Supply Chain Spending On the Rise

CIO — A combination of businesses' newfound admiration for how supply chain systems can provide a competitive differentiator and a realization that now is a good time to rip and replace 1990s-era equipment will create an increased wave of supply chain spending, according to a recent AMR Research report.

When compared with 2006 data, "twice as many companies say they will increase spending on supply chain technologies, projecting to grow their budgets by nearly 12 percent for 2008," stated "The Supply Chain Management Spending Report, 2007-2008," written by AMR analysts John Fontanella and Eric Klein. They note that both ERP and best-of-breed vendors will likely benefit from the "investment resurgence" in supply chain systems.

This resurgence pales in comparison to the "dour days" of supply chain management in the early 2000s, write Fontanella and Klein. "Companies recognize their supply chains offer both the opportunity to be more efficient and, with superior customer service, directly affect top-line growth," they write. "Investment in them is necessary to stay competitive."

According to the report, the 12 percent growth in SCM technology spending will be aimed at controlling costs, raising productivity and improving customer service. "In the United States," says the report, "companies in the process industries are more likely to invest in bottom-line improvement, while those in discrete industries are more interested in improving revenue growth."

Several of the key spending drivers in the supply chain technology market include:

Increasing productivity. Respondents said they want to gain greater flexibility and responsiveness. For example, three-quarters of companies surveyed say they will be "replacing or upgrading order management functionality in the next two years because of obsolescence of the software, its high support costs, and the need for more modern technology platforms that allow for faster and less complex integration with other enterprise applications."

Improving customer service. Companies in discrete industries want to meet the wide-ranging demands placed on them by their customers. "About 60 percent of those surveyed will also be looking to replace current transportation management systems (TMS), primarily because of their inability to meet the service demands of internal and external customers," write the analysts. "Like order management, many companies have older, home-built or packaged TMS deployments that are incapable of dealing with the realities of today's transportation requirements in a global and green economy."

Controlling costs. Companies of all sizes and from all industries are still "under pressure to reduce costs, particularly in an environment where energy and other commodities prices continue to increase."

Lastly, the analysts say that the domination of the supply chain market by large ERP vendors will not be as overwhelming for best-of-breed vendors. "The demise of the best-of-breed supply chain technology vendor is not imminent," they write. "In fact, it's likely that gains will be made against ERP vendors in areas that require multi-enterprise integration and leading-edge functionality."