Supply-Chain Spending Projected To Grow 12% This YearSupply-Chain Spending Projected To Grow 12% This Year

Integrated supply-chain spending will grow 12% in 2003, according to a Yankee Group report released Monday.

The spending surge represents increased confidence in new XML and Internet direct-connect technologies, with the upward trend expected to continue for three to five years, said analyst Jon Derome. "We were surprised at the positive energy we found throughout the sector," Derome said.

The spending will ripple outward from industry leaders, he said. "As companies like Intel, Wal-Mart and Home Depot invest, their partner networks have to respond and upgrade their systems," Derome said.

In Derome's view, there's a wide reactive uptick as well, as leading companies' competitors are forced to respond to sector leader investment or risk losing competitive position.

The expenditures represent more than "recycled" supply-chain savings, Derome discovered during the research phase of the report. For many companies, as supply-chain costs go down, supply-chain financial support goes up.

"We were surprised to find that even as companies reduced supply chain costs by automation, they increased supply chain integration investment," he said. "They discover that in addition to lowering cost of supply-chain ownership, increased integration actually changes the way the company does business."

Direct TCO reductions from supply-chain integration was tagged by the Yankee Group report at 15%, based on profiled companies that combined direct-connect software with value-added networks.

But those savings carry a cost, one often overlooked by TCO-focused managers, Derome said. "We found that enterprises need to be better aware of the hidden labor costs that accompany changing the way a supply chain operates," Derome said. "It's important that companies understand the long-term labor costs of these integrations. Support-costs and the cost of business change can represent as much as 80 per cent of the whole investment. It's too easy to overlook these people costs when looking at the TCO of an integration, but that's a mistake."

The projected growth cycle represents increased certainty about technical standards for supply-chain integration, the analyst said.

Spending growth is flowing into a variety of direct-connect approaches, with both AS2 and Electronic Data Interchange Over The Internet (EDIINT) based platforms showing strength across-the-board, RosettaNet gaining traction in high tech, and UCCnet consolidating its position in the retail sector. CIDX is gaining position in the chemical sector, in Derome's view.

Vendor beneficiaries of the investment trend include companies with EDI experience, according to Derome, who cited Sterling Commerce and GXS in that category.

"For the future, SPS Commerce and Cyclone Commerce will benefit as well," he said.

Established heavy-hitters are represented as well, with Microsoft, Oracle, and SAP all introducing products over the past 18 months to capitalize on supply-chain spending growth.

High-tech sector investment will be led by Intel, Cisco, Dell and Sun, Derome said, all seeking to further streamline communications with Asian supply-chain partners and avoid the huge losses that stemmed from the slow flow of order-changes through the systems during the 2001 downturn, Derome said.

Wal-Mart and Home Depot spearhead retail investment, with those giants and other retail players working to sharpen and enrich the levels of precision and detail involved in getting the right products in the right quantities to the right outlets.

"This is less acute problem than high tech manufacturers face, but no less costly," Derome said. "Inaccurate shipments cost retailers billions every year."