Supply Chain Software Spending No Panacea

According to IDC's latest figures, IT spending on supply chain management software will surge from $3.9 billion in 2013 to $4.5 billion in 2015. Breaking down the numbers further, spending on demand sensing and planning applications will increase from $329 million to $390 million.

These estimates are spelled out in an IDC Manufacturing Insights report published in September that evaluates supply chain software vendors and their offerings. It's always nice to hear that manufacturers are gearing up to spend more on software that they feel can help supply chain managers do their jobs better. The question is how much better they can really do their jobs if other parts of the business are failing.

Could sophisticated software that offers demand forecast modeling, demand aggregation, and demand analytics and reporting have helped supply chain managers reverse the declining fortunes of companies like BlackBerry and Nokia? As we examine the last few years, is it possible to conclude that the implementation of supply chain management tools at Dell, Hewlett Packard, and Microsoft would have helped these companies change their strategy quicker, innovate more efficiently, and execute a business strategy more effectively in the midst of a worldwide decline in PC sales?

Could software that offers simulation/what if capability, demand sensing, collaboration with suppliers and customers, and integration with sales and operation divisions have turned around the fortunes of high-tech companies where product sales and revenue growth have declined? The last five years have seen extreme volatility in consumer electronics, and the stark reality is that supply chain forecasting, collaboration with customers, inventory management, and other supply chain management efforts are less likely to be effective if companies don't find ways to tackle other issues, such as changing consumer behavior, product innovation, and price competition.

Original equipment manufacturers, contract manufacturers, semiconductor manufacturers, and component suppliers are facing overwhelming supply chain challenges. The implementation of software that manages data, provides analytics, and expands visibility with partners and customers is a worthwhile endeavor, but there are other considerations to be made.

Simon Ellis, practice director of supply chain strategies at IDC and the report's author, said manufacturers looking to improve demand sensing and planning operations should define their priorities and establish a strategy to identify opportunities. Manufacturers in the high-tech industry should think seriously about the report's recommendations and take the opportunity to align the capabilities offered in demand sensing and planning software with their company's business objectives. The recommendations include:

  • Understand the relative performance of demand planning efforts . Is your forecast better, worse, or on par with your competitors? Supply chain managers are urged to identify the area that requires attention. Is it a business process problem? A data sourcing or accuracy problem? A technology tool problem?
  • Establish a strategy . Define short- and long-term strategies for achievable levels of improvement. Ask yourself if capitalizing on any of these improvements can create a differentiating market advantage.
  • Define requirements, and develop a roadmap . Identify projects with the most significance — measured by return on investment or market differentiation — and prioritize. Don't lose sight of the long-term needs of your organization when identifying your quick wins.
  • Define current barriers to change . As you construct an initial list of opportunities, keep in mind the organizational and cultural resistance. Be aware particularly of the potential for misalignment of line-of-business and IT priorities.

If you are an executive seeking to purchase supply chain management software, the hope is that you can find a way to leverage the technology to deliver data that can provide useful information to help executives make better decisions across the supply chain. Hopefully, this will produce better forecasting capabilities, better insights into demand and supply trends, and more transparency with your business partners.

However, demand sensing and planning software, like all other supply chain management applications, is only a tool. The technology can't deliver the desired results unless it is made to work alongside other business strategies, such as the ability to develop new products that attract buyers, a sound go-to-market strategy, and the ability to keep and nurture talented employees.

If your company's business strategy is sound, your investment in supply chain software has a chance to help your business move to a higher level of efficiency and savings. During the past five years, this goal has eluded many supply chain executives operating in the volatile high-tech industry. Let's see what happens during the next five years.

5 comments on “Supply Chain Software Spending No Panacea

  1. SP
    November 8, 2013

    I guess now all organizations must give priority to supply chain and keep a good budget aside for suppy chan innovation and improvements. All theses years it has not got the importance it deserves when policy decisions are being made.

  2. Daniel
    November 11, 2013

    “According to IDC's latest figures, IT spending on supply chain management software will surge from $3.9 billion in 2013 to $4.5 billion in 2015. Breaking down the numbers further, spending on demand sensing and planning applications will increase from $329 million to $390 million.”

    Nicole, it seems that IT spending is increasing for last couple of years and in one way its adding additional expenditure to the companies. But nowhere has it accounted that how much it's saved in manpower and logistic, based on IT implementation. Then only it's able to analyze, the effect of IT expenditure. I mean gain and ROI.

  3. Hailey Lynne McKeefry
    November 12, 2013

    It strikes me that software is never helpful if the organization doesn't have good strategic processes in place and human resources dedicated to getting the most out of the technology. You have to have someone in the organizatoin who takes the time to udnerstand how to use the tools and apply them to the speciific challenges of the organzation.

  4. Hailey Lynne McKeefry
    November 12, 2013

    There's certainly a lot of competition for IT spend in the average supply chain. Of course dedicated supply chain software is one thing, but also security, annalytics, big data and other trends. Any body want to weigh in how your organization is making decisions around how to make the most of IT budget for the benefit of the supply chain?

  5. Anand
    November 21, 2013

    Defining strategies may need help. A manager must know the people he works with and those who work under him. Handing out long term strategies to people having less patience towards these procedures would only result in delay and downgrade of opportunities in business. Software is there to help, but at the end of the day, business comes down to one on one with the consumer and manufacturer. And no software can handle that. Managers, who must also fix budget calls and therefore develop roadmaps, have to be familiar with the changing markets and potential competitors. 

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