Prediction 2003: Supply Chain Management Realigning

Transcription

1 Dataquest Predicts Prediction 2003: Supply Chain Management Realigning Abstract: The supply chain management market is deep in the throes of change. This transition has required a change in our forecast and will come with risk and hardships for application providers. By Chad Eschinger Strategic Planning Assumptions By 2003, leadership in the top five SCP providers will shift toward ERP II providers (0.8 probability). Buyer behavior will remain cautious because of an abundance of underused capacity in SCM systems so end users can survive with minimal purchasing through 2004 (0.7 probability). Commodity status, increased competition and user aversion to risk will continue to manifest itself and inhibit substantial growth in the SCM market through 2004 (0.8 probability). Publication Date: November 12, 2002

2 2 Prediction 2003: Supply Chain Management Realigning Introduction The traditional supply chain management (SCM) market (planning and execution) has felt the pressure imposed by leading enterprise resource planning (ERP) II providers and best-of-breed entrants. By encroaching on the SCM market, ERP II vendors, which are in dire need of expanding their application presence, have in essence lessened the potential value of licenses by making the functionality more of a commodity than a differentiater. As SCM vendors have attempted to expand beyond the core functionality to offer greater visibility and flexibility, they have encountered a swirling nebulous of entrants that tend to offer greater flexibility and at more attractive price points. While entrants have always affected markets, because of the economy, which hinders venture funding, these smaller emerging providers will be hard-pressed to align necessary expenditure toward research and development against cash flow. For more information, please see the Gartner Dataquest Market Trends "SCM Software Forecast and Trends, : Vendors Muddle Through Morphing" (SWSA-WW-MT-0102). The events that shook the ERP market in the late 1990s have some similarities and molded a different landscape in that market. The surviving players have begun to greatly impact the SCM and CRM markets and market leaders. Likewise, many market segments comprising SCM will begin a more rapid consolidation and emerge renewed and better aligned to business needs. Prediction: The Leadership Landscape Is Poised to Shift The SCM market has been re-forecast to shrink 17 percent this year, with positive growth in 2004 of 3 percent. As the SCM market continues its recoil, market share leadership is poised to change. In 2000, four pure plays were in the top six SCM software market leader list, based on the ERP II single-vendor definition. In 2001, leadership shifted among the same set of vendors (see Table 1). ERP II vendors have well-established their foothold in SCM (primarily supply chain planning [SCP]). The first half of the year showed the trend of ERP II vendors gaining a greater market share and the possibility of entrants in the market leader list. For more information, please see the Gartner Dataquest Market Statistics "SCM Software Vendors Challenged by Changes" (SWSA-WW-MS-0110).

3 3 Table 1 SCM Market Share (Percent) Vendor i2 Technologies SAP(ERPII) 2 8 Ariba 12 7 Commerce One 8 6 Oracle (ERP II) 4 5 Manugistics 5 5 Source: Gartner Dataquest (November 2002) By 2003, leadership in the top six SCP providers will shift toward ERP II providers. Impact on 2003 The following is the impact on 2003: Market share continues to move toward ERP II providers. Many pure-play providers that do not have an expansion or coexistence plan with ERP II vendors will either disappear by the end of 2003 or be greatly threatened. Users that are shopping for SCM software will consider the impact of integration for future requirements. Reacting to 2003 For pure-play SCM software vendors, positioning for ERP II competition is vital. For end users, offerings and promises of embedded integration within a product suite sounds great, but be aware of the symptoms common to these types of trends. The following are actions that should be considered for 2003: Pure-play SCM software vendors must establish either a multi- or single-vendor approach to ERP II vendor offerings. Pure plays must key off of successful references pertaining integration to combat sales challenges. Providers must focus on customers to reaffirm commitment and ensure that business value is being measured appropriately as well as offer tactical solutions when necessary. As viability remains a major factor in the selection process, vendors must continually evaluate spending to be best-positioned financially through discontinuities predicted to last through the end of the year.

4 4 Prediction 2003: Supply Chain Management Realigning Prediction: Years of Excessive Spending and Lackluster Implementation Will Lower Future Spending Years of reckless spending based on inflated expectations as well as complicated and overbudgeted implementations have many users questioning the value of SCM software to enable significant business performance improvement. Hence, users are more heavily scrutinizing SCM IT spending, which is smaller and performed with more inspection to achieve return on investment (ROI), than in years past. Buyer behavior will remain cautious because of an abundance of underused capacity in SCM systems so end users can survive with minimal purchasing through Impact on 2003 A general shift in the buying center and lower levels of discretionary spending are expected. In general, enterprises have spent large sums of money during the past few years to purchase and implement applications. To date, many organizations are unable to adequately measure any ROI. Therefore, many enterprises are looking for short-term point solutions to help optimize business objectives through application investments rather than committing to full-suite or large, expensive and timely projects. Reacting in 2003 With the prospect of fewer sales, SCM vendors must consider short-term alternative revenue opportunities and strategic partnerships to offset lower license sales, for example, services, maintenance and training. Software application providers must not rely solely on an economic recovery to be the solution to sales woes they must recognize that buyer behavior has shifted and develop strategies to deal with that. With a plethora, yet shrinking number, of potential solutions vendors must effectively communicate where it will be in the short and long term. Increased requirements from users to obtain faster ROI through increased real-time supply chain visibility command that vendors be prepared for component sales. Prediction: The SCM Market Will Fail to Substantially Rebound Until 2005 Increased competition, fewer large deals and an evolving market will inhibit growth in the SCM market. Sustained competitive pressure, primarily in SCP, from ERP II providers and increased user uncertainty, driven by a lack of confidence in the business value of SCM and intensified merger acquisition demise and divestiture (MADD) activity, will hinder growth through Drivers for growth include market saturation, the Gartner Hype Cycle trend, lower price points of software application sales, MADD and user demands for point solutions to enhance and integrate application portfolios. Emerging interest in the concept of supplier relationship management will drive the market in 2003.

5 Gartner Dataquest has revised its forecast for 2002 through 2006 for the SCM market based on a review of the latest license revenue results for the first nine months of the year. Our original forecast is represented as our best case scenario while our most likely scenario represents our revised forecast. Please see Tables 2 and 3 for the latest SCM forecast. Table 2 SCM Software License Revenue Scenarios, (Thousands of U.S. Dollars) SCM Forecast CAGR (%) Best 2,378,388 2,164,333 2,207,620 2,318,001 2,480,261 2,728, Likely 2,378,388 1,974,062 1,776,656 1,829,955 1,921,453 2,075, Worst 2,378,388 1,855,143 1,595,423 1,499,697 1,499,697 1,529, Source: Gartner Dataquest (November 2002) 5 Table 3 SCM Software License Revenue Year-Over-Year Growth, SCM Forecast CAGR (%) Best Likely Worst Source: Gartner Dataquest (November 2002) Commodity status, increased competition and user aversion to risk will continue to manifest itself and inhibit substantial growth in the SCM market through Impact on 2003 The following is the impact on 2003: Average application license revenue and deal size decline Vendor failure and leading SCM providers involved in mergers and acquisitions Slower demand for innovation and fewer available funds from venture investment Reacting in 2003 Vendors must focus on core industry verticals, developing greater out-ofthe-box functional depth to accommodate enterprises' specific requirements. Vendors must weigh and balance the risk of providing too much functionality, or more than enterprises will buy into. Vendors should not rely on economic recovery to be the solution for sales woes; vendors must recognize that buyer behavior has shifted and develop strategies to deal with that fact. SCM providers must accept that natural selection is healthy and imminent, and they should be prepared for the possibility of mergers and acquisitions.

6 6 Prediction 2003: Supply Chain Management Realigning The evolution of technology and functionality is imperative to survival, yet demand surrounds extracting greater business value from strategic application portfolios. With fewer funds available for research and development and slower user adoption of evolving technology, vendors must be weary of consuming a significant portion of revenue toward these activities. Gartner Dataquest Perspective The SCM market is in a state of chaos. Economic conditions are only partly to blame as most SCM providers were ill-prepared for the effects of a significant slowdown. A fundamental shift in buyer behavior, fed by years of overspending and underachievement, has thrust much of the market's functionality into the Hype Cycle's "trough of disillusionment." The market is evolving beyond the planning and forecasting of an enterprise's four walls. The evolution will take years to accomplish, with the end products enabling real-time collaboration through tightly integrated solutions. For more information, please see "SCM5 Will Drive the Next Wave of Supply Chain Advantage" (SPA ). SCM software vendors must not downplay the expanding competition of ERP II vendors. With the prospect of fewer sales, vendors must consider alternative revenue opportunities, for example, services, maintenance and training. Providers should investigate alternative channels to market. Systems integrators, value added resellers and strategic partners that will supplement offerings are ideal. Key Issue How is the competitive landscape for this market going to change? This document has been published to the following Marketplace codes: SOFT-WW-DP-0111 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