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2015

It is morning in Orlando. The sun is rising. I am speaking this morning at the Terra Technology conference and doing a book signing of my new book, Supply Chain Metrics That Matter. It is my seventh year of speaking at this small, and intimate event.

 

The world of supply chain is active on my iPhone. Several good friends in consulting roles are sharing information on SAP HANA from SAP Insider; and this morning, LLamasoft announced the acquisition of the LogicTools assets from IBM.  In parallel, I have been hard at work on a report on multi-tier inventory optimization for the last two weeks. This inbound news adds to the story. It will delay my report. In this post, I want to share my reflections.

 

SAP: Will Hype Translate to Hope?


The news from SAP Insider is a continued drumbeat on the HANA rewrite of SAP's supply chain applications. Excitement abounds. My advice is for customers to not get caught up in the hype. I am actively covering several supply chain HANA implementations and they are not going so well. Three clients in my interviews have been actively working on pilots for multiple years and are struggling with some fundamental problems. It reminds me of the development days of the CIF interface with SAP APO 3.1 when I only saw three customers successful after intense codevelopment. A hard sled.... Buyer beware.

 

In the research for my inventory optimization report, the lowest level of satisfaction with multi-tier inventory optimization is with clients of the SAP inventory solution (previously purchased from SmartOps). Why is this relevant? The multi-tier inventory optimization product termed MEIO is at the center of the new HANA stack for supply chain which includes demand sensing and the SAP Integrated Business Planning product. The MEIO product is a proof point in the SAP rhetoric of why SAP HANA is a good thing.

 

What do I hear in interviews? What do I see? In the research for the inventory optimization and the S&OP reports, I find a handful of VERY experienced SAP clients doing codevelopment with the SAP IBP product. There are issues with bottom-up and top-down demand aggregation in the SAP IBP tests along with integration with APO. Demand sensing pilots are very early in evolution, but the results are not equal to Terra Technology's demand sensing results. Each client in interviews speaks of active and focused work from SAP to fix the problems, and I think that SAP will work through the issues; but, the question is how long? And at what price? My advice for mainstream SAP users is to use caution. Why? The lowest satisfaction rates with inventory optimization are at the center of the SAP HANA stack and the current work on SAP IBP is still in what I consider codevelopment. While SAP will share how many licenses they have sold—70 licenses in the fourth quarter—and it sounds impressive, use caution. Selling licenses does not translate into implemented software. The number of implementations is a fraction of the sales, and I cannot find a successful, implemented SAP IBP or demand sensing project. My view? SAP Supply Chain HANA is still a work in progress. Clients complain of implementation issues, and continual upgrades. Interview excerpts are full of comments like, "After we work hard to fix a bug, I get a new upgrade and have to start all over again. I like the SAP team, and they are trying hard, but it is frustrating."

 

LLamasoft: Recycled Software Assets Offering Hope?


In parallel, this morning LLamasoft announced the acquisition of the LogicTools Supply Chain Applications Business Unit from IBM. This includes LogicNet Plus, the Inventory and Product Flow Analyst and the Transportation Analyst products, as well as the related technology and support team. LLamasoft will begin providing software maintenance, support and services to all LogicTools customers effective immediately.

 

These assets have gone through several acquisitions. The LogicTools product was purchased for $15 million in 2007 by ILOG. At the time, there were 200 customers. ILOG was then purchased by IBM for $340 million in 2008. The primary impetus for IBM's purchase of ILOG was for the BAM assets; and during the period of 2008-2014, sales by IBM of the Logictools product languished.

 

IBM has a history of purchasing supply chain assets, and despite great press release superlatives, the company has underperformed in the building and selling of supply chain industry solutions. IBM has many legacy supply chain assets in their arsenal including the Demandtec, Emptoris, Sterling Commerce, and Yantra products; however, IBM's presence in the supply chain market continues to wane.

 

Currently there are 150 customers of the LogicTools product. It has lost market luster from the days when the founder David Simchi-Levi brought it to market. The product was a no-frills reasonably-priced product, that worked. Logictools has a loyal customer base that weathered the storm of acquisitions. There is still an active core of clients that are quietly using the product.

 

What do I think that this means for the market? LLamasoft is moving down the stack. With a traditional focus on network design and inventory flows with their GURU product, LLamasoft is getting more serious about tactical supply chain planning. While LLamasoft has great client references in network-design projects, the product is traditionally used on a more ad hoc basis. The company is early in building an enterprise-class solution with robust APIs and role-based security. I believe that this is a move to get more serious about inventory optimization and building enterprise-class solutions. This is good news for the both the LogicTools and the LLamasoft installed bases.

 

LLamsoft promises the release of new versions and updates for all three LogicTools software products this year, including the preview of LogicNetPlus Version 8 in just a few months at SummerCon in June, 2015. Don Hicks, LLamasoft's founder, commits that LLamasoft will not be forcing clients to switch to the LLamsoft products.

 

My Take:


The greatest improvement in inventory and overall value in supply chains continues to come from best-in-breed solutions. While the large system integrators will push offerings from ERP Expansionists like SAP and Oracle, I see greater value coming to clients that bypass hype and focus on business results through the implementation of best-of-breed products on the top of ERP backbones. I feel that the LLamsoft acquisition is good for the market, but I believe that the SAP HANA release is not ready for prime time. Today, the SAP HANA product is only for the early adopter with strong SAP codevelopment resources.

 

As you know, I am straight shooter. This is my take. I would love to hear yours. I like differing points of view...

 

I also would love to see you at the Supply Chain Insights Global Summit on September 9th and 10th at The Phoenician in Scottsdale, AZ where we will actively debate the evolution of supply chain technologies. This conference is designed around five themes:
Supply Chains to Admire Research, insights from leading economists on the Race for Supply Chain 2020 and World 3.0 - global trade, the use of digital supply chain technologies to drive growth, organizational transformation, and the new experiential Supply Chain Game that we will be bringing to market to demonstrate and help you understand the power of outside-in processes. We are actively building the agenda and hope to see you there!

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Lora Cecere is the Founder of Supply Chain Insights. She is trying to redefine the industry analyst model to make it friendlier and more useful for supply chain leaders. Lora has written the books Supply Chain Metrics That Matter and Bricks Matter, and is currently working on her third book, Leadership Matters. She also actively blogs on her Supply Chain Insights website, at the Supply Chain Shaman blog, and for Forbes. When not writing or running her company, Lora is training for a triathlon, taking classes for her DBA degree in research, quilting for her new granddaughter, and actively taking ballet.

I have been an analyst for over a decade. Two years at Gartner, six years at AMR Research (now Gartner), two years at Altimeter Group, and three years as the founder of Supply Chain Insights. During this period I have watched the acceptance of cloud-based supply chain solutions evolve. In 2002 there was no interest. In studies from the period of 2006-2008, there was slow adoption of 15-20%; and today, the supply chain leader prefers a cloud-based solution. The reason? I hear three primary reasons in my qualitative interviews:


1) IT Avoidance. As organizations have become larger through Merger and Acquisition (M&A) activities, many organizations have made IT a profit center. In these organizations, it is very difficult to get day-to-day support, and the supply chain leader wants control of their destiny.


2) Value Network Connectivity. The cloud—through web-based interfaces—makes it easier to connect through cloud-based solutions to customers and suppliers. Whereas the traditional license models with client-server architectures are not very extensible, the newer cloud-based solutions make this easier.


3) Higher User Satisfaction. Each year we do a study—we term it the Voice of Supply Chain User—on user satisfaction with today's systems. Figure 1 came from the 2012 study (We would love your input on this year's study). As noted on the figure, currently people are not happy with any of their supply chain systems. The first and second acts of the supply chain planning and execution software market are slowly giving sway to what I term the third act. Users of Software-as-a-Service solutions have higher satisfaction rates. Why? The bar of performance is higher for the provider of the software. If the user does not like the software, they will turn it off. Secondly, in a true Software as a Service model, there are no maintenance upgrades, and third it enables the deployment of easier to use software models.


Figure 1. Satisfaction with IT Systems

sati

 

It is important to note that Software as a Service and hosting are very different models. While the more traditional vendors have repackaged their software into hosted solutions, this is not a true Software as a Service deployment. The difference? The primary difference is in the definition of the word 'service'. In an SaaS model you use the software; whereas, in a hosting agreement you own the software. In a hosted model there is very little difference than on-premise with the exception of where it is physically located and who maintains it. There is still a need for maintenance outages and software upgrades and it is not as easy to deploy to third-party participants on the value network.


What Can We Learn? A Look at History

 

In the last three months, the vendor market in supply chain has shifted significantly to the SaaS model. Kinaxis, an early pioneer in the evolution of SaaS solutions, committed to the model in 2005, and went public on the Toronto Stock Exchange in 2013. The company is now profitably operating at a run rate of $70 million in annual revenues.


Steelwedge, a Software as a Service solution of S&OP, just announced a new round of financing by Camden partners. The company secured $22.5 million in fresh capital to invest in R&D to build a technology services hub in Austin, Texas. With new capital, and new CEO Pervinder Johar from HP, their goal is to become the "Salesforce.com" of the supply chain industry.


E2open went public in July 2012 and in February 2015 participated in a private buyout for $273 million by Insight Venture Partners. Prior to the buyout, E2open’s stock price was battered with a 74% decline in the company’s shares over the last year. The initial public offering of 4,687,500 shares of its common stock was at $15 per share.


New Entrants. The predominate model of new entrants in the market is a Software-as-a-Service model. This includes Enterra Solutions, Exceedra, Orchestra8, O9 and Solvoyo.


Market Insights

 

The last decade was a tough sled for Software-as-a-Service providers. However, it was a battle worth fighting. Kinaxis is well-positioned at a good time in the market.

 

Cash is king. Steelwedge has gone through multiple rounds of financing and repositioning as it progressed in the market. The going was tough. The concept of Software as a Service S&OP was introduced by Steelwedge before the market was ready. In addition, technology today enables more capabilities than Steelwedge could offer in its earlier solutions. As a result, Steelwedge looks very different today than when I first met them in 2002.

 

Public markets are not patient with vendors on an aggressive growth plan. E2open learned the hard way that the markets want profitable growth, not just growth. Companies should not go public until they are ready to demonstrate reliable, and profitable growth.

 

Not a place for consultants. While many consulting partners are dabbling with the introduction of Software-as-a-Service models to augment gaps in current software, buyers beware. I have never seen a consulting partner successful in selling supply chain software.


Conclusion

 

I like the clouds. In my opinion, they offer real promise for the supply chain.  What do you think? I would love to hear and learn from your experiences. ____________________________________________________________________

Lora Cecere is the Founder of Supply Chain Insights. She is trying to redefine the industry analyst model to make it friendlier and more useful for supply chain leaders. Lora has written the books Supply Chain Metrics That Matter and Bricks Matter, and is currently working on her third book, Leadership Matters. She also actively blogs on her Supply Chain Insights website, at the Supply Chain Shaman blog, and for Forbes. When not writing or running her company, Lora is training for a triathlon, taking classes for her DBA degree in research, quilting for her new granddaughter, and actively taking ballet.