SCM Buying Intentions: Industry Gears up for Moderate Growth

June 1, 2003
Enterprise users are turning to supply chain management solutions to help cut costs, signaling a moderate renaissance of this technology sector, says

Enterprise users are turning to supply chain management solutions to help cut costs, signaling a moderate renaissance of this technology sector, says the first of a four-part series from the Aberdeen Group. The series examines who is buying SCM technology, what types of SCM products are being bought, and why.

After a two-year drought, there appears to be a renewed interest in supply chain management (SCM) technology investments. Why? Consider it a necessity: The majority of the 158 supply chain executives recently surveyed by Aberdeen Group in its latest Supply Chain Technology Buying Intentions Study said that they will spend either the same or more money on SCM solutions this year than they did in 2002. The prime reason: the continued need to reduce costs.

Reliance on the SCM function and supporting technologies to cut costs dovetails with related Aberdeen research that found that supply chain managers are being asked to take a leading role in corporate goals to control costs and improve operational performance. Indeed, 94% of Aberdeen Group's Supply Chain Access community members reported that their 2002 cost-cutting targets were equal to or exceeded those set for their companies at large. And most supply chain managers have been tasked with even larger cost-reduction goals in 2003.

Do not be misled. Such findings do not portend a spectacular comeback for the SCM technology sector in 2003. (Current economic conditions prohibit a dramatic recovery.) Instead, view the renewed interest in SCM as a sign that the worst is behind us.

This year SCM investment will be particularly noticeable in the largest and smallest companies. For the purposes of this study, Aberdeen segmented respondents into three groups:

1.Large enterprises with annual revenues of $1 billion or higher

2.Midsize companies with annual revenues of $50 million to $1 billion

3.Small companies with annual revenues below $50 million

Chief investment strategies by sector, include the following trends:

Of those companies with annual revenue of at least $1 billion, 45% said that they would increase their SCM budgets this year; 14%, would decrease; 31%, would not change them.

Of small to medium-sized enterprises (SMEs), with revenues of $50 million or less, 42% stated that they would increase their SCM technology purchases in 2003; 6% would decrease them; and 52% would not change them. Only 35% of mid-market companies, with $50 million to $1 billion in annual revenue, will increase SCM technology purchases in 2003; 23% will decrease them; and 42% will not change them from 2002.

Overall, nearly three-quarters of respondents said that their SCM technology budgets were less than $500,000 in 2002. Of particular note was the preponderance of SCM budgets of less than $100,000: Nearly half of the respondents cited a budget of less than $100,000 designated for SCM technology. Although this finding might suggest that the days of large systems deployment are over, it is important to keep in mind that 45% of respondents at large enterprises said that they would increase their budgets in 2003 -- and about two-thirds of them spent more than $750,000 on SCM in 2002.