1. Dedicated retail vendors

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1 Markets, M. Jimenez Research Note 22 May 2003 SCM Solutions: No One-Size-Fits-All for European Retailers Many software vendors are targeting European retailers, often with immature or obsolete supply chain management products. Retailers must keep what they have, build best-ofbreed solutions or try the integrated approach. Core Topic ERP II, Supply Chain & Manufacturing: Supply Chain Management Strategies, Applications and Technologies Key Issue How will successful enterprises select, deploy and manage SCP and SCE solutions to minimize risk and achieve optimum ROI? Most retailers in Europe are considering replacing their legacy systems with packaged applications. Software vendors are rushing to provide off-the-shelf applications to cover new business requirements or to solve problems that have traditionally been addressed with homegrown applications. But no single vendor can cover all the retail market's requirements of back-office systems, merchandising, supply chain management (SCM) and fulfillment. The retail industry is further divided into subsections, such as food, drugs, mass retail or clothing, which are very different businesses and further complicate this selection process. Who Are the Major Software Players in Europe? Four categories outline the different software vendors in the retail industry: 1. Dedicated retail vendors 2. Enterprise resource planning (ERP) vendors 3. Best-of-breed supply chain planning (SCP) vendors 4. Best-of-breed supply chain execution (SCE) vendors 1. Dedicated Software Solutions for the Retail Market The best-known software vendors in this category are Retek and JDA Software Group. Both are from North America and have had several attempts at building direct operations in Europe. They are now rationalizing and rebuilding these operations. Solutions are mainly from the merchandising side of their businesses, but they have both increased their scope Retek has developed internal functionality through joint development agreements with 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 customers and consulting firms. JDA has done so through acquisitions. From an operational point of view, the Europe, Middle East and Africa (EMEA) region is a very significant part of Retek's and JDA's businesses, representing between 30 and 40 percent of their worldwide revenue. Retek has two major partners: IBM and Accenture. Accenture has been a partner since 2001 and has given Retek all intellectual property on its developments in scientific retailing. Retek's main offices in EMEA are in the United Kingdom (covering northern Europe) and in France (covering southern and central Europe). Customers include Tesco, J. Sainsbury, Gap, Fnac, Galeries Lafayette and El Palacio de Hierro. From a functionality point of view, Retek offers merchandising and supply chain management (SCM). It has built its own warehouse management system (WMS) solutions, but only a limited number of European retailers have adopted Retek in this area. JDA is Retek's main competitor. JDA has been very visible in southern Europe with its Arthur solutions, but it is much less visible now because of its regional reorganization and management changes. In Spain, it has a strong reputation still, but in France, momentum has not been rebuilt. With its acquisition of E3 in September 2001, JDA extended its functional and geographical presence, and its installed base into the collaborative planning area, with a well-known and well-deployed stand-alone AS/400 solution. JDA's strategy is to be able to offer the E3 product on.net, but not to rewrite the entire suite. Integration between different pieces of the solution is still one of the major concerns for users and prospects. JDA has been reluctant to work with implementation partners in the past and has always done the work internally. This strategy is changing, but external, trained resources are still limited. Retail clients for JDA in Europe include Carrefour, Auchan, Gucci and Groupe Casino. A European player, Aldata Solution which specializes in WMS is gaining momentum in merchandising and there are many local "niche players covering specific areas and countries. Viability and technology are often the first issues raised when considering one of these solutions. Because of this fragmentation, retail clients should approach cautiously before dropping their entire legacy. There are still too many loose ends and large, dedicated vendors are experiencing important organizational and product changes in Europe. 22 May

3 2. Enterprise Resource Planning Systems in the Retail Industry ERP applications still do not serve the retail industry well, despite heavy R&D investment by some vendors. One of the main reasons is that traditional ERP applications are not constraintsbased when calculating delivery dates. They rely on fixed lead times and therefore fail to account for all relevant delivery constraints. Because of the volumes involved, the tools are often inhibited by slow planning run times, even when parameters other than a fixed lead time are used and the due date issues can be handled. Some vendors have improved their functionality and can offer an automated search of product availability and available to promise (ATP). Visibility is across multiple supplier sites, resources or distribution centers using different systems. However, this works better for manufacturers and business-to-business wholesalers than for retailers. This is because maintaining volumes and scalability are issues for retailers. The exception in this space is SAP. After a difficult start, it has now an installed base of European retailers running more than just financial or human resources management system (HRMS) applications. Most satisfied customers are in low-volume retail, and fashion and apparel distribution. SAP can also claim an understanding of micro-forecasting at the point of sale (broadly used at Metro, a major German retailer). This has been as a result of its partnership with SAF. SAP was slow to create retail-specific applications, but it has continued investing despite the early difficulties faced by most of its retail clients. SAP is now a strong competitor in this area, and is slowly improving its reputation. This had been damaged mostly because of mismanaged expectations and poor software for the first releases. There is still some negative feedback from SAP Retail customers and competitors continue to play on that, but SAP continues to work on resolving these problems. Other ERP vendors have a few customers in the retail space, but hardly any run merchandising or SCM. The problem is often product-, rather than marketing- or sales-focused. The list includes PeopleSoft, J.D. Edwards and Oracle (from past partnerships with Retek and IMI). But, despite strong marketing, their success has been limited, except for their finance or HR solutions. All of them, with the exception of SAP, tackle the retail vertical only on an opportunistic basis. 22 May

4 With its acquisition of the merchandising assets from Armature in July 2002, U.S.-based Lawson has entered the space with a broader product scope. Although well established in the United Kingdom, Lawson suffers from a lack of direct presence in other European countries. IBS (based in Sweden) is specializing in professional distribution with its own ERP software called ASW and also its WMS solution. Its installed base is more oriented toward wholesale, but it also has installations for retail organizations. Functionality includes point of sale (POS) integration, customer loyalty schemes, visibility across suppliers and retail outlets, and promotional planning. One of its most visible retail customers is Expert, a home electronics chain. IBS has entered an agreement with i2 Technologies to address the constraints-based planning side of the supply chain, with limited success so far. Intentia has started to move in the same direction, but again, retail is more an opportunistic sale than a vertical strategy. Retail clients should be cautious before dropping their entire legacy systems. Most ERP vendors still have more marketing brochures than real software that is proven in a retail environment. It is true that, from the beginning, traditional ERP systems were unappealing to retailers because they did not address specific retailing requirements (merchandise management, category management, retail accounting and promotional planning) or the volumes and transactions involved. Retailers particularly, should perform in-depth evaluations and pilot solutions before deciding whether or not to shortlist SAP or another ERP vendor. ERP systems can be the answer for sourcing or demand planning areas. 3. Best-of-Breed SCP Vendors The best-known retail software vendors in SCP are i2 Technologies and Manugistics. i2 Technologies' organization in Europe was heavily affected by difficulties and it is much smaller than it was in But retail is a strategic vertical to develop business outside its traditional installed base in the hi-tech and discrete manufacturing industries. i2 has built its retail offering both internally and through acquisitions, and through an agreement with IBM in April Customers are using its transportation planning and demand planning solutions with some success, but replenishment planning shows less maturity and vertical understanding. Manugistics is also trying to make a strategic move in the retail space through its experience with manufacturing companies in 22 May

5 the consumer packaged goods (CPG) industry. This is achievable for Manugistics' existing solutions, especially in the areas of transportation planning, demand planning, and collaborative planning, forecasting and replenishment (CPFR). However, it needs to develop products and visibility in the merchandising space to become fully credible. For now, Manugistics has a handful of retailers in its European installed base using demand planning or transportation. Manugistics and i2 are also targeting European retailers with pricing optimization functionality. There are some smaller, best-of-breed SCP vendors positioning themselves in the European retail market in most cases with very tactical products and a strong vertical focus. Most of them remain specific to one country, but a few are trying to expand their presence. TXT from Italy is expanding in France, Germany, Spain and the United Kingdom through fully owned subsidiaries and distributors. Its main installed base is in the fashion and apparel industry. It is still heavily service-focused and needs to improve the ratio between its license and implementation services to offer more standardized solutions that users can upgrade easily. But customers are satisfied overall because of its pragmatic and phased approach. There is very little experience of SCP in the European retail space and before committing themselves, customers should check exactly what is deployed and carry out pilots. 4. Best-of-Breed SCE Vendors In the area of SCE and, more specifically, in order management and warehouse management systems, retailers in Europe have traditionally invested in vendors from their own countries. It is only now that some are considering U.S. vendors such as EXE, Manhattan Associates, RedPrairie or Yantra. Most of these vendors have not been very successful in their European expansion projects. Some have done a better job, but have not won the market, yet. European retailers expanding outside their country of origin have taken their products with them and have generated an international installed base for local software vendors. All these products were initially developed for mainframes or IBM AS/400 machines and the majority of the installed base is still using them. 22 May

6 One local vendor that is becoming very successful at the international level is Aldata. Its G.O.L.D. solutions include merchandising and POS, as well as WMS. In the past two years, Aldata has moved from being just a SCE local supplier to a dedicated retail software vendor. Aldata has a presence in 38 countries, with Aldata's G.O.L.D. solutions in 36 of them. This represents more than 200 customers and almost 1,100 operational sites (about 1,000 are shops). Aldata's "sweet spot is in food retail, but it is also has a significant presence in other sectors. Aldata is being shortlisted and selected more and more often, and is a de facto competitor to larger vendors like JDA, Retek and SAP. Best-known G.O.L.D. customers include Groupe Casimo, Supermarchés Match and Tesco. What Are the Options for European Retailers? Whatever the origin of the software, it is obvious that there is no European panacea, and that each software product can address only a portion of the functional scope requested by a retailer. Most vendors have acquired products to grow their market share rapidly. This has resulted in a lack of integration within the solution and differences in the technology used. In many cases, vendors are using very old systems to show a robust solution capable of handling the huge volumes involved in retail. These systems have been developed for mainframe platforms and "revamped to meet market expectations. With the exception of SAP Retail (a solution that has been developed in recent years), most vendors are selling revamped versions of software developed many years ago. This is especially true for vendors in areas such as SCE or merchandising. Users should force software vendors to declare a commitment, not just to retail but to their specific retail subsegments, before committing to a vendor. They should also keep in mind that no one size fits all and that the suitability as well as strengths and weaknesses of the major software players to tier one, two or three retailers can differ considerably. 22 May

7 Acronym Key APS advanced planning and scheduling ATP available-to-promise CPF collaborative planning, forecasting and replenishment CPG consumer packaged goods CRM customer relationship management CTP capable-to-promise POS point of sale ERP enterprise resource planning SCE supply chain execution SCM supply chain management SCP supply chain planning Bottom Line: Retailers should buy standard software as often as they can, rather than developing it internally. But, they should not expect to get everything from one vendor or with the most recent technology. For every project, they should adopt a phased approach and pilot the solutions to check and validate compliance with local business processes. In many cases, the packaged applications that retailers can buy in Europe are not ready-to-use, nor can they run in all countries or retail segments. 22 May