The SCM Landscape

The market for Supply Chain Management (SCM) software has always been dominated by SAP. But is that still true? We look at whether the new entrants to this market are capable of disrupting the established order, and whether SAP is still the powerhouse it has been.

SCM systems can manage every aspect of a production cycle, from the purchase of raw materials, through processing, and quality control, to finished product, inventory management, transport and warehousing.

In large plants, such as oil refineries, the systems frequently interface to lower level process control systems, and can provide higher level plant-wide balance sheets and accounting data.

Many supply chains are now global, with raw materials being sourced internationally, production taking place in various countries, and finished goods being shipped to yet other locations.

Controlling this kind of complex chain is challenging and SCM systems have until now mainly been used by larger businesses – something that is now changing.

Last year, Gartner assessed the value of this software market at $13bn, with expansion worth $6bn foreseen in the next three to four years. The Internet of Things (IoT) is going to have a major impact, and machine learning is also expected to change the way plants, online stores and other facilities, are designed and managed.

SaaS allows smaller enterprises to manage their supply chains

Previously, the capital investment required to get a major SCM implementation landed, was significant. Small and medium sized businesses, particularly those without large reserves, simply couldn’t afford it.

However, many SCM systems are now cloud-based, using the Software as a Service (SaaS) model. Furthermore, these smaller businesses don’t have legacy systems to deal with, so they can take immediate advantage of the SaaS, cloud-based business model. And because SaaS is scalable, they can easily grow their system use if they need to.

This has broadened the market and brought in new players. The Gartner report states that 35% of the SCM market will be SaaS based by 2021, with less than 20% of the total market being spent on licences for on-prem systems.

Winners and losers in the SCM market

Let’s take a look at who’s benefiting and who’s losing in the SCM system stakes. SAP has retained its dominant position in the sector with 27% market share in the past year.

Oracle, the next largest supplier could only manage half of that, at 13.7%. So how, with all the changes that we see, has SAP managed to stay on top?

One reason, is that SAP has managed to develop from its original SCM prowess in heavy industry, such as oil refining, and has lately been showing its competitors that it’s a top performer when it comes to enabling digital supply chains.

Microsoft is prepared to attest to SAP’s skill in this area, crediting them with helping Microsoft to make a $200m reduction in inventory. That, of course, translates into a lower working capital requirement.

SAP has also helped Microsoft to get suppliers on board faster, and made the supply chain more transparent. And of course, SAP has adapted rapidly to the SaaS model for its software.

After Oracle, JDA is the next largest presence, with an estimated 4.4% last year. Infor has 71,000,000 cloud users globally, but its SCM market presence is currently just 2.3%.

However, its strong presence in supply chain execution, meant it outperformed the market last year, and it has launched a new, integrated, cloud-based planning product.

Manhattan Associates comes in with 1.8%. So these top five suppliers have nearly 50% of the market.

That means 50% of the market consists of smaller players. And Gartner reports that in this segment, many software firms are growing faster than the big five who, between them, share the other 50%.

One example is Jabil Circuit who entered the market in 2016. Jabil makes components for Cisco, Apple and other companies. It’s come straight in with a SaaS offering for companies that want to manage fast moving, global supply chains.

Then there’s the Indian IT firm Saksoft, which has bought 60% of DreamOrbit, a company which develops IoT solutions in the areas of supply chain management and logistics.

Meanwhile, the real disruption in this market may yet come from blockchain. A number of startups are looking at using blockchain for various functions in supply chain management.

For example, it’s essential that forgeries are prevented from entering the chain, whether in healthcare, food or equipment. Blockchain may be able to provide a much higher level of security, just as traceability and visibility are becoming more important.

We’re also seeing startups that are taking under-digitised aspects of the supply chain, and moving in with web apps. Flexport has been making plenty of noise, with some serious backers coming in to invest in its software, aimed at making air and sea freight shipments more flexible.

In fact, it’s noticeable that a lot of the new startups in this area, are concentrating on making aspects of the chain more flexible and demand-driven. Uber is often quoted as an model for these companies.

Shyp has just raised another $M50 to expand its web-based, on-demand courier services for online retailers. Convoy describes itself as a truck Uber app, for companies that don’t want to make arrangements a long way in advance.

Fetch is developing warehouse apps run by autonomous robots. Orderhive is inventory management for e-tailers, allowing them to automatically update inventory across multiple channels, such as eBay, Amazon and so on, and to manage the rest of the e-tailing supply chain.

True, none of these companies are going to cause SAP executives sleepless nights. But they are serving elements of the supply chain – e-commerce, web-based and on demand – that aren’t well served by the more established software firms.

Responsive, flexible and fully on board with electronic commerce, in the future, some of these startups may give some of the more established SCM system providers a little food for thought.

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