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Small Cloud Providers Serve Supply Chain Management Market

The overall market for supply chain management (SCM) and procurement software from major vendors is strong, but growth by smaller cloud-based SCM software vendors is booming, according to a recent market share analysis by research firm Gartner.

“SCM offerings delivered as cloud [services] showed above-market growth of 17%” in 2014, said Chad Eschinger, research vice president at Gartner. Some of the highest growth rates among cloud-based vendors were Aravo Solutions Inc. (70%), ToolsGroup (31%), Descarte (16%), Amber Road (16%) and GT-Nexus (13%). The overall SCM market grew at a pace of 10.8% last year, to $9.9 billion, compared to 7.5% growth in 2013.

The SCM market is highly fragmented. The top 10 vendors have about 55% of the market, with the remainder split among 57 vendors. These 57 experienced average annual revenue growth of 9.6%, indicating strong demand for specialized offerings that are competitive with, and sometimes complementary to, the larger providers' products.

The growth in cloud is coming from several directions, said Eschinger. In some markets, large mature corporations that have used on-premise software for many years are moving to the cloud. In emerging markets and among smaller companies, manufacturers and distributors may not have legacy on-premise investments, and so are free to start with cloud solutions. These organizations may have been using rudimentary processes (such as Excel spreadsheets or even paper), but with cloud “they can move into the 21st Century in terms of automation,” he noted. Cloud services are easier to use – they don't require large IT staffs for installation and maintenance – and can be up and running in six to eight weeks, compared to up to nine months for some enterprise, on-premise software.

Another factor is that some companies want to take advantage of the collaboration capabilities available in the cloud. Cloud services can enable manufacturers to share product designs with upstream suppliers, for example. “You can collaborate on the materials that are going to be used or on the form factor,” he explained. “Collectively, you might be able to bring a product to market faster, with a higher profit margin.” Other packages allow real-time communications between shipments in transit and distribution warehouses.

Some cloud vendors are growing by piggy-backing on established legacy SCM vendors. They might operate on top of SAP's advanced planning and optimization engine, for example, extracting certain sales and operations data, combining it with other types of data to increase sales or profits. For example, if laptops aren't selling well in San Francisco, such analysis might show that the company should discount those models, or perhaps shift shipments to New York, where they are selling well.

For companies preparing to adopt cloud, Gartner recommends conducting a thorough evaluation of supply chain management and procurement processes. “It's an opportunity to take a look at your workflows and see if you can improve,” said Eschinger. “One of the risks is that you go to the cloud and just configure the system to match your existing workflows, which may not be optimal.”

Cloud-based SCM is likely to continue outpacing the growth of the overall SCM software market. Gartner forecasts that cloud-based SCM will rise from $2.42 billion in 2014 to $4.84 billion in 2019, a compound annual growth rate of almost 19%.    

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