As in 2006, GL&SCS this year partnered with Aberdeen Group, Boston, to conduct a comprehensive technology survey of a cross-section of our readership. The purpose was to assess corporate spending plans and priorities for supply chain technology and to see how these plans differ among innovators, best-in class, and average performers. The results, summarized below and in a soon-to-be-published Aberdeen report, should help companies benchmark their own technology road maps.

For the second year running, GL&SCS readers responding to the Aberdeen Group survey are most focused on technology applications to help manage inventory in global, multi-tiered supply chains. Fifty-seven percent of all companies surveyed place inventory management at the top of their "most wanted" technology list and, within that group, a whopping 82 percent site multi-tier inventory optimization as their top priority. (For more detailed information on inventory optimization, see the February 2007 GL&SCS cover article.)

"Last year inventory management nearly tied with demand management as far as interest and spending plans were concerned, but this year inventory really pulled away as a core focus," says Beth Enslow, senior vice president of enterprise research at Aberdeen. "I think this is notable because, frankly, inventory management is an area that has been neglected by a lot of companies for some time and it is significant to see such a large percentage list it as their top priority, especially since this is the second year they have done so."

One reason for this high level of interest, Enslow says, is the growth in complex, global supply chains-a conclusion also supported by survey findings. Compared with 2006, twice as many companies in this year's survey say their chief supply chain motivation is to better manage the challenges of globalization.

"Longer global lead times and lead-time variability, coupled with tighter customer-service requirements, are causing companies to hold more inventory and they are looking for ways to compensate for that," says Enslow. "Better inventory management is a key way to negate the impact of supply lines that are longer and less certain." This also explains respondents' very strong interest in supply chain visibility, the second-most sought after technology, Enslow says. "Globalization, inventory management and visibility all are closely linked."

While most companies (82 percent) say their priority is multi-tier inventory optimization, there is a clear difference between the way innovators and less advanced companies are planning to implement solutions in this area, Enslow says. "The area where innovators are breaking away from the rest of the respondents is in multi-tier replenishment planning," she notes. Innovators are more likely to be prioritizing this function, especially decisions about when to bypass a central distribution center or have a supplier ship direct to a customer, she says. Through such methods, "innovators are able to leverage inventory as a means of gaining market share through superior service and product availability, without letting inventory levels escalate out of control."

One example is Piaggio, the Italian company that makes Gilera and Vespa motor bikes, which achieved a 9.6 percent service level increase after implementing an inventory optimization solution from ToolsGroup, Amsterdam. Piaggio uses the solution to optimize spare parts and accessories inventory for more than 50,000 products with a wide range of demand characteristics. More than 180,000 SKUs are distributed around the globe from a central warehouse in Lugnano, Italy, and three peripheral warehouses in France, Spain and Greece. While increasing service levels, Piaggio also reduced overall inventory by 7.3 percent, freeing up 2m euros ($2.7m) in working capital.

For less advanced companies-those at the "striver" or "best-practice" level-the inventory focus is more on making better use of existing technology in advanced planning and scheduling (APS) or enterprise resource planning (ERP) applications, Enslow says. "Rather than setting an inventory policy once a year and forgetting about it, these companies are really starting to take advantage of some of the more advanced capabilities available in their current systems and managing inventory policies in a more dynamic way."

This difference shows up in ROI expectations as well. Innovators are less likely than other companies to expect short-term returns on their investments in inventory optimization initiatives. "We believe innovators already have taken the low-hanging fruit available through inventory optimization and now are moving toward longer-term inventory supply chain design areas, where naturally the time period for ROI increases," says Nari Viswanathan, research director and author of Aberdeen's report based on the survey, The Supply Chain Innovators Technology Footprint 2007. Among innovators, he notes, strategic network design is the second-highest priority within inventory related solutions, with a 45 percent positive response.

Other significant priorities within inventory management technology include distributed order management (35 percent) and support for vendor managed inventory (25 percent).

Number Two: Visibility

Supply chain visibility is the second-highest area of interest, being named by 55 percent of respondents overall and by 58 percent of innovators. (Each respondent was asked to select its three top application investment areas.) Within this category, three areas are deemed particularly important, each being named by 52 percent of those seeking visibility solutions. These are order status visibility, inventory visibility across multiple sites and visibility to international shipments.

"We see two main approaches for how companies are getting visibility," Enslow says. "One is to require that their logistics service providers and carriers give them the visibility they need and the other is through visibility functionality embedded in packaged software applications."

Bakers Footwear, St. Louis, offers an example of the former. The company asked its international logistics provider, Transmodal Associates, Rutherford, N.J., to enable visibility to its inbound supply chain from China to 200 U.S. stores using visibility technology from IES, Midland Park, N.J. The resulting solution makes Chinese factories responsible for adding barcode labels to cases to facilitate end-to-end tracking. Transmodal serves as information gatherer and is responsible for ensuring timely status updates form all involved parties, including carriers. Now, Bakers is able to monitor shipments from China to and through its deconsolidation facility in Los Angeles. This means it can change the allocation of in-transit goods right up until the goods enter the deconsolidation center, helping reduce store stockouts and markdowns. Factory-to-store cycle times have been cut almost in half and processing velocity at the deconsolidation center is up 30 percent.

The other way companies acquire visibility is through supply chain applications that include visibility functionality. "If a company is buying new software today, they expect that system to have visibility capabilities," says Enslow. "It's almost hard to think back to four or five years ago when most supply chain vendors did not offer these capabilities." A similar evolution has occurred with performance management, she notes, with nearly all applications now having built-in monitoring and reporting functions.

In addition, says Enslow, there is a definite uptick in the use of cargo portals for visibility to ocean shipments. "Vendors like GT Nexus, Cargo Smart and Inttra definitely are gaining more customers because they offer the advantage of already being connected to a lot of carriers. It is much easier for companies to use one of these providers than to try and go out and do all of those hook-ups themselves."

Number Three: S&OP

The third-most popular areas for technology investment among survey participants are a related pair: sales and operations planning and demand management (45 percent). Within S&OP the top priority is the ability to create a profit-optimized S&OP plan (57 percent). This is followed by tools to improve ad-hoc reporting capabilities for S&OP (45 percent) and technology to help evaluate supply constraints (40 percent). These focus areas hold for all levels of respondents, though innovators reversed the order of importance of the first two.

"While S&OP generally has helped improve forecast accuracy and cross-departmental communication, most companies have failed to see improvements in profit-related metrics like gross margin and customer retention," says Viswanathan. "This is what companies want to focus on now." He notes that a separate Aberdeen survey conducted in July 2006 revealed that 61 percent of companies lack enterprise automation for their S&OP process. And 74 percent of companies are reporting that they don't have adequate executive level reporting for the key performance indicators of S&OP.

"This lack of technology enablement is making companies rely on traditional spreadsheet-based approaches for their S&OP process, which results in reduced corporate performance and being unable to reach the potential top-line benefits that S&OP can offer," he says.

Software vendor Interlace Systems, San Mateo, approaches this problem with a solution designed to sit on top of Microsoft Excel, says Viswanathan. "Basically, Interlace bridges the gap between traditional business planning tools, ERP and APS tools," he says.

This is exactly what Interlace customer Seagate needed. "We were looking for a solution that would connect Excel from a desktop environment to a formal data base management system," says Doug Huskey, Seagate senior supply chain director.

Seagate produces a broad range of rigid hard disk drives used in a variety of electronic equipment. In addition to forecast accuracy and variability, one of the company's challenges in the S&OP process is around its use of complex business rules to allocate capacity and materials to different types of customers based on their business relationship. The company previously had tried to address this issue with two different APS solutions, but these were unable to model demand situations as dynamically as Seagate needed, Huskey says. Interlace proved to be the answer. It uses "what if" scenarios to determine optimal allocation of supply to regions and customers. The master scheduling process, also an Interlace solution, uses the S&OP plan as an input along with material and capacity constraints.

"Interlace allows us to look at various plans and create scenarios around them," says Huskey. "Management can model both demand upside as well as downside scenarios. In the past, we had to rely on analysts as well as extended time frames to perform a fraction of these scenarios."

In the area of demand management, top priorities are forecast collaboration with customers or suppliers (52 percent) and the ability to create more granular forecasts, particularly at the product, customer and channel levels (52 percent). In addition to these areas, innovators are one a a half times more likely to focus on improved short-term forecasting, demand shaping, promotions management and pricing optimization.

"We see a significant gap in processes related to promotions and how information about promotions actually feeds into the demand plan," says Viswanathan. "Companies are not using the information about promotion-driven demand lift when creating their demand plan. It is not an integrated process because typically the people managing forecasts are on a different team from the marketing and merchandising folks. Innovators are looking at making that process more integrated and being able to shape demand better."

Number Four: TMS

Transportation/fleet management is the fourth-highest area for technology investment among survey participants (30 percent). Within that category, shipment optimization is the top priority (57 percent), followed by online transportation information for the enterprise (45 percent), advanced shipment visibility (31 percent) and carrier collaboration (31 percent).

Interestingly, innovators see transportation management technology as their top opportunity for short-term ROI. "With the prevalence of on-demand solutions in this area, companies can get up and running with TMS in three months and get ROI in half a year," says Enslow. "TMS is no longer an 18-month project."

Ace Hardware, a $13bn a year retailer, provides an example. Ace implemented an on-demand transportation management solution from LeanLogistics, Holland, Mich., to revamp its inbound transportation and reduce lead times and variability from suppliers. The company chose an on-demand solution because it wanted to get up and running quickly and did not want the job of establishing electronic connections with all its suppliers. LeanLogistics took on that task and on-boarded 700 of Ace's vendors within a few months.

Under the new program, Ace's suppliers commit to a consistent, short order-ship cycle; carriers commit to timely and accurate pickup and delivery; and Ace distribution centers commit to specific day-of-week delivery and unload schedules. The entire process is monitored and managed via Lean Logistics' transportation management system, which coordinates and directs activities and provides detailed online visibility to order and shipment status. Due to a dramatic reduction in lead-time variability, Ace has reduced inventory by as much as 24 percent in parts of its network.

The interest in transportation management appears to be partly due to a replacement cycle that is starting to emerge for TMS as well as warehouse management systems, says Enslow. "Companies that may have purchased a TMS or WMS system back in the '90s, or built their own, are still operating on a mainframe or client/server version that is not meeting their current needs. The world has changed and they are realizing they need systems that are more flexible and have greater functionality." In the transportation area, buyers are particularly interested in better visibility to inbound and outbound shipments, she says. "On the warehouse side, they are looking for things like labor management and dock management capabilities."

In separate research, Aberdeen has found that a lot of companies have not upgraded their warehouses in three to five years. "While technology always hangs in there longer than one expects, this replacement cycle is certainly due," says Enslow. "We all know that customers have more and more specialized requirements around packaging, labeling, handling and delivery and what we are finding is that they often have to do manual work-arounds to satisfy these requirements. Pretty soon, your manual work-arounds become more prevalent that your regular work processes and then you are in trouble."

While 67 percent of survey respondents list general updating as their chief warehousing priority, innovators are more likely to focus on the support for value-added processes and customer-specific requirements (83 percent) and slotting optimization (50 percent).

One surprise in these results is the overall lack of interest in RFID. Only 17 percent of all respondents and of the innovator subset tagged RFID as a key technology for their 2007 investment plans. This is a significant drop from the 57 percent that listed RFID as a key technology in 2006. "The RFID hype cycle has passed," says Enslow. "We now see an RFID focus more for logistics asset management-where there is typically very compelling ROI-and for 'good enough' compliance for those companies dealing with Wal-Mart and the Department of Defense. Everyone else seems to be investing in more tangible return areas like inventory management and transportation."

For global supply chains, the study found that innovators are more likely to target international transportation management and preferential trade agreement management than their peers. "We are seeing innovators really start to focus on optimizing preferential trade agreements and using these agreements to design a supply chain that gives their products a cost advantage," says Enslow. "They are flipping from seeing trade compliance management as purely a cost issue and recognizing that it can be a golden nugget that can enable them to gain a cost advantage if used effectively." Enslow notes that there now are close to 200 regional trade agreements in existence "and most companies are not maximizing the cost advantages that are available."

Car maker Renault is one company that is taking advantage of trade agreements to keep costs low on the Logan, its world car that was introduced in 2004. Renault uses global trade management solutions from TradeBeam, San Mateo, Calif., to help optimize preferential provisions in applicable trade agreements. TradeBeam also helps Renault lower total landed costs and reduce the cost of compliance and documentation. The Logan is partially built in Western Europe and then exported to emerging markets for final assembly and sale. "Renault has done a really great job designing a low-cost car, all around leveraging trade content," Enslow says.

Infrastructure

A couple of results are worth noting in terms of the enterprise infrastructure areas that companies see as most important to their supply chain technology road maps. Event management and alerting platforms earned the most interest in this area (60 percent), even though they have been in the market for some time. The widely hyped service oriented architecture (SOA) hardly registered at all, with only 7 percent of respondents seeing it as important.

"I think SOA has become a check box for people," says Enslow. "Buyers want it because their IT departments have told them it is important. But from a business priority perspective, people are much more focused on how to get better visibility and control of what is happening in the supply chain."

On the other hand, Enslow considers the level of expressed interest in master data management (38 percent) to be very significant. "Data management is something that companies always knew was an issue, but they have swept it under the carpet and hoped it would go away," she says. "Now they seem to really be making it a priority and recognizing that they simply have to have good data in order to make all these other processes work effectively. This is especially true when companies are no longer exchanging data just within their own four walls but with outside partners that are relying on them to provide good data for the partner's own internal processes."

Technology spending plans overall for 2007 appear to be healthy. Five times as many survey participants plan to spend more on new supply chain technology this year than plan to spend less. Of respondents who knew their technology investment plans, 41 percent say they plan to spend $500,000 or more. "This indicates a continued uptick in companies realizing that they need to invest in supply chain technology in order to improve performance," says Enslow. "As we all know, there was a dramatic drop-off in spending in the early part of this decade, but supply chain technology now seems to be firmly back on corporate spending plans." Where the money is being spent has changed, however. "Before 2000, we saw a lot of investment going into the manufacturing area," says Enslow, "but now investment plans have a lot more to do with extended process management. Whether it is inventory management across multiple tiers or collaboration with customers and suppliers or better visibility across the supply chain, spending plans are much more externally focused."