SCM Service Providers Must Differentiate, Deliver and Extend

Transcription

1 Research Brief SCM Service Providers Must Differentiate, Deliver and Extend Abstract: SCM service providers must run lean operations yet differentiate themselves from competitors and boost solution portfolios and strategies in preparation for the SCM market's return to healthier growth. By Geraldine Cruz and Robert DeSouza Recommendations Refine industry-specific solution templates to enable clients to deploy solutions quickly and realize quantifiable benefits in the short term (that is, a quick ROI). Expand and develop industry-specific consultants for staff augmentation projects, the opportunities for which will outsize the opportunities for strategic management projects. Balance SCM strategy consultants across a number of similar or related industries to optimize utilization rates. Look beyond the traditional manufacturing, retail and distribution markets such as the government, healthcare and utilities markets for growth opportunities. Differentiate your solutions, capabilities and offerings among the myriad SCM service providers that promise similar results. Segment SCM strategy, messaging and packaging around must-have and nice-tohave solutions. Anticipate a resurgence in business process and SCM strategy consulting in 24 to 36 months as enterprises endeavor to fix cultural, workflow and business process issues before expanding their SCM infrastructures. Boost interest in your SCM solutions portfolio in the long term by articulating a vision and delivering capabilities around Web services, supplier relationship management, and product life cycle management. Publication Date:October 7, 2002

2 2 SCM Service Providers Must Differentiate, Deliver and Extend The Dreams of a Collaborative Supply Chain Must Wait During the last decade, supply chain management (SCM) has secured a place on the executive agenda as enterprises struggle to reduce the inefficiencies, costs and latencies brought about by the following: Large inventory buffers that lead to large inventory carrying costs Labor-intensive, manual and expensive modes of communications, such as phone, fax, and electronic data interchange Nonintegrated front-office and back-office business processes Nonstandard information formats and business processes Planning cycles that are unsynchronized with those of customers, suppliers and partners Communications limited to immediate suppliers, customers and partners, rather than communication across the entire supply chain Supply chain planning governed by assumptions of what suppliers and partners can deliver, rather than real-time knowledge of what they can truly provide The dream of a collaborative supply chain one that supports global visibility; the dissemination of timely and relevant information; the coordination of intelligent decisions and projects with suppliers, partners and customers; and the ability to react, adapt and predict in real time is far from a technological reality. Without a doubt, technological immaturity impedes progress toward such a grand vision. But even if the technology were available, enterprises would likely not buy it today. The economic downturn has exacerbated the wariness of end users for new applications and technology deployment. But more importantly, reckless spending in the late 1990s on large, overbudgeted SCM and other e-business and IT projects that did not deliver business value or return on investment (ROI) for several years if at all has generated skepticism among end users that SCM and enterprise applications can significantly improve business performance. SCM Solutions End-User Spending: What to Expect In this environment, enterprises have delayed or scaled down the scope of global, strategically-oriented SCM initiatives into more modular, bite-size projects that enable the enterprise to extend existing technology investments. Over the course of the next 12 to 18 months, Gartner Dataquest anticipates that SCM investments will remain characterized as follows: Smaller deals, greater due diligence and more signoffs: End users are investing more time in up-front planning and due diligence on SCM solution investments, which are undergoing increased scrutiny by CFOs, who demand cost savings and other quantifiable returns in the short term sometimes in six months or less.

3 3 Tactical, modular projects that extend or drive additional value from existing implementations rather than investments in entire new application suites. Lower discretionary spending precludes "frilly" spending: This will make it more difficult for IT service providers to sell what end users consider to be "frilly" services, such as business strategy and business process consulting services. End users will allocate the largest percentage of their SCM services budget for more practical staff augmentation based services, such as systems integration, application development and deployment. The SCM Services Market: What to Expect Gartner Dataquest forecasts the worldwide SCM services market in 2002 to total $14.3 billion in The North American and Western European markets will be the largest markets, as shown in Table 1. Table 1. Worldwide SCM Services Market by Region, 2002 Region Market Size Asia/Pacific Japan Latin America North America 8,668.4 Western Europe 3,565.4 Eastern Europe 33.3 Rest of World Total 14,342.3 Source: Gartner Dataquest (October 2002) The following highlight key characteristics of the SCM services market in the next two years: Although the SCM services market will not decline in 2003, growth in demand will remain sluggish since the U.S., European, and global economies show no signs of a major upturn. ThoughsmallerthantheNorthAmericanandWesternEuropeanSCM markets, the Asia/Pacific, Japanese and Latin American SCM markets will exhibit the highest growth rates. The SCM services market will post a more-healthy upturn in early to mid However, because enterprises will continue to scrutinize IT budgets in the next 12 to 24 months, the growth in the SCM market will pale compared with the growth rates in the 20 to 30 percent range in the late 1990s. Business and IT consulting will continue to post the most sluggish growth as enterprises rein spending on consultants for strategic management activities.

4 4 SCM Service Providers Must Differentiate, Deliver and Extend Gartner Dataquest Perspective Software vendors will continue to encroach on the external services market as companies such as SAP, PeopleSoft, and Oracle endeavor to boost their services revenue stream from product support, systems integration, applications development and even IT strategy consulting to compensate for anemic growth in software license revenue. Their value proposition "one-stop-shop" offering integrated software and services is alluring to many enterprises (see SWSA-WW- UW-0103). Service providers will continue to expand industry specific business process expertise and solution offerings. The fact that end users are skeptical about the ability of SCM solution providers to deliver significant business performance improvements is a considerable inhibitor to the growth of the SCM services market. Hence, an upturn in the global economic environment may not be enough to return the SCM services market to the growth rates in the 20 to 30 percent range seen in the late 1990s. Indeed, SCM service providers must be able to demonstrate with unequivocal, measurable proof that their solutions can deliver business benefits to end users. Thus, "business as usual" will not sustain a SCM servicepracticethroughtheleantwoyearsaheadandbeyond. Gartner Dataquest makes the following recommendations to SCM service providers: Refine industry-specific solution templates to enable clients to deploy your solutions quickly and realize quantifiable benefits in the short term (thatis,aquickroi). Continue to expand and develop industry-specific consultants for staff augmentation projects (for example, systems integration, applications development, data center integration), the opportunities for which will outsize the opportunities for strategic management projects (for example, business and IT strategy development, vendor management). Balance SCM strategy consultants across a number of similar or related industries to optimize utilization rates. Ensure that your marketing messages and strategy include targeting the CFO, who continues to increase her sphere of influence on IT projects. Segment SCM strategy, messaging, and packaging around must-have and nice-to-have solutions. With end user IT budgets under immense scrutiny, they will need help in advocating for new projects. The distinction between must-have and nice-to-have features will help them prioritize their needs with their management. Investigate the viability of expanding your SCM practice in high growth regions, such as Asia/Pacific, Japan, and Latin America.

5 Look beyond the traditional manufacturing, retail, and distribution markets for SCM opportunities. In the last year, IT service providers have reported increased demand from government, healthcare, and utilities markets. Differentiate your solutions, capabilities, and offerings. There are a plethora of SCM service providers that promise similar results. SCM service providers must articulate a more credible differentiation from their competitors, such as: industry supply chain expertise, low cost solution provisioning, unique software package expertise, or extensive small and midsize enterprise reference accounts. The fact that SCM software functionality is becoming commoditized (see SWSA-WW-UW-0103) makes it difficult for SCM service providers to develop unique differentiating capabilities. To do so, SCM service providers must extend their capabilities beyond traditional supply chain planning, scheduling and execution and investigate opportunities for new growth in areas such as the following: Web services To integrate data across multiple, nonintegrated systems and achieve tight coordination and synchronization with other enterprises and with public and private marketplaces to ultimately reduce applications development and integration expenses in the future. Supplier relationship management To continue to squeeze business process efficiencies out of SCM initiatives by establishing business rules and workflows with business-critical suppliers of products and services. Product life cycle management To integrate customer demand and supplier information with product-centric data and back-end design, product development, configuration, marketing and customer service business processes. Advanced systems integration To integrate the plethora of modular SCM project implementations today. Indeed, project scale-downs undertaken to reduce implementation costs today could result in greater integration costs during the next five years as enterprises unify disparate SCM projects across the enterprise. Business process and strategy consulting services To alleviate the cross-business unit and cross-enterprise cultural and business process problems that preclude optimal business benefits from SCM deployments. Over the years that Gartner Dataquest has conducted end-user surveys on SCM initiatives and projects, end users consistently cite cultural, business process and collaboration issues as the key impediments to successful SCM deployments. Although enterprises do not have large budgets for consulting services in the next two years, they will need to fix these problems in order leverage their investments in the future. SCM service providers should be prepared for a resurgence in strategy consulting demand as enterprises endeavor to fix cultural, workflow and process problems before investing in new functions in 24 months. 5

6 6 SCM Service Providers Must Differentiate, Deliver and Extend Key Issue What are the opportunities, trends, and forecasts for SCM and procurement services? This document has been published to the following Marketplace codes: ITSV-WW-DP-0392 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2002 Gartner, Inc. All rights reserved. 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