Archive for August, 2008
Great post by Tim Minahan over at Supply Excellence talking about the realities of on-demand (software as a service or SaaS) and debunking many of the myths out there about such solutions. As an on-demand vendor, we know all too well that many of these myths still exist – but it’s changing. More and more companies are open to on-demand/SaaS solutions and, in fact, many are embracing it and viewing the fact that we are an on-demand service as a key advantage.
I posted a comment on Tim’s site and have included it here also.
** My comment **
Tim – great post. It’s great to see someone putting some facts out there to counter the many myths that exist about on-demand/SaaS solutions. We’re an on-demand service provider with a supply chain management solution so we see a lot of this everday. It’s interesting, as you noted, that many companies have higher expectations for an on-demand service around security, reliability, etc. than what they have with their on-premises solutions. Yet, we and other on-demand service providers are able to meet those demands with our offerings as you accurately pointed out.
The tide is turning. As you noted, most large companies do have several on-demand services that they use. We’re seeing this across the board with all types of manufacturers – the interest is growing to the point that the fact that we are an on-demand service is viewed as a distinct advantage now for many IT organizations. As you point out, we’re able to deliver the reliability, security, and capabilities they need while completely reducing their need to procure hardware, install and manage upgrades, manage the systems infrastructure, etc.
The myths are mainly perpetuated by those on-premises vendors that don’t see that the future is about on-demand services that can deliver the functionality companies need at a lower overall cost of ownership. Posts like yours and the growing body of companies that have successfully leveraged on-demand services will eventually overcome these perceptions.
There’s an excellent article here at Supply Chain Management Review identifying the challenges with deploying supply chain Advanced Planning & Scheduling (APS) software. I have worked for 3 APS vendors and agree that the characteristics outlined in the article are accurate. I have been on both the deployment side and the sales side. It is an uncomfortable dance between the expectations of “ideal” benefits during the sales cycle and “realistic” results during the implementation cycle.
The part of the article which prompted me to respond was the section on the correct level of modeling. Having studied optimization techniques in an Operations Research graduate program and worked for i2 for many years, I was steeped in the belief that optimization was the answer. Over the years I have come to the conclusion that optimization can provide direction but not the ultimate answer. The reason is captured in the article under the headlines of:
- Complexity of the Underlying Model
- Data Quality
- “The Business has Changed”
Without accurate representation of the business (Complexity of the Underlying Model), it is not possible to generate an optimum. One may get close, but a small change in the assumptions or model can have a big effect on the results, especially at the detail level. Yet the level of information required to model the business accurately is massive (Data Quality). More importantly, it also changes constantly (The Business has Changed). Not only does the physical structure of the supply chain — suppliers, items, locations, customers – but so do the business rules and objectives.
The solution is to provide “enough” detail in the model that an optimization/search engine can get one into the region of the optimum and then have people evaluate the results in a collaborative manner in order to provide the human judgment and compromise necessary to adapt to the latest business conditions. This is a lot more efficient than trying to capture and modify constantly the business rules used to guide the optimization.
To take the paradigm of human judgment further, the speed of business has increased dramatically over the past two decades, when many of the APS solutions where designed and constructed. At that time it was sufficient to run and APS engine once a month or once a week. Coupled with the knowledge that the optimzation does not provide an exact answer (nor is the forecast 100% accurate), this leads to the requirement for a system in which people can create scenarios in a rapid and effective manner in order to evaluate the organizations response to reality. Human judgment and compromise is used to select the “best” option amongst the scenarios.
It would be remiss of me not to point out that I work for a vendor that provides an on-demand service with integrated demand-supply planning, monitoring and collaborative response capabilities.
Bob Ferrari on his Supply Chain Matters blog discusses recent stories projecting the timing of when China will eclipse the US in total manufacturing output (see his post here). Bob goes on to discuss the implications of this shift. I commented on his blog and have added my comment below as well.
** My comment **
Bob – I agree with your views. First, I think it’s inevitable that China would surpass the US in total manufacturing given their size and recent track record of growth. Their domestic market alone is enormous and I think we’ve all seen how global everything has become and we know the potential for them to export. I know my kids already think everything in the world is manufactured in China! As these articles point out, that is hardly the case.
As you suggest, I don’t think that should be a core concern of the US. What we are seeing is not a unique situation. For generations products have moved to different regions of the world to be produced, following markets, skilled labor, lower costs, etc. Certainly we’re seeing this on a broader scale given China’s size, but the core issue is not unique.
What is critical for the US is, as you suggest, being the leader in innovation. What are the next generation products that only the US can produce because of its unique assets (capital markets, skilled labor, R&D, etc.)? That is the key for the US. The standard of living for the US will continue to climb if we continue to be the innovators for new, high-end products in demand by the rest of the world. In this area, the US is still doing exceptionally well and still has ample opportunity in front of it to lead.
All boats rising is not the challenge for the US. The challenge is to develop innovative products in demand by the world, to train its people to manufacture them and to establish market leadership in these evolving markets.
I found this post on the SCM Community at the IT Toolbox site talking about on-demand supply chain management solutions. In particular, the author wonders if this is all just the latest hype. I posted a comment there that I’ve included here as well.
** My comment **
The reason I’m hearing large manufacturers get excited about on-demand supply chain management solutions is because they are struggling with IT pressures. These pressures are pushing IT to do more with less and they view, accurately so, an on-demand service as easier to deploy and manage over the long-term. You are absolutely correct in your comments about the importance of data. The move to outsource much of the manufacturing has complicated this further because much of the data now resides outside the OEM/brand owner itself.
As a disclaimer, I work for an on-demand supply chain management service provider and we legitimately are seeing a strong growing interest in our on-demand service. In fact, many prospects have told us the fact that we are on-demand is a key differentiator/advantage in their eyes. On the data front, we actually provide tools (including alerts) to proactively identify and notify you of data anomalies. Many of our customers actually leverage our solution to clean up their data while they focus on the main benefit of solving a variety of supply chain problems.
“It’s always incumbent on the software vendor to ensure their customers succeed with the vendor’s software,” Songini said. “According to the response, however, SAP is blaming Waste Management for the problems. In fact, SAP seems to be indicating that if the customer doesn’t have a Mensa-level IQ, they shouldn’t deploy SAP.”
It doesn’t have to be this way.
One of the undeniable trends I’ve seen over the last couple of years is the growing pressure that IT departments are to reduce staff and costs (i.e., do more with less). This has led to a significant amount of outsourcing and a strong desire for solutions that represent a more cost effective model of deployment, integration and management. There’s also a strong desire to empower the user community with tools that are highly configurable and usable without requiring ongoing IT resources to develop custom code and extensions. And, lastly, IT continues to seek solutions that can solve multiple problems across the business to gain the greatest leverage possible from their investment.
These and other trends are leading to a strong rate of adoption for on-demand/software as a service (SaaS) solutions. The new paradigm for enterprise supply chain solutions is to deliver them as on-demand services that can be rapidly deployed, solve multiple supply chain problems across the organization and empower users to rapidly solve business problems by leveraging a single tool.
I’ve been surprised at the number of companies aggressively seeking on-demand solutions and view the fact that we deliver our solution as a service as a key advantage in the evaluation process – validatintg the pressures noted above. This has been across a variety of industries, including many businesses that you might initially think would shy away from such a service for a variety of reasons. But, the reality is that the technology has evolved to the point that such a service works and meets the needs of both the line-of-business and IT executives.
The surprise was not that i2 Technologies was bought, but by whom and for how much. i2 was on the market for a long time with few takers, though there was little comment about SAP, Oracle, IBM, or Microsoft as suitors. This is in itself interesting as it would seem to indicate little perceived incremental benefit to the gorillas in the market. Even though these companies, to varying degrees, are still acquiring companies, they are outside of the core supply chain management space. While i2 has recently emphasized services rather than software sales, which would reduce the market value, a large portion of its revenue still came from license sales and subscriptions, so the price is a surprise. There is still some chatter that other companies will enter into a bidding war for i2, but I doubt it. There is too little incremental value to SAP APO and Oracle applications, IBM is not in the application space, and there is too little Microsoft content in the i2 solutions for Microsoft to be interested.
Looking back, it is interesting to observe some patterns, which naturally are not that apparent at the time.
- SAP and Oracle have for years positioned that a single provider is less risky than adopting a best-of-breed approach, principally because of the integration effort required. Larry Ellison is famously quoted as saying “Best-of-breed is dead. Unless you are at a dog show”. Cute, but is it accurate? I think not. The reality is that both SAP and Oracle sell modules to satisfy specific business needs, and that the integration between the modules is no less complex than it is between a best-of-breed solution and an ERP. However, around 1998 Geoffrey Moore presented at an i2 user conference shortly after “Crossing the Chasm” had been published. The central theme of his talk was “who owns the data, owns the process”. No one at i2 seems to have paid attention to the message.
- The other very effective positioning strategy used against best-of-breed solutions, particularly by SAP, is that the business processes embedded in their ERP and APS solutions are best practice, so it is best to adopt these business processes rather than adapt the software to the existing business processes. Of course this is true of non-differentiated business processes, and also masks the cost of customizing SAP and Oracle, as well as the headaches created with upgrades.
It is interesting that JDA bought both Manugistics and i2, which were the darlings of the supply chain management space in the late 1990’s, both of which faltered after the .com bubble burst. Every indication is that the Manugistics purchase was successful for JDA, though the purchase has not provided a lot of growth to JDA beyond the original incremental revenue. JDA adopted a custodial approach focused principally on financial management and maintenance renewal, not on innovation. It is likely that JDA will adopt the same approach to the i2 purchase, though in this case they will use i2 solutions to strengthen their position in discrete manufacturing, whereas Manugistics was applied to retail and consumer products. In a maturing market this may be the right approach, but it is difficult to see how JDA will combat the SAP and Oracle dominance without innovation.
Given the dominance of SAP and Oracle, can any other solutions be classified as anything other than best-in-breed? JDA has maintained the best-of-breed approach. It will be interesting to see if they can be successful with it. Other best-of-breed players to watch are E2Open, GXS, GTNexus, Infor, Lawson, Logility, MCA Solutions, Sterling Commerce, and WeSupply, amongst others.
Best-of-breed is not dead. There is still space to challenge the planning paradigm developed by i2 and Manugistics in the early 1990’s, and adopted by SAP and Oracle. These solutions were developed to address some fundamental issues with MRP, namely that it does not consider demand, capacity, and supply simultaneously, and that it was awfully slow. However, at the time companies were much more locally based and fully integrated than they are today. I could be wrong, but I was not aware of the term “fabless semiconductor” in the early 1990’s. Outsourcing and off-shoring were still novel concepts. The supply chain planning solutions developed to satisfy that world are not best suited to a massively outsourced, global, and heterogeneous data source environment. The legacy planning solutions assume a world of centralized command and control in which a few planners in the dominant player in the supply chain determine the fate of all the other actors. This was possible when companies were fully integrated and had full knowledge of the capacity and inventories are all locations in the supply chain, and suppliers only provided commodity components.
This is no longer the case. The general business environment is a lot more dynamic than in the 1990’s with customer expectations of delivery have shortened tremendously. At the same time much of the manufacturing capability has been outsourced, meaning that companies have to be much more responsive even though they have less direct control over manufacturing. What is required in today’s environment is more collaboration than control; more coordination than optimization. At the core of the SAP and Oracle solutions is the concept that they own and control all the data. This is simply not true when a supply chain may consist of 3 or more tiers, each with their own ERP system. This brings us back to the issue of integration. No longer is it a issue of integration between modules, but of integration between companies each having their own ERP systems and other data sources. No longer is it about optimization of assets, but of effective coordination between trading partners. I think there is a lot of room for niche players to fill this space.
You can find additional commentary on the i2 acquisition on Ben Worthen’s Wall Street Journal’s Business Technology blog here (subscription required).
I had the opportunity to participate in a Better Process Podcast yesterday hosted by Ken Rayment. Our discussion focused on today’s supply chain challenges and the inability of existing processes and tools to provide the support supply chain professionals need to deal with them. The interview is short, just a couple of minutes, and you can listen to it here.