Supply Chain Management Software Buyer Report – 2015

Every year, Software Advice speaks to thousands of supply chain management (SCM) professionals across industry verticals who are seeking to deploy new software solutions. These interactions give us considerable insight into the broader market for supply chain management software.

This report will help buyers who are seeking new SCM solutions better understand the marketplace to facilitate more informed purchase decisions.

[Note: In this report, “SCM software” refers to a broad set of applications that include: warehouse management systems (WMS), transportation management systems (TMS), procurement, strategic sourcing, supplier relationship management (SRM), contract lifecycle management, demand planning and supply planning.]

Key Findings

  1. Small businesses (those with annual revenue of $50 million or less) are willing to spend a rather hefty amount—$30,000, on average—for new SCM software.
  2. Midsize and large businesses (those with with annual revenue above $50 million) are willing to spend an average of $171,000 for new SCM software.
  3. Twenty-seven percent of larger businesses cite the need for stronger integration as a reason for seeking new software, compared to just 16 percent of small businesses.
  4. Only 6 percent of small businesses are currently using commercial supply chain management software, compared to 21 percent of midsize and large businesses.
  5. Among buyers seeking a new WMS, 20 percent of larger businesses and only 9 percent of small businesses want radio frequency identification (RFID) capabilities.


Introduction

Every year, thousands of supply chain professionals attend ProMat, one of the biggest trade shows in the industry. While warehouse robots and new RFID systems were among the more glamorous pieces of technology on display at ProMat this past March, they didn’t steal the show, says Bob Trebilcock, editorial director for industry publication the Supply Chain Management Review.

Instead, Trebilcock declares that the event “was all about software.” He elaborates:

Increasingly, the hardware is just a means to an end. If you spent any time at the booths of our leading systems integrators, what’s clear is that the software is what makes our increasingly complex order fulfillment processes possible.

Bob Trebilcock, Supply Chain Management Review

Indeed, as supply chains become more globalized, software has become more critical to an organization’s success. A growing number of firms—especially smaller businesses—are now realizing how investment in SCM software can not only produce a strong return on investment, but can dramatically improve existing processes.

As such, Software Advice set out to examine the driving factors behind these software purchases and how they vary between small and larger businesses.

Average SCM Software Budget Across All Firms Is $100,000

First, we examined how much buyers in our sample were willing to spend on new software purchases. We find that, on average, small businesses are willing to spend $30,000 for the purchase of new SCM software, compared to $171,000 for midsize and large businesses. Regardless of business size, these aren’t figures to balk at: Buyers are ready to put down some serious cash.

(Note: Our budget figures are based off of first-year total cost of ownership fees, including those for support, maintenance, implementation etc.)

Prospective Buyers’ Average Software Budget, by Annual Revenue

Prospective Buyers’ Average Software Budget, by Annual Revenue

Like other complex systems such as enterprise resource planning (ERP) or advanced business intelligence applications, SCM software typically commands a high price point. This is because the goals of such solutions are myriad, including:

  • Strengthening a firm’s supply chain
  • Increasing transparency and visibility between that chain’s different links
  • Harmonizing data flowing in and out through multiple channels
  • Eliminating manual tasks, e.g., data entry or more complex warehousing operations

The fact that buyers are willing to spend so much money on this type of software suggests that it does, in fact, deliver on these goals.

Some smaller businesses may still experience sticker shock when they begin looking for a new SCM system. But according to Chris Sullens, CEO of Marathon Data Systems, today’s cloud-based systems are not necessarily as expensive as their traditional on-premise counterparts, which typically require a more substantial upfront investment.

“With the introduction and adoption of cloud-based solutions, small shops with minimal technology budgets can utilize economical, modern software and level the playing field with much larger competitors,” Sullens explains.

“In addition to lower implementation costs, intuitive cloud solutions offer quicker system adoption and flexibility that enterprise or in-house systems can rarely match.”

Midsize & Large Firms Have Greater Need for Integration

Next, we examined the top reasons why prospective buyers seek new SCM solutions. One significant disparity between larger and smaller firms is the former’s desire for improved integration (cited by 27 percent, versus 16 percent for small businesses).

There are several likely reasons for this. In general, the bigger businesses we spoke to work with more clients, suppliers, vendors and contractors. They also tend to have more physical locations (e.g., offices, warehouses or retail space) and sell a higher volume of goods across a wider geographical area than small businesses.

As such, these large firms typically have a greater need to harness the power of technology to streamline operations and collect key business data—e.g., inventory levels, projected sales figures, supplier information—across all multiple, varied information stores and channels.

Automating tasks—typically execution-oriented processes, such as warehouse management and order processing—is also significantly more critical for midsize and large businesses (37 percent) than small businesses (24 percent).

The reason is simply a matter of scale: Larger firms often have more inefficient processes to reign in, which can have a snowball effect on the organization’s operational effectiveness if not addressed.

Top Reasons for Evaluating New Software

Top Reasons for Evaluating New Software

Improving purchasing is also a top concern for businesses of all sizes. Purchasing has become increasingly complex and multifaceted in today’s highly globalized economy.

This means that supply chain managers have to jump through more hoops in terms of regulatory compliance and negotiations with suppliers, on top of juggling multiple purchase orders and coordinating material movement.

SCM software can help facilitate this process by streamlining the purchasing workflow. For example, procurement systems generally offer multi-currency support as well as tools that can automate purchases and purchasing approvals.

These systems can also connect users with vast networks of qualified suppliers—a critical capability for supply chain professionals who are trying to identify the most reliable raw materials suppliers at the best price, wherever they might be sourced from.

Indeed, managing procurement, purchasing and supplier relations are major pain points for supply chain professionals. According to a report published by consulting firm Supply Chain Insights, 57 percent of SCM professionals surveyed say that volatility in both demand and supply is one of the most significant challenges they face on the job.

As such, they need software that can help balance the equation between the supply side (raw materials) and the demand side (projected future sales) of their organizations.

94 Percent of Small Businesses Are New to SCM Software

Only 6 percent of small businesses in our sample are currently using any commercial SCM software, compared to 21 percent of midsize and large businesses.

Traditionally, SCM software has been targeted at large enterprises with extensive global operations. In recent years, however, more vendors have begun targeting the SMB market with affordable offerings. Thus, it’s not particularly surprising that so many SMBs are only now taking the plunge into software.

As mentioned, the more affordable SCM solutions tend to be cloud-based systems priced under a subscription-based model. The subscription fee, which is typically charged on a monthly basis, presents less of an upfront capital expense to small businesses than the more traditional “perpetual license” model, in which businesses pay one initial fee to use the software on an ongoing basis.

As it turns out, even larger businesses cannot escape the scourge of manual methods (i.e., doing things with pen and paper). Indeed, one-third of midsize and large businesses and 39 percent of smaller ones are currently using manual methods to execute SCM processes.

Prospective Buyers’ Current Methods

Prospective Buyers’ Current Methods

More than twice as many midsize and large businesses are using enterprise resource planning (ERP) software as are small businesses. This is interesting, as ERP and SCM solutions both tend to be relatively expensive. Smaller businesses may be increasingly starting to look into SCM software due to the greater customization functionality this software can offer, especially for buyers in more niche industries.

Though SCM is essentially a subset of the broader ERP category, users without an ERP system in place might have a specialized need that is better solved by a best-of-breed SCM application (e.g., they might need a robust warehouse management solution and nothing more).

Alternatively, businesses with an ERP system already in place might need SCM functionality, but not need to replace their entire ERP system. In this case, it makes sense for them to deploy more specialized SCM applications that can integrate with their existing ERP.

RFID Functionality Critical for Larger Businesses

Finally, we looked at the functionality prospective buyers most often request in their new SCM software. One of the biggest trends in warehouse management is the growing prevalence of radio frequency identification (RFID) technology, which allows for improved visibility and traceability of inventory.

Users who deploy RFID technology place specialized tags on their inventory items that emit an electronic signal that delivers critical information, such as the item type and its previous locations.

Consider some of the major product recalls that have occurred recently: everything from ice cream to kids’ pajamas. RFID technology provides a record of where an item is and has been, from the point of manufacture to sale. This information is critical when firms need to determine exactly which products need to be recalled.

Top-Requested Warehouse Management Functionalities
Top-Requested Supplier Relationship Management Functionality

As such, it’s unsurprising that 20 percent of large businesses seeking warehouse management software say RFID is a must-have, compared to just 9 percent of small ones. Deploying RFID technology is no doubt expensive (especially compared to traditional barcoding technology), but for big businesses, the return on investment is quite clear from a liability standpoint alone.

Electronic data interchange (EDI)—which allows a WMS to communicate with client and supplier systems to streamline workflows—is also popular among our sample, requested by 27 percent of large and 14 percent of small businesses.

There are other interesting trends we can observe in the functionality requested by buyers in our sample. For the majority of those seeking supplier relationship management software, having access to a vast supplier database and the ability to rank suppliers based on key performance indicators is essential: requested by 52 percent of small businesses and 61 percent of larger businesses.

Procurement is also a top requested application. Among buyers looking for new procurement systems, approval purchase automation is the most requested functionality.

A critical aspect of any procurement system, purchase automation allows users to automatically make purchases for the firm. This is especially useful for firms that regularly purchase defined quantities of goods on a cyclical basis.

Below is a look at the top-requested functionality for the three most requested SCM applications among prospective buyers in our sample: warehouse management, supplier relationship management and procurement.

Top-Requested Procurement Functionality

Top-Requested Procurement Functionality

Conclusions

In this day and age, it is simply impossible to operate an efficient supply chain without an adequate information technology (IT) infrastructure behind it. Indeed, the intersection of IT and SCM has been changing rapidly.

“As with other things in technology, SCM has seen big advantages thanks to social, mobile, cloud and analytics,” says Boris Kontsevoi, president and founder of Intetics, a software development company.

“Essentially, these technologies have made actionable information more easily attainable and user-friendly. The SCM solution-makers are incorporating this to make the solutions more customizable and accessible at any point of the process.”

Businesses seeking to purchase new SCM software should consider the following:

⇒ Integration and EDI. Buyers must ensure that their new system or application will adequately integrate with existing applications, and that it will be able to communicate with clients’ and suppliers’ systems.

⇒ Budget and cost. Buyers should weigh the pros and cons of perpetually licensed versus subscription software. While subscription pricing represents an ongoing expense, the monthly fee is generally much lower than the perpetual-license fee, and support is covered. Perpetual-license systems still typically have annual maintenance, support and update fees.

⇒ Automation. Buyers should outline which specific business processes they expect a new system to assist with automating, and they should communicate those needs and expectations to vendors. They should also consider how greater automation in their new system will impact the daily workflows of their employees.

Demographics

Note that this data is intentionally skewed to show equal representation of both small and larger businesses: We purposely selected a sample of 100 small businesses and 100 midsize to large businesses.

Prospective Buyers by Industry Segment
Prospective Buyers by Annual Revenue
Prospective Buyers by Number of Users
Prospective Buyers by Number of Employees

The detailed methodology for this report can be found here.

If you have comments or would like to obtain access to any of the charts above, please contact forrest@softwareadvice.com.

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