The market for supply chain management (SCM) is rebounding, posting a 3 percent gain in 2005, with forecasted spending of 7 percent in 2006, and 5 percent in 2007, according to the latest report by AMR Research, a Boston-based advisory firm focused on supply chain, enterprise applications.

The report, dubbed The Supply Chain Management Applications Report, 2005?2010, says that several environmental factors are affecting the current SCM market:

* Globalization and global sourcing,
* leaner supply networks,
* increased customer expectations,
* more mass customization,
* increased demand variability,
* and cost volatility, inflation, and competitive pressures.

The result: Business priorities for users and software product development focus for vendors have changed.

?New business focuses and pressures are driving pockets of vendor innovation and renewed corporate spending in supply chain initiatives,? said Mark Hillman, senior research analyst at AMR Research. ?However, spending is tempered by the fact that corporate supply chain organizational maturity is still relatively low, limiting adoption. In addition, consolidation will continue to play a significant role in 2006.?

For the third straight year, SAP emerged as the top SCM vendor in terms of revenue, and outpaced the market with growth of 6%. Oracle, i2 Technologies, Manhattan Associates, and Infor round out the top five vendors in revenue in the space.

Supply chains are becoming increasingly global, complex, and interdependent?forcing companies to extend planning beyond the four walls. Largely due to this trend, the top SCM application growth area for 2005 was the inventory configuration and policy technology category, which posted a healthy license growth rate of 35%. Supply chain network design license growth was 21%. The report also found that application hosting/subscription was the fastest growing SCM delivery model, at a 16% growth rate.

The key findings in the report include:

The SCM market in 2005 is a far more pragmatic market than the market of the late 1990s. In 2005, companies are building a SCM infrastructure based on a foundation of ERP investments. For many, this is either Oracle or SAP.

Consolidation continues to be a major force. Due to strategic and market share-altering acquisitions, companies should purchase applications with a focus on achieving ROI within two years to balance the risk of future market consolidation.

Rapid innovation is being delivered by independent software providers. Companies like Jonova, Kinaxis, LogicTools, Logility, Optiant, SmartOps, Synchrono, Terra Technology, ToolsGroup, TrueDemand, Vision Chain, and WAM Systems are focusing on industry-specific functionality and target under-serviced business problems.

Only 52 percent of firms have experience with a supply chain organization for more than two years. As a result, domain expertise is a limiting factor for user adoption. Hosting and business process outsourcing (BPO), however, are surfacing as alternatives.

The top growth area for 2005 was the inventory configuration and policy technology category with a license growth rate of 35 percent. As supply chains become increasingly global and complex, the need for multiechelon inventory optimization and inventory policy drove spending in this area.

The report also notes there was a renewed interest in supply chain network design in 2005, with license revenue growth of 21 percent. Warehouse management software license revenue grew at 8 percent.

SCM license revenue growth was fairly consistent across company size, the report says. Midsize companies (between $250 million and $999 million in revenue) grew their purchases of SCM software slightly faster than the market at 5 percent, while growth in purchases of SCM software among small companies ($30 million to $250 million in revenue) grew below the market rate at 2 percent. A portion of this slower license revenue growth may be attributed to companies in this segment buying software on demand or on a subscription basis versus a perpetual license basis.

Source: AMR Research

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