SUPPLY CHAIN MANAGEMENT SOLUTIONS IN THE UK A SURVEY UNDERTAKEN BY HI EUROPE SEPTEMBER 2002 COMMISSIONED BY ORACLE CORPORATION UK LIMITED 1
Contents Executive Summary...3 Introduction...4 Current Use & Age of Supply Chain Management Solutions...5 Satisfaction Levels...7 Supply Chain Drivers...8 Attitudes to Key Supply Chain issues...10 Supplier Awareness and Selection...11 Communication...12 Conclusions...12 2
EXECUTIVE SUMMARY This report gives a summary of the published results of a survey of the Supply Chain Software Solutions used in the UK, as carried out by HI Europe during August and September 2002. Oracle Corporation UK Limited is seeking to raise its level of awareness in the Supply Chain sector as part of a revised approach to the market. Analysis of this report gives a focus of where this activity should be targeted, not only in terms of upgrading and replacement of existing installations (whether they are existing Oracle customers, or new customers), but additionally across the different market sectors in which supply chain solutions have been implemented. The results clearly highlight some expected results in terms of market coverage. Specifically the main points are: The overall average age of solutions is 4.1 years; package solutions have an average age of 3.9 years and in house developed solutions, have an older profile of 6.1 years. Over 80% of the respondents are planning to maintain or increase their existing levels of investment in Supply Chain software solutions. The relevance of satisfaction and dissatisfaction is considered; on balance more respondents are dissatisfied due to two main reasons, product functionality, and integration of the different elements of the supply chain. Consideration is given to the key business issues that affect supply chains and unsurprisingly Cost Reduction is the biggest issue here. Questions were asked about attitudes to current key supply chain issues - a return on investment case must substantiate major investment in these types of solutions. The report considers the leading supply chain solutions providers in the UK market space, Oracle and SAP. 3
INTRODUCTION In July 2002, Oracle Corporation UK Limited commissioned a leading market research company HI Europe, to conduct research into the current state of Supply Chain solutions in the UK. The aim was to interview the Decision Makers of leading companies that operate Supply Chain solutions across a variety of vertical market sectors (see figure 1). The target companies were UK owned, had a turnover in excess 100 million and employed in excess of 500 employees. The objectives included: To determine the key business drivers relating to Supply Chain Management solutions To establish current and future usage of the different Supply Chain Management solution To determine awareness levels amongst Decision Makers of the vendors of Supply Chain Management software solutions To establish which suppliers are best positioned to succeed in the Supply Chain solutions market, in the future. To identify the communication mediums of most value to decision makers Transport & Distribution Retail / Wholesale Financial services Hospitality Utilities Other services Manufacturing / Engineering High Tech Aerospace / Defence Telecommunications Primary Process / Chemicals Pharmaceuticals 12% 9% 3% 3% 1% 3% 14% 4% 2% 9% 6% 34% Services - 31% Mfg / Eng - 34% Hi-Tec / Aero - 20% Primary Process - 15% Primary industry sector of business unit / company Figure 1 - Sample analysis: Market sectors Further analysis of Supply Chain solutions included in the research was broken into four main business areas, including the percentage of relevance to the business surveyed being: Supply Management at 94%, Delivery Management at 91%, Planning Management at 86% and Production Management at 56%, this is not exceptional as the survey included a number of service companies that do not have production (manufacturing) operations. 4
CURRENT USE & AGE OF SUPPLY CHAIN MANAGEMENT SOLUTIONS When reviewing the use of the four business areas of a supply chain, it is evident that there is a high usage of software solutions. On average 77% of respondents said that they already have and are using solutions, with a further 12% currently in the process of implementation, which leaves just 11% that do not have any solutions in place at all. If we add to this usage the issue of integration, which is defined as the level of integration between two or more elements of the solution (e.g. say Supply and Delivery), then this is particularly fragmented. The highest level of integration is through Production systems 78%, followed by Delivery 75%, Planning 74% and finally Supply 66%. There are plans in place to increase the levels of integration to over 90% on average across all profiles. The results of the survey show that Integration is an important issue for the operation of a supply chain. There are many opportunities for the integration of solutions, but the primary driver is the overall solutions philosophy for the business. Where solutions have been developed or purchased in isolation the natural development is to build a Best of Breed environment. With a Best of Breed architecture the Total Cost of Ownership is higher mainly due to the cost of maintaining the integration between packages, plus the different support costs for maintenance of software from different software companies. Alternatively, the purchase of a complete integrated tool set, has the distinct advantage of having the tools already architected to an integrated format, which reduces the overall Total Cost of Ownership (TCO). Over the course of time it would appear to be a natural development for solutions to be based on a single architected environment, which is more cost effective and easier to maintain. Whilst the future may be more economically based on integrated solutions, one area of analysis that needs to be considered for future investment is the age of existing solutions. Overall supply chain management solutions are 4.1 years old. We will consider the upgrade replacement profile later in the report. But at this point, the age of the solutions tends to lead towards a conclusion that users are not getting the full benefits available from the latest solution technology, especially in the areas of Planning. The full analysis is detailed in Table 1 below: Item 2 yrs or less 3 to 5 years > 5 years Average Supply 47% 28% 25% 3.7 years Delivery 36% 32% 32% 4.6 years Production 38% 38% 24% 4.0 years Planning 39% 37% 24% 3.9 years AVERAGE 40% 34% 26% 4.1 years Table 1: Average Age of Current Supply Chain Solutions (ALL) A further point of interest is the comparison between package solutions and in-house developed solutions. The average age for package solutions is 3.9 years, whereas the age of in-house developed solutions is much older at 6.2 years. As such, it must be reasonable to assume that the in-house solutions must have been developed to a very high degree of local functionality, which 5
may not always deliver the competitive advantage that can be gained from the implementation of new software solutions as 2 out of 3 respondents thought. Over half of those surveyed (53%) said that they were going to upgrade or replace existing solutions within the next two years. This will certainly help to reduce the overall average age of systems from 4.1 years. Specifically, three quarters of those who have systems that are in excess of 5 years of age are planning to upgrade or renew their systems. For those systems, which are 3 to 5 years old, around three quarters are planning to upgrade their Production and Planning solutions, but only half this amount (i.e. 35%) are planning to upgrade their Supply and Delivery systems. For those who systems are only two years old the numbers expecting to upgrade, are much lower, on average 20% except for Supply solutions, which is over twice as many at 46%. Part of the reason for this can be explained by the way specific products that are used in this area have had a very high market profile during the past couple years, but have recently declined. We know from our own product developments during the past couple of years, that there have been some significant changes to supply chain solutions, in particular with Planning applications. We are aware that companies do face a challenge to upgrade and keep pace with the advances in technology, but equally there are benefits to be had from maintaining current version of software, from new product releases and synchronisation of the new releases with existing functionality. At the same time there is related evidence of a projected increase in spending over the next two years, with a similar number (53%) saying that they are going to increase investment, 31% say that investment will stay at the same level. Full details on expenditure are shown in Table 2, below Change 1-10% 11-20% >20% Increase - 53% 21% 20% 12% Same level - 31% Same Same Same Decrease 16% 3% 2% 11% Table 2: Forecast of future investment 6
SATISFACTION LEVELS All respondents were asked about the level of satisfaction with the overall performance of their Supply Chain Management systems (on a scale of 1 to 10, where 10 is extremely satisfied, and 1 is extremely dissatisfied). The results are shown in Table 3: Score Volume 9 or 10 2% 46% SATISIFIED 7 or 8 44% 6 20% 5 19% 54% DISSATISFIED 4 or less 14% Note: In Market Research it is accepted practice for the satisfaction break point to be taken at 7 and above Table 3: Satisfaction Levels Of those who declared satisfaction with their systems 51% said that they had integrated systems to some extent, whereas only 29% were not integrated. This suggests that if solutions are not integrated to some degree, then there is likely to be a degree of dissatisfaction with their systems. Turning to the majority, who were dissatisfied, the one major area of dissatisfaction was identified as a lack of functionality at 43%. At this point it is interesting to note that the older the solution, the probability is that functionality will not be as current as in later version of the solutions. The full analysis of the areas of dissatisfaction are shown in Table 4: Topic Volume Lack of functionality 43% Lack of integration 17% Complexity of the system/ difficult to use 13% Flexibility of the system 11% Lacking visibility 4% Time required to implement 4% Reliability of the system 2% Others 7% Note: there were no discernible differences with regards to areas of dissatisfaction were noticeable by the make of system used. Table 4: Areas of dissatisfaction We mentioned earlier that there was an unusually high number of supply solutions potentially being replaced that were under two years old. This is supported by the satisfaction values for Supply shown in figure 2 below. The other values are consistent with other parts of the report when looking at age, functionality and other areas of current systems. 7
Mean satisfaction scores out of 10 Supply Delivery Planning 6.2 6.6 5.1 7.4 7.0 6.9 7.0 6.2 5.9 0 to 2 3 to 5 > 5 Age of solution (years) 0 to 2 3 to 5 > 5 Age of solution (years) 0 to 2 3 to 5 > 5 Age of solution (years) Note: Production is not shown because the sample contained Service and Production companies Figure 2: Satisfaction Values Across Three Areas The Delivery and Planning profiles are much as expected and support previous assertions that older systems do not support businesses as they grow and develop, hence the expected lower levels of satisfaction across the different profiles. SUPPLY CHAIN DRIVERS So far we have concentrated on the use and age of existing solutions. The management of a supply chain is pivotal to a company s business, especially those with multiple products. The management of the Supply Chain has during the past few years taken on a far broader and more important profile within a business. Indeed many of the successful and market leading companies, in different sectors, have exploited the supply chain opportunity to leverage significant benefits for both the continuing business and shareholder value. With this level of understanding, questions were asked specifically about business drivers. Many of these issues can be viewed in broader terms as being business issues rather then just supply chain problems. Not surprisingly the most popular business driver is Cost Reduction. However, we consider cost reduction to be a generic term that can cover genuine reduction in business costs, or the improvement of business performance, which leads to lower operating costs by delivering more value for a similar input. In terms of reductions, inventory reduction reduces costs because you are holding less physical stock that is your assets, even though the inventory in the total supply chain is not reduced. Improved Lead Time Management is another area where costs can be reduced. Areas where process improvement would contribute towards cost reductions would typically include; improved order delivery times, improved cycle times, time to market, forecast improvements, primarily forecast accuracy, and give benefits both in terms of 8
cost reduction and process improvement. Where forecasts are used to provide demand management, the variance becomes key to maintaining continuity of supply, which if the variance is significant will lead to extra inventory. The process improvements come from using the right demand/ forecasting tools to manage your demand. Cost reduction Vendor performance Customer service levels Inventory reduction Improved order delivery times Improved cycle times Business development Transparancy/better SCM management Lead time management Forecasts Financial management Time to market Others 15% 13% 10% 10% 8% 4% 3% 3% 2% 3% 28% 31% 62% Figure 3: Business drivers facing organisations in the area of supply chain management The second and third rated items are important for supply chain management, and it is encouraging to see that there is a focus on the external elements of the supply chain. Vendor performance points to the fact that the supply relationships are monitored and that there is some form of collaboration. The Customer Service Levels are one of the primary measures of the overall supply chain performance, and should lead to a closer working environment to meet the demand for products and services. 9
ATTITUDES TO KEY SUPPLY CHAIN ISSUES This section was designed to bring out some more specific supply chain issues rather than the opportunity to identify overall business issues. Details are shown in Figure 4, below. STATEMENT Strongly AGREE Slightly AGREE Implementing Supply Chain software solutions must deliver an ROI CASE 82% 13% 95% Solutions need to be LESS COMPLEX & MORE OUT-OF-THE-BOX 51% 31% 82% IMPLEMENTATION TIME is one of top considerations when deciding to invest in a new system 47% 32% 79% DO NOT UTILISE existing Supply Chain solutions to MAXIMUM ABILITY 34% 37% 71% The COMPETITIVE ADVANTAGES gained by implementing Supply Chain software solutions JUSTIFY THE INVESTMENT 29% 38% 67% Managing all aspects of Supply Chain through SINGLE SOFTWARE SOLUTION is a key priority for future investment 31% 30% 61% INVESTING IN MORE SOPHISTICATED PLANNING FUNCTIONALITY is key aspect of future strategy 30% 24% 54% There is a LACK OF UNDERSTANDING OF Supply Chain Software SOLUTIONS within our organization 29% 29% 58% Would PAY A PREMIUM TO ENSURE THE FUTURE-PROOFING of any new Supply Chain software solutions 18% 33% 51% Supply Chain solutions currently on the market are LACKING IN FUNCTIONALITY 15% 29% 44% Our LEGACY SYSTEMS PREVENT US FROM MAKING CHANGES to certain Supply Chain areas 24% 23% 47% Figure 4. Attitudes towards key supply chain issues Not surprisingly the need to deliver a Return On Investment (ROI) case, is the top issue. Though where solutions are not fully integrated it would be prudent to include a Total Cost of Ownership profile as well. There are some items that provide natural contradictions, so let us consider these. Solutions need to be less complex and more Out-of-the-Box, which would naturally lead to a shorter implementation time scale. However those statements need to be tempered with the desire for more sophisticated planning solutions, as part of a business strategy. The desire to have more functionality in supply chain solutions (44% agree), poses a real problem when you consider that more respondents claimed that there was a lack of understanding of supply chain software solutions (58%) within their organisations, add to this, there is not maximum use of existing software solutions (71%), it would appear that current functionality is not meeting the needs of users. However this does need to be considered with reference to the age of the solutions that are being used, as this is a major issue. Allied to this is the fact that Legacy Systems are impeding changes in certain supply chain areas in a company, although this is probably related to cultural and people issues. The last three areas are geared to future investment of supply chain software solutions. All three issues are supportive of increased expectations, especially for future proofing, where just over half said they would pay a premium. Managing supply chain software solutions through a single software solution is one of the major benefits delivered through the use of Oracle applications software. This is further supported by the fact that half of those questioned said that they would 10
rather have more integrated supply chain solution, rather than m ore sophisticated Planning solutions. Among those users of In-House developed systems this figure rose to 2/3, which suggests some of these solutions have only minimal integration. The investment made to gain competitive advantage through the implementation of supply chain software solutions, will be eroded if the software is not kept up to date, as competitors will be catching up each time they upgrade their software and users who do not upgrade will be losing competitive advantage! SUPPLIER AWARENESS AND SELECTION This section tests Brand Awareness in the supply chain market. By asking which one vendor first springs to mind when referring to Supply Chain solutions, and then also which other vendors are you aware of? Vendors are ranked by cumulative mentions i.e. first mention, plus other mentions. The details of the replies are shown in Table 5, below. Solution provider Overall First choice Other rating SAP 58% 24% 34% Oracle 55% 34% 21% JD Edwards 21% 4% 17% Manugistics 16% 7% 9% BAAN 15% 1% 14% Table 5: Brand awareness Clearly Oracle and SAP are overall the most popular choices for supply chain solutions by a good margin. Respondents were then asked if you had to use an external supplier to source and implement a range of new supply chain management software solutions which TWO suppliers would you most likely consider using? The results are shown below, figure 5, and again Oracle and SAP are the clear leaders for the choice of supply chain management solutions SAP 54% Oracle 47% Manugistics 21% i2 9% JD Edwards 9% Figure 5: Suppliers most likely to be chosen for new systems 11
COMMUNICATION Once established it is very important to keep respondents and those interested in Supply Chain Solutions posted about developments, changes and other interesting news related to this segment of business. There are a number of different types of media that are available for disseminating this type of information, including documents such as this. When asked which type of media would be of particular use the replies were as follows. The most popular form of communication is Events, similar to the Supply Chain Challenge dinners; this is a series that will continue during the next year, currently planned on a quarterly basis. The next was regular newsletters these could be delivered by e-mail or access to a website, or even the traditional method of paper copies. Websites will also be a good place to collect white papers, whether produced by the company, or links to related sites. All of the above received more than 50% support. Just less than 50% was Internet Seminars, and we are investigating the possibility of running a series of these. At the lower end of the profile was a visit by a customer rep, but this did vary depending on the company they were dealing with. And finally the least popular was regular telephone contact, and it is easy to see why this could be considered as being the least popular. 12
CONCLUSIONS This report provides a good baseline for the many activities that Oracle will be focusing on in the Supply Chain market during the next year. But there are some specific issues that need to be highlighted now, these include: It is apparent that around ¾ of those surveyed have a supply chain solution in place in each of the four business areas, but most around 4 years old. In view of the significant levels of product development and new product releases during the past few years, it is highly probable that these solutions are not fully supporting the business needs for supply chain management solutions in the current market. It is also interesting to note that those with in-house systems have an age profile that is 50% older than the 4-year average, at 6 years. As well as the lack of support for the business, there must be a Total Cost of Ownership for these solutions that is causing an additional strain on the business. It is very encouraging to see that the predicted future investment plans appear to show a healthy development path for software solutions. But this may also be the result of the current age of systems, as discussed above; on average, a half of all organisations are looking to invest in a solution in each area. These come from those looking to upgrade or replace existing systems, rather than first time buyers. Integration is important, approximately ¾ of those surveyed have some level of integration, whether it is just two areas integrated or the complete suite of applications. It is even more encouraging to note that most of those who do not have integrated solutions are planning to do so. Plus the fact that more consider further integration to be more important than improving planning capabilities, although there is recognition of the need for more sophisticated planning functionality. There appears to be a high degree of dissatisfaction (54%) with existing systems, even though the largest single rating was 7. There is an overriding objective to increase satisfaction levels, some of the ways this can be achieved have been discussed in the report, in particular integration of solutions, which is important to delivering satisfactory solutions. One of the key areas of dissatisfaction is the lack of functionality in existing products, but another view says that 7 out of 10 users are not maximising the Supply Chain solutions they already have. But software functionality is a key driver to future buying plans It is anticipated that all major investment in business is supported by a Return On Investment analysis, which will support the value of the investment. When considering new Supply Chain Management solutions, there are other factors that need to be considered, in particular the level of competitive advantage that can be gained and for how long. One point is clear that new solutions do improve effectiveness.the two leading suppliers of supply chain management solutions in the UK are Oracle and SAP, they have a major lead over their competitors both in awareness and recognition, and are most likely to be on any selection list when new solutions are being considered.if you would like to understand more about this report or any aspects of Oracle Corporation UK Limited profile in the software market then please call 0870 533 2200. 13