SCP Competition in Distribution-Intensive Industries Is Stiff

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1 Markets, A. White, K. Peterson, M. Jimenez Research Note 27 February 2003 SCP Competition in Distribution-Intensive Industries Is Stiff Best-of-breed supply chain planning vendors are struggling in a slow economy. Our 1Q03 Magic Quadrant shows that vendors differentiating themselves with industry-specific functionality can help clients with complex value chains. Core Topic ERP II, Supply Chain & Manufacturing: Supply Chain Management Strategies, Applications and Technologies Key Issue How will SCP and SCE vendors and markets evolve? In response to enterprise resource planning (ERP) providers' initiatives in the supply chain planning (SCP) market, the best-ofbreed vendors have increased their efforts to differentiate themselves. They have begun to feature deeper levels of industry-specific functionality, as well as elements of external and internal collaboration, including collaborative planning, forecasting and replenishment (CPFR) and sales and operations planning (S&OP). Some vendors have focused on new optimization algorithms to simplify processes or improve accuracy, others have stressed new technology to reduce total cost of ownership (TCO) and some vendors are looking to expand their product footprints to outflank the classic SCP footprint. Inclusion in the SCP Magic Quadrant for Distribution-Intensive Industries (see Figure 1) requires a credible vision for a multiproduct, distribution-oriented SCP suite including network planning, capacity planning, demand planning, distribution and deployment planning, and transportation planning) with an effective sales distribution channel for a global presence (see "SCP Magic Quadrants Split Into Lenses by Vertical Industry"). However, a particular position on the Magic Quadrant does not guarantee that a vendor's capabilities will match an enterprise's requirements. Enterprises are encouraged to match their needs with vendor capabilities and be aware of a vendor's competence within their particular industries and global scope. The Magic Quadrant graphically describes global vendor performance in a market segment, based on viability, service and support, features and functionality, and technology. Ability to Execute indicates Gartner's view of how well a vendor is currently performing. Completeness of Vision is our view of how well a vendor will do in the future, based on where the market is Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 headed. Magic Quadrants provide an understanding of vendor positioning and set performance expectations for providers. We define the four quadrants as follows: Leaders: Execute well today and are positioned well for tomorrow Challengers: Execute well today and may dominate large segments, but are not "in synch" with the market's direction Visionaries: Understand where the market is going or have a vision of changing market rules, but do not yet execute well Niche Players: Focus on a small segment of the market and do it well, or are unfocused and do not out-innovate or outperform competitors Figure 1 The SCP Magic Quadrant for Distribution-Intensive Industries 1Q03 Challengers Leaders Ability to Execute Demantra PeopleSoft JDE Evant JDA SAP Demand Solutions Logility TXT Finmatica IBS Intentia Agilisys Manugistics I2 As of January 2003 Niche Players Visionaries Completeness of Vision Source: Gartner Research The Leaders There are no vendors in the Leaders quadrant. This is attributable to the immaturity of the large-vendor solutions and the financial performance of the best-of-breed vendors. The Challengers There are no vendors in the Challengers quadrant. 27 February

3 The Visionaries Refocusing its energies on smaller deals, i2 Technologies has targeted consumer packaged goods (CPG), consumer durables, consumer electronics and soft goods as part of its distributionintensive segments. When allocation, deployment and complex, constraint-based replenishment planning are sought as integrated business processes, i2 will suit users better than most other vendors. Demand planning problems that require a large degree of scalability (such as apparel) have been a weak point for i2. New releases of its demand planning solution promise to improve this, although the company still lacks penetration in the higher-volume environments. Because i2 has more investment opportunities than it has resources, users should not expect to see any major new investments in this segment until the company achieves sustainable profitability. Logility has some innovative solutions for promotion product short-life-cycle environments, although these applications have not been as widely deployed as its demand planning module. It also has one of the few CPFR offerings designed to be multienterprise. Logility's supply planning engine is new and has been implemented with only about five clients. From a technical standpoint, Logility still offers a combination of Web-based and client/server technology, because it has yet to port all of its solution onto a Web-based client. Users with demand-driven distribution chains should include Logility in their reviews, especially if they are trying to address dynamic, short-life-cycledriven constraints. Manugistics offers a wide range of constraint-based distributionplanning engines supporting network and sourcing strategies, capacity allocation and daily planning. However, the company's wide variety of planning engines leads to problems in reconciling processes and data integration. (All of these offerings will share a common Web architecture by mid-2003.) Although Manugistics has one of the most scalable distribution-planning applications, it must now translate that scalability to the rest of its components. Users should monitor Manugistics as it makes investment decisions in nondistribution SCP segments and thus reduces its relative position of strength in relation to its competitors. SAP continues to meet end users' project expectations with APO for "good enough" SCP implementations. However, few end users calculate specific return on investment (ROI) for SCP, because such projects are often part of a broader ERP II implementation. SAP remains at a disadvantage in morecomplex distribution chains that are heavily promotion-driven or highly collaborative. SAP is unlikely to develop unique industry offerings to meet the deepest domain requirements, so it will lose 27 February

4 ground to the best-of-breed vendors on vision, but gain in execution. SAP customers should not short list SAP for planning if they have overly complex distribution networks that require more than a handful of constraints, a need to dynamically model the network or a heavily demand-driven promoted business. The Niche Players Agilisys focuses on network optimization, demand planning and constraint-based planning. Support for shelf-life constraints makes it a good fit for the food and beverage industry, as well as pharmaceutical distribution. Although Agilisys does not exhibit best-of-breed functionality in the area of demand planning and collaboration, these capabilities, along with new products for relationship modeling, look like valuable tools for users. The company's recent acquisition of Brain AG, a German automotive ERP vendor, could cause it to deviate in focus and direction at a time when it must grow its foothold as an independent software vendor (ISV). Users should watch carefully in case other investments redirect the companies energies and focus. Demand Solutions has gained respect for being an early supporter of S&OP. The suite itself is better suited to midmarket companies or for divisions of large enterprises. It lacks a single data model across the suite, and the system still relies on file import/export for data integration. However, these items aren't always impediments when you take into account the relatively low price of this solution. Demand Solutions is predominantly focused on North America and should be included in medium- to small-scale, demand-driven selection projects. Demantra's demand planning application is well suited to highly promoted, seasonal and causal-driven businesses found in the food and beverage, household appliances and general CPG industries. It has extended beyond its core business with a product footprint that now includes inventory and replenishment planning with a relationship with Tools Group. In addition, the company is adding an application for product marketing mix management. Demantra is building out its sales force as a means to grow its stand-alone business, rather than relying on established original equipment manufacturer (OEM) partnerships with Baan, QAD and J.D. Edwards (JDE). The company should be evaluated for heavily promoted, seasonal-driven and shortlife-cycle businesses. Evant, acquired by Nonstop Solutions, which has recently renamed itself, comes from a strong heritage in life sciences and consumer products distribution, with a solid vendor-managed inventory (VMI) solution. Its standardization on Java 2 Platform, Enterprise Edition (J2EE) is not yet complete, but it should be in 27 February

5 early Users should short list Evant if they have projects requiring VMI and are in the company's targeted verticals. Italy-based Finmatica has entered the SCP market through the acquisition of two European vendors, Mercia Software and Ortems. Ortems is based in France and was acquired in April In July, Finmatica acquired U.K.-based Mercia, which specializes in forecasting and inventory planning, with most of its clients in CPG and spare parts. Finmatica wants to become a European alternative to U.S.-based SCP vendors, offering a complete SCP suite. There is no plan to develop a single code base or data model, making this goal difficult to achieve. Mercia customers should talk to Finmatica about extending the relationship. All users should examine ongoing integration plans and should get an understanding of Finmatica's commitment to support implementations outside Europe and to continue to invest in the SCP business. Unlike most ERP players, Sweden-based IBS did not begin its product development in the manufacturing domain. The main target for IBS solutions has always been distribution and wholesale, but not for constraint-based applications. IBS has some planning functionality embedded in several modules of the product, as well as an SCP module from i2 that it started to distribute in This is a new relationship, and, so far, there are fewer than five joint customers. Users should evaluate IBS when buying or replacing an ERP application for their distribution entities. When forecasting and constraint-based planning are the drivers for the project, they should thoroughly evaluate which components are IBS and which are i2, because the solution capabilities are very different, despite the similar marketing messages. Intentia is one of the best-known European ERP vendors; however, it has not built a strong presence in the North American market, in the ERP space or as an SCP software provider. It is building relationships with system integrators (SIs) to more rapidly move beyond Scandinavia. Intentia has many ERP customers, including a significant installed base in distributioncentric industries, which it is now targeting with its SCP products. The majority of Intentia's customers run on IBM AS/400, and the new Java-based solution has not yet been extended to SCP. Intentia has built its own demand planning tool DMP; however, it offers the Mercia (now Finmatica) forecasting module in some specific environments. Users of Movex that are looking for an SCP solution should include Intentia in their review before extending the shortlist to stand-alone applications, but those that want Web-based collaboration should be aware that the collaboration delivered by Intentia is not a true browser-based solution. 27 February

6 In 1999, JDA acquired E3 and, in so doing, strongly improved its presence in the distribution-intensive industry segments. E3 has established strong functionality for buy-side order planning, including "forward buying" capabilities. It has been particularly successful in life sciences/pharmaceutical/over-the-counter distribution chains; however, users should note that JDA's collaboration solution does not support a full-blown multienterprise data model. If CPFR becomes a requirement, JDA's solution will not scale to support more-complex relationships. Users should evaluate JDA (E3) for complex wholesale businesses and wait on their collaboration technology to scale. JDE has a strong network optimization capability with its Strategic Network Optimization (SNO) product. Its real-time capable-to-promise (CTP) functionality appears differentiating, although few enterprises have the processes in place to take advantage of the capability. It released a new demand forecasting product using rudimentary algorithms ideally suited to more-basic, midmarket distribution needs and it continues to offer Demantra in complex situations. JDE customers should short list JDE if their SCP projects are driven by complex distribution constraints; however, they should get an understanding of the Demantra relationship and possible transition plans if they need complex demand planning. Despite having one of the more-sophisticated Web-based architectures, PeopleSoft trails other large ERP II vendors in the SCP space. Its replenishment planning engine does not support cost minimization and profit maximization, both of which are used in many scenarios to evaluate which orders are to be serviced and when. Demand-planning functionality is rudimentary, with promotions being handled as user overrides. Support for CPFR is provided by a partnership with Syncra Systems. Users in distribution-centric enterprises looking for SCP should be selective when including PeopleSoft, and they should consider best-of-breed applications for more-complex business requirements. TXT is an Italian vendor with recognized expertise in the fashion industry. A former distributor of i2 products in Italy, it is now building its own solutions and expanding into France, Germany and Spain. TXT's sales strategy does not currently include the U.S. market. TXT must standardize and package its applications for ease of maintenance, while maintaining its current level of customer satisfaction. European users in the fashion and apparel distribution industry should evaluate TXT, but they need be aware that heavy customization may be required. In other industries, especially outside Italy, they should pilot before committing to the solution. 27 February

7 Acronym Key CPFR CPG CTP ERP ISV J2EE OEM ROI S&OP SCE SCP SI TCO VMI Collaborative planning, forecasting and replenishment Consumer packaged goods Capable-to-promise Enterprise resource planning Independent software vendor Java 2 Platform, Enterprise Edition Original equipment manufacturer Return on investment Sales and operations planning Supply chain execution Supply chain planning Systems integrator Total cost of ownership Vendor-managed inventory Bottom Line: Enterprises with distribution-planning requirements should continue to deploy supply chain planning (SCP) solutions, especially now that they have a wider selection of SCP applications from which to choose. Enterprises with complex distribution environments or those combined with manufacturing assets should still look to the best-of-breed vendors to provide functionality; however, this assumption should be tempered by economic realities: There may yet be more vendor acquisitions and mergers, if IT spending remains neutral or close to flat. 27 February