Supply Chain Challenges: The ETO Difference.")
"Midmarket customers are having their own specific pain at this moment, but they're making some investments," noted Joe Marino, vice president of presale consulting for MAPICS. One trend is a shift to demand manufacturing: "Our customers are asking, 'How do we shorten the cycle time? Take out the queue? How do we reduce wait time between my vendors and me? Between my vendor's vendor and me?' Our make-to-order customers are buying CRM and sales configuration tools to develop quotes and produce bills-of-materials throughout multilevel operations. One customer plans to cut a six-week process—from order to finished design—down to a day. The specs go into our MAGIK product-configuration database, and the engine generates the product."
On the front end, added Mr. Marino, clients are looking at product lifecycle management. "This is really critical in electronics, where lifecycle is often only a few months, but it's a competitive necessity in other niches as well," he said. "For example, one of our customers manufactures slot machines, and the lifecycle of a slot machine is about a year in the casinos. By incorporating product lifecycle management with a focus on product design, as well as refining their business processes, they improved their product-to-market by 600 percent per six-month period.
"The downturn hasn't stopped manufacturer spending, but it's much more prudent spending."Deb Navas, Editor at Large, Supply Chain Systems Magazine