SCM is Dead, Long Live SCM

The continuing meltdown of i2 Technologies isn’t just bad news for its customers, partners and shareholders, it’s a genuine disaster. The ongoing disintegration of i2’s business was evident in the last quarter’s details, which showed a complete retreat by customers in every possible measure. Revenues, average deal size, number of new deals, percent of deals from existing customers: All the key indicators that have been going south all year have almost reached Antarctica, with no sign of a warming trend in sight.

Manugistics, for its part, doesn’t look much better. The last time its stock got a decent boost was when Richard Bergman, Manu’s president, resigned at the end of June. Not exactly the kind of news that presages a major turnaround either.

With the two best-known supply chain management companies in the toilet and not looking like they’ll be back any time soon, the question of the day is whether SCM as a business strategy, technology, and line of business makes sense any more. The answer is a qualified yes.

Qualified because it’s clear that the i2 model in particular — big bang SCM — is going the way of the dinosaurs. But the notion that there is a lot of waste that can be driven out of supply chains and that a lot of new opportunity can be enabled by making supply chains more efficient isn’t going away.

In fact, if anything, supply chain forecasting, planning, management, and execution are all enormous issues that desperately need improved efficiency and lower total costs. The majority of supply chains today have huge automation gaps — areas where inefficiency bleeds time and money — that everyone would like to plug. The question isn’t should we fill the gaps, but how.

The way of the dinosaurs took a major cue from the ERP market, which originated the big bang approach to enterprise software and then watched as customers revolted against what all-too-often turned out to be a career-ending or even company-ending implementation. It took the better part of the 1990’s for the big bang to get discredited. But the effect seems to have taken hold. With some notable exceptions, very few companies are signing on for these massive, multi-year, gazillion-dollar deals.

Big bang SCM took much less to flame out, but it did so in spectacular fashion. The inflection point came in early 2001 with the melt-down of i2 at Nike. While there are lots of good reasons why Nike’s disaster wasn’t just i2’s fault, the exposure that the failure caused will forever haunt the supply chain market: $400 million in costs for a system that misdirected $100 million in inventory and, when it failed, caused Nike to lose $2.5 billion in market cap in a matter of hours.

But it doesn’t have to be that way. More and more companies are realizing that a little bang SCM projects actually make sense.

J.D. Edwards customer Otis Spunkmeyer did exactly this, putting in supply chain planning and forecasting in a decidedly little bang approach. They didn’t try to implement planning and forecasting across the enterprise, nor did they rip out their existing ERP system in favor of JDE’s ERP applications. What they did was realize genuine savings: The company now carries a week’s less inventory and has found out how to lop $100,000 off of its sourcing budget every year.

This little bang approach is truly the future of SCM. The trick is to find the biggest little win you can find, and make it happen quickly and painlessly and at a relatively low cost. For some companies that means better inventory control, others need improved sourcing, still more would like to improve their basic forecasting or better match up sourcing requirements to their various bills of material. Whatever the problem, the trick to the future of SCM is to provide discrete solutions to discrete problems and do so quickly, cheaply, and at the highest possible value to the customer.

So don’t cry too hard for i2, unless you’re a customer or investor. If you’re the latter, I can only offer my condolences. If you’re the former, don’t worry: if they don’t make it, someone will buy up i2’s assets and maintain your current system. And a host of little bang vendors will be come calling, looking to help you add some discrete piece of value. For the rest of you, be happy you didn’t buy into the wrong version of SCM. Lucky for you, the right one is on its way.