The need to optimize supply chain systems is driving the SCM software market

Aug. 23, 2004
The current outsourcing trend by companies in North America and Europe, a fallout of the economic slump and market fluctuations, is further complicating

The current outsourcing trend by companies in North America and Europe, a fallout of the economic slump and market fluctuations, is further complicating their complex supply chains. This impact has renewed interest in supply chain management (SCM) systems. New analysis from Frost & Sullivan reveals that revenue in this market totaled $4.59 billion in 2003 and projects to reach $9.66 billion by 2010.

“By bringing together enterprise functionalities such as planning, execution and coordination, SCM systems help companies streamline and optimize their supply chains, leading to maximum productivity,” says Frost & Sullivan senior research analyst Mani James Nayagam.

Supply chain planning (SCP), supply chain execution (SCE), supply chain coordination (SCC) and the components of SCM work together to achieve this optimization. They allow companies to interact with partners and customers and enable quicker response to changing priorities and demands. This interaction and interoperability can help companies dramatically reduce lead times, accelerate order fulfillment time, reduce inventory costs, decrease transportation costs and increase forecast accuracy.

While SCM software highly improves efficiency of systems, customers are still hesitant about investing in them. The fragmentation of the market and an overabundance of available products further adds to the reluctance and confusion of customers, halting IT spending.

SCM software is also provided by enterprise resource planning (ERP) vendors that have expanded into the supply chain areas of planning, execution and coordination. As these solutions prove to be less expensive, customers are reluctant about making huge IT investments with branded supply chain solutions.

Another challenge that SCM vendors face is the lengthening of sales cycles occurring due to increased complexities in customer demand. Customers tend to take longer periods to evaluate solutions that best suit their needs. Yet, the intense competition between branded providers and ERP vendors only delay these evaluations.

Owing to the expenses involved, companies look for single solution providers that can substantially reduce their project cost. Therefore, Frost & Sullivan suggests, SCM vendors need to improve their product offering and focus on providing end-to-end solutions to woo customers.

SCM providers would also do well to leverage on the improving economy that is prompting increased IT spending and strive to turn the unconvinced customer into a potential one. They also need to highlight the beneficial ROI to customers and offer more powerful, customized solutions to fuel demand for SCM solutions.

“As companies realize that SCM solutions are improving business efficiency, effectively handling change and driving business enterprise, the SCM software market can gear itself for greater growth,” concludes James Nayagam.

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