How to Effectively Implement and Modify Supply Chain Management

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The Secret SaaS: On-Demand Supply

Chain Management

December 2008

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Executive Summary

Research Benchmark Aberdeen’s Research Benchmarks provide an in-depth and comprehensive look into process, procedure, methodologies, and

technologies with best practice identification and actionable recommendations

Supply chain globalization, increased complexity, rising costs, and the need to respond rapidly to supply chain changes and disruptions are forcing companies across industries to consider new ways to quickly deploy and modify supply chain management solutions.

Software as a Service (SaaS) is a key deployment mechanism that has the potential to allow companies an approach that minimizes Total Cost of Ownership (TCO) but the key question is - does SaaS allow companies to realize the business ROI? Through the responses of over 130 enterprises, Aberdeen identifies whether SaaS and related approaches are a long-term, viable option in the SCM space or not. In addition, the specific areas within SCM where SaaS applications have gained adoption, and reasons why they have, are also explored.

Best-in-Class Performance

Aberdeen measured the metrics that drive adoption and implementation success of SaaS applications. Survey respondents were ranked according to four key performance criteria, including:

• Time to Return on Investment (ROI) for supply chain improvement software application

• Actual versus planned ROI on supply chain software application

• Cash conversion cycle

• Customer service level as measured by perfect order fulfillment

Competitive Maturity Assessment

Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics:

• Best-in-Class companies are two-times as likely as all others to have clear process definitions between SaaS and on-premises solutions

• Best-in-Class companies are three-times as likely as all others to select vendors that provide toolkits and Application Programming Interfaces (APIs) that support integration requirements for SaaS solutions

• Best-in-Class companies are two-times as likely as all others to have a business unit level capability to support SaaS solutions

• Best-in-Class companies are 1.8-times as likely as all others to have IT organization support for SaaS solutions

• Best-in-Class companies are 1.4-times as likely as all others to have Chief Financial Officer (CFO) support for SaaS solutions

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Required Actions

In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must:

• Develop a SaaS roadmap based on long-term ROI rather than based on short-term TCO. Where is your company now and where do you expect it to be in six months? One year? Two years? Five years? Establish a roadmap for module implementations, upfront and ongoing costs, supplier / customer requirements (a plan for working with trading partners), and expected returns over time (short-term returns versus long-term returns should be different).

• Turn IT and finance organizations into supporters. Companies need to ensure all parties agree on the chosen

implementation path. Different from gaining consensus is the need to have a voice from these organizations driving awareness and enthusiasm for the project. Solution champions should bring other supporters at the operational level.

• Understand vendor toolkits and define Application

Programming Interface (API). How do you want the data to be presented and what do you need to do with the data? SaaS

functionality is a key consideration in adoption. Knowing API needs prior to vendor selection helps to ensure the solution purchased is the solution appropriate for your organization.

• Understand partner collaboration requirements. Look at ways by which the company can expand collaboration with trading partners without adding significant costs of on-boarding, training and maintaining these partners.

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Figures

Figure 1: Top Two Drivers of Supply Chain Application Upgrades or Implementations ...6

Figure 2: Strategic Actions to Improve Supply Chain Application Performance ...8

Figure 3: Strategy for Rolling Out SaaS Applications...10

Figure 4: The IT Barrier in On-Demand Adoption...11

Figure 5: SaaS Process Requirements...16

Figure 6: Organizational Support for SaaS Initiatives...17

Figure 7: The Best-in-Class Understand Partner Collaboration Needs and License Agreements...18

Figure 8: Best-in-Class Exceed Peers in EDI Usage ...20

Figure 9: Best-in-Class Plan to Use SaaS in Sourcing and Procurement ...20

Figure 10: Highest Adoption Rates for SaaS in Supply Chain Execution ...22

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Tables

Table 1: Top Performers Earn Best-in-Class Status...8

Table 2: The Best-in-Class PACE Framework ...9

Table 3: The Competitive Framework...14

Table 4: The PACE Framework Key ...29

Table 5: The Competitive Framework Key ...29

Table 6: The Relationship Between PACE and the Competitive Framework ...29

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Chapter One:

Benchmarking the Best-in-Class

Business Context

Fast Facts

√ 45% of survey respondents indicate that they are using on-demand applications √ 27% of respondents indicate

that they don’t currently use SaaS applications but plan to use them in the next 18 months

√ 28% of respondents indicate that they have no current or planned SaaS activity

Supply chain globalization, increased complexity, rising costs and the need to respond rapidly to supply chain changes and disruptions are forcing

companies across industries to consider new ways to quickly deploy and modify Supply Chain Management (SCM) solutions.

Software as a Service (SaaS) is a key deployment mechanism that has the potential to allow companies an approach that minimizes Total Cost of Ownership (TCO) but the key question is - does SaaS allow companies to realize the business Return on Investment (ROI)? Through the responses of over 120 enterprises, Aberdeen identifies whether SaaS and related

approaches are a long-term, viable option in the SCM space or not. In addition, the specific areas within SCM where SaaS applications have gained adoption, and reasons why they have, are also explored.

Key Drivers for Deploying New Supply Chain

Applications and for SaaS-based Applications

The current global economic downturn is changing the way corporations value cash on hand and, accordingly, capital investments. Until the markets (such as, the financial, automotive, consumer, raw materials) become more stable, capital investments will proceed with caution. Those allocating funds for software investments will likely look for alternatives to large-scale, costly implementations and license fees (Figure 1).

Figure 1: Top Two Drivers of Supply Chain Application Upgrades or Implementations 22% 13% 15% 16% 16% 19% 0% 10% 20% 30% Rising customer service requirements

Rise in length of IT backlog and time to implement new solutions Rising customer collaboration requirements

Speed of change in supply chain design requirements and netw ork Increased supply chain complexity Cost to purchase and deploy traditional

on-premise SCM solutions

% of Respondents

"We replaced our on-premise TMS with a SaaS application. It was a relatively easy

implementation – it was low cost and required some IT integration, but it was up and running in essentially six to eight weeks. We would like to incorporate SaaS into other SCM functions, but functionality and benefit need to be there."

~ Alan Weber, Vice President Supply Chain / Logistics, Huber Engineered Woods, LLC

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Supply chain complexity is also rising due to globalization, which for supply chain means global suppliers, global customers, and global competitors (Figure 1). More capabilities are externalized, as companies look to become asset light, lower direct costs, and focus on their core competencies. The growing number of trading partners creates a need for process integration and collaboration with extended supply chain partners. While a function is outsourced, however, visibility shouldn't be reduced as a result.

Aberdeen's August 2008 benchmark report, Process Collaboration in Multi-Enterprise Supply Chains, found that Best-in-Class companies are reducing supply chain complexity by integrating customer and supplier processes and creating cross-functional coordination with procurement, finance,

accounting, and IT, for example. The role that SaaS solutions play in enabling supplier and customer collaboration is explored in Chapter Two of this report.

Making the Most out of an Investment in a Down

Economy

It is important to identify the top strategic actions that enterprises are taking in responses to the pressures identified in Figure 1. The top two strategic actions are:

• Companies are redesigning Supply Chain Management (SCM) processes to reduce non-value-adding complexity and requirements in order to improve supply chain application performance.

The intent to reduce the complexity is in conflict with the reality of their business processes which are becoming more externalized and complex. What does it mean for supply chain applications? They need to provide both the ability to solve the end-to-end supply chain challenges as well as provide a simple and non-complex integration and process architecture.

• Furthermore, companies are looking for simple integration requirements and solution simplicity; companies are looking to deploy SCM tools with short implementation times and rapid payback.

Companies do not have the luxury of doing large-scale IT implementations with customizations, especially with the shrinkage in capital markets. Companies still need to solve critical business problems - the approach to do that is to look at the Return on Investment (ROI) as the parameter that factors in the most for software investment decisions. The combination of short implementations and rapid payback is difficult to achieve but is critical for enterprises to achieve.

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Figure 2: Strategic Actions to Improve Supply Chain Application Performance % of All Respondents 16% 20% 23% 24% 0% 10% 20% 30% Pilot SaaS solutions

Define SCM solution performance metrics and measurement strategies

Deploy SCM tools w ith short implementation times and rapid payback

Redesign SCM processes to reduce solution complexity and requirements

Source: Aberdeen Group, December 2008

The Maturity Class Framework

Aberdeen measured the metrics that drive adoption and implementation success of software applications - SaaS in particular. Survey respondents were ranked according to four key performance criteria, including:

• Time to return on investment for supply chain improvement software application

• Actual versus planned ROI on supply chain software application

• Cash conversion cycle

• Customer service level as measured by perfect order fulfillment The maturity framework in Table 1 provides companies with the opportunity to benchmark their performance, by identifying which performance category they fall into.

Table 1: Top Performers Earn Best-in-Class Status Definition of

Maturity Class Mean Class Performance

Best-in-Class: Top 20% of aggregate

performance scorers

Eight months to achieve ROI on supply chain software application

Exceeded actual versus planned ROI by 1% to 24%

Cash conversion cycle of 16 days 97% perfect order fulfillment

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Definition of

Maturity Class Mean Class Performance

Industry Average: Middle 50%

of aggregate performance scorers

12 months to achieve ROI on supply chain software application

Missed actual versus planned ROI by 1% to 24%

Laggard: Bottom 30%

of aggregate performance scorers

14 months to achieve ROI on supply chain software application

Missed actual versus planned ROI by 25% to 49%

The Best-in-Class PACE Model

Table 2 indicates the key pressures, actions, capabilities, and enablers that are being prioritized by Best-in-Class companies for their supply chain application investments. This will help identify the key capabilities that are being considered as part of their supply chain initiatives.

Table 2: The Best-in-Class PACE Framework

Pressures Actions Capabilities Enablers

Cost to purchase and deploy traditional on-premise SCM solutions Deploy SCM tools with short implementation times and rapid payback Redesign SCM

processes to reduce solution complexity and requirements

Service and License Agreements (SLAs) with clear deployment,

upgrade, and performance metrics, penalties and incentives

Clear process definitions between SaaS and on-premises solutions Vendor toolkit and

defined data and APIs to support integration requirements Understanding of SCM partner collaboration requirements and solutions

CIO and Supply Chain Executive commitment Business unit capability to

support SaaS solutions

SaaS applications in use:

Supplier PO transaction exchange (PO changes, acknowledgements, ASNs) Supplier invoice

Supplier payment

Transportation contract procurement Supplier shipment collaboration Mode and carrier selection

Vendor managed inventory via SaaS application

Forecasting / sales and operations planning

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Is SaaS a Long Term Approach?

Comparing the results of this study with Aberdeen's similar 2007

benchmark study, On-Demand Applications in Supply Chain, there is a notable rise in SaaS adoption rates; the percentage of respondents not using and not considering using a SaaS solution dropped seven percentage points from 40% to 33% of respondents. Furthermore, SaaS is increasingly being

considered a long-term solution, particularly among Best-in-Class companies (Figure 3).

Figure 3: Strategy for Rolling Out SaaS Applications

“Our supply chain group is trying to show the cost-benefit of bringing in a SaaS solution versus an on-premise solution, with servers and service agreements. At the moment, IT isn’t on board because of a perceived lack of commitment from top management.”

~ Supply Chain Analyst, Large North American Aerospace and Defense Manufacturer

25% 8% 21% 13% 33% 25% 0% 21% 21% 33% 46% 11% 11% 17% 14% 0% 10% 20% 30% 40% 50% Not applicable, no plans to adopt SaaS solution

We w ill use SaaS supply chain applications until our ERP system better meets our needs Plan to use SaaS supply chain applications for 2 to

3 years and then reevaluate

We plan to migrate to a SaaS system as a permanent, long-term solution We are using SaaS supply chain applications in

combination w ith our ERP system

% of Respondents

Best-in-Class Industry Average Laggard

Aberdeen Insights — On-Demand Adoption Strategy

The Best-in-Class show in Figure 4 that decisions to purchase on-demand software applications requires support from the IT organization. The Best-in-Class are also 1.3-times and two-times more likely to have the CFO or finance group in a supportive role compared to Industry Average and Laggard companies, respectively. In fact, the most successful

implementations happen with the supply chain, IT, finance, and the CEO in supporting roles. Often, if lack of support is perceived by one group, the initiative risks losing momentum.

Naturally, each group might have a different goal. The group leading the initiative should look to understand each group's unique concerns. Some of the issues presented in adopting an on-demand can be addressed by showing the following:

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Aberdeen Insights — On-Demand Adoption Strategy Figure 4: The IT Barrier in On-Demand Adoption

57% 13% 17% 40% 36% 19% 28% 28% 41% 0% 25% 50% 75%

Supporter Neutral Barrier % of Respondents Best-in-Class Average Laggard

For IT, an on-demand platform can be perceived as a form of outsourcing and thus a loss of data / application control. In actuality, there is evidence that IT resources are put to better use with an on-demand application. With richer data shared in a more real-time environment, IT can work towards enriching strategic company plans or analyzing business processes for areas needing improvement.

For finance, a detailed cost-benefit analysis should be presented. An expected Return on Investment (ROI) analysis should include total costs (SLAs, maintenance, staff resources, upgrade potential, and so forth). Also, what supply chain metrics would be impacted? Will an on-demand model make shipping more efficient and reduce transportation costs? Finally, when does value start being achieved and how does that compare with other models.

These are just a few examples for making a case to the two groups that are more common to act as barriers to the adoption of on-demand technology.

In addition the current highly constrained credit environment and challenges posed by the economy makes it an easier conversation with the IT and finance organizations to talk about implementing SaaS solutions. The reasoning is that instead of a license-based software procurement (capital expenditure) for an on-premise solution, SaaS requires a subscription approach (operational expense).

In the next chapter, we will see what the top performers are doing in the area of SaaS adoption in different process areas.

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Chapter Two:

Benchmarking Requirements for Success

The selection of on-demand supply chain solutions and their successful integration and implementation can result in significant benefits as exemplified by the following case study.

Electronics Manufacturing Services Provider Enables Supplier Collaboration through SaaS Solution

Celestica Inc. (Celestica) is a Toronto, Canada based company. The company provides a range of electronic manufacturing and supply chain services and solutions to Original Equipment Manufacturers (OEMs) across many industries, in numerous countries around the globe.

Fast Facts

√ 74% of Best-on-Class companies have an understanding of SCM partner collaboration requirements and solutions versus 30% of all others √ The Best-in-Class are

1.9-times and 12-1.9-times as likely to be using a SaaS application for supplier shipment collaboration compared to Industry Average and Laggards, respectively

We spoke with Jerry LaGrange, Supply Chain Director, responsible for Celestica’s LiveShare™ application. LaGrange walked us through the process of adopting a SaaS procurement solution. LaGrange explained, “Our SaaS procurement platform has allowed us to remove the

inefficiencies associated with fax, email, and phone. We aren’t re-keying information anymore, prone to errors, which are unnecessary in an electronic age.”

The solution named LiveShare™ has been implemented across all of the company’s megasites – about 80% of the company’s volume flows through these hubs. In those sites, with this SaaS solution, we are collaboratively communicating Purchases Orders (POs), PO changes, expedites, de-expedites, cancels, forecasts, SMI/VMI pulls on 75% of active parts with the top 25% of our supply base, which accounts for over 80% of our spend. This is significant critical mass allowing us to realize appreciable benefits over earlier methods. Over the past the past two years, the solution has handled 670,000 discrete POs and over 1.7 million PO change requests.

As an electronics manufacturing services provider, dealing with nearly 5,000 suppliers on a regular basis, the company needed a solution that would scale and allow it to reach and communicate seamlessly with volume suppliers. After evaluating the market, the only choice was a SaaS solution and the company decided to go with a leading SaaS supply chain best-of-breed platform provider. LaGrange attests, “Our promise to our customers is flexibility and responsiveness, so we require a solution that enables us to deliver consistently on this promise. With SaaS the

advantage is that the maintenance and upgrades are the responsibility of the solution provider. The platform affords the flexibility needed to solve the business challenges.”

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After selecting a vendor, they were faced with the decision of how to go about the implementation. LaGrange says, “There are two ways to go about an implementation: dropping in a standard application and then putting in massive change management, or customizing the application and keeping disruption to a minimum.” Celestica decided to pursue customization. “It was important to make the application intuitive for buyers and suppliers. We wanted a solution that would add value for all constituent users. Adoption with these tools is everything. Our

investment is preserved as we have experienced less than one-half of 1% drop-out rate from our supply base,” LaGrange says.

There were two key lessons which included:

• Gaining design point consensus across the enterprise can be a lengthy, iterative process. The first phase, the order management system, took 19 weeks to implement from start to finish. Given the customizations required, this was an amazingly fast

deployment. Customizations were seen as a way to assure adoption and use. With increased use comes ever increasing benefit.

• Many suppliers in low-cost geographies have been slow to adopt EDI, which for the past 20 years, has been the prevalent form of communication. This drove Celestica to find a better, cost efficient and faster way to establish electronic communication than establishing the numerous point-to-point connections required of EDI. Celestica’s LiveShare™ application, powered by the company’s SaaS solution provider, operates over the web. An advantage to this application is that 99% of suppliers have access to the web and access is free. Celestica completely removed the technology barrier and as a result is realizing dramatic advantages.

Some of the notable benefits included:

• Suppliers are able to use a web application at no cost to them. Celestica, in turn, is provided with more real-time, richer data, with enhanced integrity or accuracy. The Celestica LiveShare™ application permits exchange of increased pertinent information over prior methods. For example, the company sends forecasts through the application on every part. As a result, several suppliers have reduced lead times for components down to four weeks. This is win-win for Celestica and its customers.

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• Celestica can track supplier compliance over time and measure suppliers in ways it could not before. The company can now provide its OEM customers with feedback on supplier

performance, such as the level of flexibility to meet changes in demand requirements. This is critical for customers to understand which suppliers are not compliant and thereby increasing total costs. Such discussions can lead to the more appropriate selection of supply partners going forward to lower Total Cost of

Ownership™ (TCO). Celestica also reports on the first pass yield, the percentage of new POs and change requests that are approved the first time without changes. Obviously, reducing the number of times a PO is touched allows greater focus on the more strategic responsibilities of the buyer, inventory management, and lowers total costs through increased efficiency.

Competitive Assessment

Aberdeen Group analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (the approaches they take to execute their daily operations); (2) organization (corporate focus and collaboration among stakeholders); (3) knowledge management (contextualizing data and exposing it to key stakeholders); (4) technology (the selection of appropriate tools and effective

deployment of those tools); and (5) performance management (the ability of the organization to measure their results to improve their business). These characteristics (identified in Table 3) serve as a guideline for best practices, and correlate directly with Best-in-Class performance across the key metrics.

Table 3: The Competitive Framework

Best-in-Class Average Laggards

Vendor toolkit and defined data and APIs to support integration requirements

52% 20% 15%

Clear process definitions between SaaS and on-premises solutions

Process

58% 27% 18%

IT organization support for on-demand supply chain solution adoption

57% 40% 28%

CIO and supply chain executive commitment

50% 37% 35%

Business unit capability to support SaaS solutions Organization

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Best-in-Class Average Laggards SLAs with clear deployment, upgrade, and performance metrics, penalties and incentives

42% 25% 9%

Understanding of SCM partner collaboration requirements and solutions

Knowledge

74% 31% 27%

SaaS application technology current in use:

Technology Sourcing and procurement: 39% Supplier PO transaction exchange (PO changes, acknowledgements, ASNs) 35% Supplier invoice 29% Supplier payment Supply chain execution: 38% Transportation contract procurement 36% Supplier shipment collaboration 35% Mode and carrier selection Supplier/custom er collaboration: 27% Vendor managed inventory via SaaS application 25% Forecasting / sales and operations planning Sourcing and procurement: 18% Supplier PO transaction exchange (PO changes, acknowledgements, ASNs) 16% Supplier invoice 28% Supplier payment Supply chain execution: 9% Transportation contract procurement 19% Supplier shipment collaboration 18% Mode and carrier Selection Supplier/custom er collaboration: 14% Vendor managed inventory via SaaS application 2% Forecasting / sales and operations planning Sourcing and procurement: 6% Supplier PO transaction exchange (PO changes, acknowledgements, ASNs) 3% Supplier invoice 3% Supplier payment Supply chain execution: 6% Transportation contract procurement 3% Supplier shipment collaboration 3% Mode and carrier selection Supplier/custom er collaboration: 3% Vendor managed inventory via SaaS application 0% Forecasting /

sales and operations planning

Capabilities and Enablers

Based on the findings of the Competitive Framework and interviews with end users, Aberdeen’s analysis of the Best-in-Class demonstrates the following capabilities and enablers in process, organization, performance management, and technology.

Process

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to have clear process definitions between SaaS and on-premises solutions (Figure 5).

The project plan associated with an on-premise solution requires significantly more planning in terms of internal resource deployment, integration and critical path analysis. In the case of on-demand applications, the challenges are different; IT security concerns and integration with internal systems are the key issues faced by SaaS implementations. This is why Best-in-Class companies focus on vendor toolkits and APIs that support integration requirements (52% of Best-in-Class versus 17% of all others). Figure 5: SaaS Process Requirements

% Rated Process Capabilities as Very Good to Excellent 58% 52% 27% 20% 18% _15% 0% 25% 50% 75%

Clear process definitions betw een SaaS

Vendor toolkit and defined data and APIs to support integration

requirements Best-in-Class Industry Average Laggards

Source: Aberdeen Group: December 2008

Organization

SaaS applications can result in decentralization of application maintenance, where business units take up ownership of the application. As seen in Figure 6, Best-in-Class companies excel in both business unit as well as IT

organization support for on-demand supply chain solution adoption:

• Best-in-Class companies are two-times as likely as all others to have a business unit level capability to support SaaS solutions

• Best-in-Class companies are 1.8-times as likely as all others to have IT organization support for SaaS solutions

• Best-in-Class companies are 1.4-times as likely as all others to have CFO support for SaaS solutions

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Figure 6: Organizational Support for SaaS Initiatives

% Rated Organizational Capabilities Very Good to Excellent 63% 57% 44% 35% 40% 35% 12% 28% 22% 0% 25% 50% 75%

Business unit capability to support SaaS solutions

IT organization support for on-demand supply chain solution adoption

Chief Financial Officer / Finance Organization support Best-in-Class Industry Average Laggards

Source: Aberdeen Group: December 2008

Knowledge Management

When asked about the three activities performed by the IT organization in relation to process integration and collaboration in a previous report,

Process Collaboration in Multi-Enterprise Supply Chains, the following were identified by the survey respondents:

• 70% internal / application / process mapping

• 51% handling end user requests for Electronic Data Interchange (EDI) (or other translation) data

• 40% partner enablement

In the mid-size sector the situation is worsened due to the lack of enough IT resources to handle these needs (30% of respondents in mid-size companies indicate the lack of IT staff as a key issue).

Through the current survey we identify that Best-in-Class companies have significantly higher levels of understanding of SCM partner collaboration requirements and solutions (Figure 7).

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Figure 7: The Best-in-Class Understand Partner Collaboration Needs and License Agreements

% Rated Know ledge Management Capabilities Very Good to Excellent 42% 74% 25% 31% 9% 27% 0% 20% 40% 60% 80% Understanding of SCM partner collaboration requirements and

solutions

SLAs w ith clear deployment, upgrade, and performance metrics, penalties and incentives Best-in-Class Industry Average Laggards

In addition, Best-in-Class companies exhibit enhanced knowledge management abilities in the following areas:

• 1.5-times as likely as all others to have documented process for supplier enablement that is shared internally and externally

• 1.5-times as likely as all others to have internal and external access and identity assurance to secure Intellectual Property (IP)

Data security is typically a key concern for companies evaluating on-demand solutions for collaboration and integration versus on-premise solutions. Through a better understanding of SLAs and vendor metrics, organizations can mitigate the considerably small amount of risks with on-demand solutions with respect to SaaS solutions.

Select Farms Lowers TCO Through On-demand EDI Platform

Select Farms is in the preserved and dried floral business and supplies craft stores with harvested and preserved natural products. It had adopted an on-premise solution along with hiring a consultant for managing its EDI infrastructure.

The Total Cost of Ownership (TCO) for the on-premise solution was high, consuming too large a percentage of Select Farms’ IT budget. This included a high cost for managing integration rules and data formats.

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Select Farms Lowers TCO Through On-demand EDI Platform

Benefits include a measurable reduction in overhead, including annual savings of:

• $30,000 in consulting for maintenance of maps and business interfaces

• $12,000 in VAN fees

• $175,000 in labor expenses

• Converted fixed costs to variable expense

• Per transaction cost helps reduce costs with Select Farms’ seasonal business

• Improved customer service

Technology

In the following section, the adoption of SaaS solutions by Best-in-Class companies as well as all others will be identified in the following areas:

• Business-to-Business (B2B) collaboration - electronic connectivity services such as EDI and XML

• Sourcing and procurement – e-sourcing, e-procurement, supplier management, e-payables

• Supply chain execution - includes global trade management, visibility, domestic transportation management, fleet vehicle tracking,

warehouse management etc.

• Supplier / customer collaboration - includes sales and promotions planning, VMI processes, data synchronization, etc.

Unique characteristics of these areas which result in lower or higher adoption of SaaS will also be discussed.

B2B Connectivity

The Best-in-Class are nearly two-times as likely as the Industry Average to have 76% to 100% of their messages sent via EDI. Industry Average and Laggards are three-times as likely as the Best-in-Class to have 51% to 75% of their messages sent through email and fax.

Electronic communication is the foundation for all B2B collaboration and every company that wants to move up the maturity ladder needs to focus on this stage first. It is critical to have a strong foundation in this area before moving into the more complex collaboration phase. Organizations that fail to do this will find that collaboration becomes almost impossible to scale

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intensely manual in nature and can only be sustained across a handful of business partners.

Figure 8: Best-in-Class Exceed Peers in EDI Usage

36% 32% 25% 23% 12% 56% 30% 18% 19% 26% 23% 0% 0% 20% 40% 60% 80% 100%

Best-in-Class Average Laggard

76-100% of Messages Sent via EDI 51-75% of Messages Sent via EDI 26-50% of Messages Sent via EDI 0-25% of Messages Sent via EDI

Sourcing and Procurement

Figure 9 shows that SaaS applications are most widely used after suppliers are discovered and the contract is negotiated - from the Purchase Order (PO) exchange to the PO settlement. However, investment in supplier sourcing and contract management with SaaS solutions appear just around the corner, as 52% of Best-in-Class respondents plan to use SaaS for supplier discovery and 55% of Best-in-Class plan to use SaaS for contract management.

Figure 9: Best-in-Class Plan to Use SaaS in Sourcing and Procurement 29% 35% 39% 33% 50% 47% 17% 26% 29% 29% 29% 55% 52% 50% 42% 35% 0% 20% 40% 60% 80% 100% Contract Management Supplier discovery RFI, RFQ, RFP eSourcing - negotiation, reverse auction Purchase order replacement Supplier payments Supplier invoices Supplier PO transaction exchange (PO changes,

acknow ledgements, ASNs)

% of Best-in-Class Respondents Use Plan-to-Use

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Among the top categories, where a SaaS application is most widely used, the Best-in-Class are:

• 2.2-times and 6.5-times as likely to be using a SaaS application for supplier PO transaction exchange compared to Industry Average and Laggards, respectively

• 2.2-times and 11.7-times as likely to be using a SaaS application for supplier invoices compared to Industry Average and Laggards, respectively

• 1.6-times and 9.7-times as likely to be using a SaaS application for supplier payments compared to Industry Average and Laggards, respectively

The sourcing and procurement area is ripe for usage of SaaS solutions due to the following reasons:

1. Involves simple and commoditized processes that can be easily replicated by a SaaS provider at a lower subscription costs

2. Typically does not involve very complex integration requirements

3. Typically involves a large number of external trading partners to whom creating one-to-one integration mappings is complex and plugging into an existing business network is the best approach

Supply Chain Execution

Companies are increasingly utilizing third-party logistics (3PL) provider services in order to reduce the fixed and overhead costs of owning and managing a fleet. Similarly, companies are reducing the number of strategic carrier partners to gain volume discounts and build business relationships. These market conditions are further justifying a SaaS environment. Figure 10 shows that the adoption of SaaS solutions for supply chain execution is occurring at a faster pace compared to sourcing and procurement. Furthermore, companies are using SaaS for more than basic transactions. For example, 38% of the Best-in-Class are arranging transportation contract agreements with SaaS and 36% are optimizing shipping with supplier

shipment collaboration.

(It is important to note that these statistical trends exist among

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Figure 10: Highest Adoption Rates for SaaS in Supply Chain Execution 36% 38% 47% 47% 29% 29% 29% 32% 35% 47% 35% 50% 47% 42% 0% 20% 40% 60% 80% 100% Carrier Collaboration

Load building and optimization Shipment track and trace Freight audit and pay Mode and carrier selection Supplier shipment collaboration Transportation contract procurement

Among the top categories, where a SaaS application is most widely used, the Best-in-Class are:

• 1.9-times and 12-times as likely to be using a SaaS application for supplier shipment collaboration compared to Industry Average and Laggards, respectively

• 2.2-times and 11.7-times as likely to be using a SaaS application for supplier invoices compared to Industry Average and Laggards, respectively

• 1.6-times and 9.7-times as likely to be using a SaaS application for supplier payments compared to Industry Average and Laggards, respectively

Supplier / Customer Collaboration

In the area of supplier / customer collaboration, the primary challenge is the lack of a pre-defined process for organizations. Every organization believes that their approach for collaborating with their suppliers and customers are unique. However, the usage of SaaS is gaining some momentum in this space as well. The reason for this is again the advantage posed by a business network for enabling rapid integration with trading partners.

Forty percent (40%) of Best-in-Class companies are planning to collaborate more effectively, using SaaS solutions to enable Vendor Management Inventory (VMI) and forecast collaboration.

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With a SaaS VMI environment, real-time information sharing communicates current replenishment needs to vendors, reducing the bull whip effect and improving lead times.

Figure 11: Supplier / Customer Collaboration

27% 24% 20% 14% 14% 40% 40% 35% 35% 20% 0% 20% 40% 60% 80% Trade Promotion Management

Inventory Collaboration Data synchronization (e.g., UCCnet) Forecast Collaboration Vendor Managed Inventory

Among the top categories, where a SaaS application is most widely used for supplier / customer collaboration, the Best-in-Class are:

• 1.9-times and 9-times as likely to be using a SaaS application for VMI compared to Industry Average and Laggards, respectively

• 2.4-times and 8-times as like to be using a SaaS application for forecast collaboration compared to Industry Average and Laggards, respectively

Aberdeen Insights — Mid-Size Focus on SaaS Solutions

When asked about the top pressures forcing organizations to look into purchasing new SaaS applications the following differences were noted between the mid-size and large organizations: (please note that for this section mid-size is defined as $100 M to $ 1Billion USD in revenue and large is defined as more than $ 1Billion USD in revenue)

Large organizations' top pressures driving SaaS exploration:

• 29% of respondents indicate that the cost to purchase and deploy traditional on-premise SCM solutions

• 23% of respondents indicate the rise in length of IT backlog and time to implement new solutions

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Aberdeen Insights — Mid-Size Focus on SaaS Solutions

Mid-size organizations' top pressures driving SaaS exploration:

• 33% of respondents indicate increased supply chain complexity as the top most reason for looking into purchasing SaaS applications

• 20% of respondents indicate that the cost to purchase and deploy traditional on-premise SCM solutions is a reason for looking into purchasing new SaaS applications

Mid-size companies are looking at SaaS solutions as a way to help manage their complexity of their supply chains versus large organizations looking at the cost and IT implementation factors.

When asked about the top reasons for not considering SaaS solutions, there is a difference between large organizations and mid-size organizations results as well:

• Large organizations indicate their major concern is that of integrating SaaS solution with internal systems

• While, mid-size organizations indicate that their major concern is the data security concerns of SaaS applications

The takeaway that can be made from these results is that large organizations have gone too far along the complexity curve of deploying applications through customization and integration and trying to simplify their IT infrastructure to support SaaS applications and mid-size organizations are going up in the complexity curve after having deployed spreadsheets or simple ERP tools.

It remains to be seen if the marketplace will produce a one-stop shop of SaaS solutions that will address the requirements of both the large and mid-size organizations or we will see a range of players and solutions for each of these areas.

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Chapter Three:

Required Actions

Fast Facts

√ 9% of Laggards maintained SLAs with clear deployment, upgrade, and performance metrics, penalties and incentives compared to 42% √ 20% of the Industry Average companies have very strong to strong capabilities for vendor toolkit and defined data and APIs to support integration requirements, compared to 52% of the Best-in-Class

√ 31% of the Industry Average understand SCM partner collaboration requirements and solutions compared to 74% of the Best-in-Class

Whether a company is trying to move its performance in supply chain from Laggard to Industry Average, or Industry Average to Best-in-Class, the following actions will help spur the necessary performance improvements:

Laggard Steps to Success

• Understand the scope of differences between SaaS and on-premise solutions. Only 18% of Laggards have clear process definitions between SaaS and on-premises solutions versus 58% of Best-in-Class companies. In addition, Laggards are two-times as likely as Best-in-Class companies to be not even evaluating SaaS applications. The reason why the Laggards are hesitant in this regard is due to a lack of education in the areas where SaaS solutions excel and where they do not. They are also not educated in terms of the core differences in the implementation methodology of SaaS and on-premise solutions resulting in unmet expectations.

• Strengthen the business unit level capabilities to deploy SaaS applications. Only 18% of Laggards have the business unit level capability to deploy SaaS applications versus 63% of Best-in-Class companies. SaaS applications allow more independence for the line of business professionals within business units to make

decisions on how to solve their business problems. However, if the business units themselves are ill-equipped to handle software implementations (SaaS solutions also require integration work and are a regular software implementation in many ways), then the pilot initiatives that companies take are likely to fail. This results in a risk-averse mentality among Laggards, which are not changing the status quo and risking conflict with the IT organization.

“We’ve completely turned our operations around and now not only have visibility, accuracy, and worker productivity where we want it, but we have complete confidence in the on-demand warehouse

management system to manage our entire flow of orders.”

~ Kirk Aldridge, Principal, SC Sports • Find IT organization support. Only 28% of Laggards have IT

organization support for on-demand supply chain solution adoption versus 57% of Best-in-Class companies. This results in a situation where even if Laggards launch into a SaaS implementation, they are predisposing themselves to failure due to a lack of commitment from the IT organization. The only way to resolve this situation is to create a win-win situation for IT and line of business. In the current economy where credit is hard to come by, the advantages of a SaaS model provides an equal footing for line-of-business to negotiate with IT.

Industry Average Steps to Success

• Turn IT and finance organizations into supporters. Forty percent (40%) of Industry Average companies have IT organization

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companies have CFO and finance support versus 45% of Best-in-Class companies. Industry Average companies need to ensure all parties agree on the chosen implementation path. Different from gaining consensus is the need to have a voice from these

organizations driving awareness and enthusiasm for the project.

• Understand vendor toolkits and define Application

Programming Interfaces (APIs). Only 20% of Industry Average companies have strong process capability with respect to vendor toolkit and defined data and APIs to support integration

requirements versus 52% of Best-in-Class companies. This is a critical requirement because integration is the top reason why organizations have indicated that SaaS implementations fail. Integration can be both external as well as internal. External integration through SaaS implementations is easier to achieve as compared to internal integration. However, when it comes to internal process integration, the pendulum swings towards on-premise applications, according to findings from the Process Collaboration in Multi-Enterprise Supply Chains report. On-premise applications are able to better integrate with internal legacy ERP systems as well as other internally managed systems. Their single point of IT management allows them to support an integrated application and data infrastructure.

Best-in-Class Steps to Success

• Develop a holistic SaaS roadmap. Only 42% of Best-in-Class companies have SLAs with clear deployment, upgrade, and performance metrics, penalties and incentives. Also only 30% of Best-in-Class companies have a clearly established SaaS roadmap that considers the impact of their existing investments in ERP. Best-in-Class companies need to ask themselves the following questions: Where is your company now and where do you expect it to be in six months? One year? Two years? Five years? Establish a roadmap for module implementations, upfront and ongoing costs, supplier / customer requirements (a plan for working with trading partners), and expected returns over time (short-term returns versus long-term returns should be different).

• Practice agile collaborative processes. Only 33% of Best-in-Class companies indicate that they have the ability to quickly change or modify business processes in their software. The ability to respond to business changes in the marketplace by modifying existing business processes is critical. There are both process and technology implications associated with this.

From a process perspective, instituting performance metrics that consider multi-enterprise supply chain issues is critical.

For current on-demand SCM users, continue to ask vendors to provide more flexibility. The ability to support business requirements flexibly and

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rapidly is the number one requirement for SaaS providers from Best-in-Class companies.

Aberdeen Insights — Multi-Enterprise Supply Chains Require Portfolio Approach for Supply Chain Software

Multi-enterprise supply chain management solutions are successful when companies are able to achieve large-scale, global adoption with their trading partners, overcoming both technical and business change management challenges. The following must be available for trading partners:

• Different levels of technical support to address on-boarding and on-going challenges

• Different types of integration options to support disparate ERP systems, legacy systems, languages, etc.

• A wide portfolio of services and application deployment options - SaaS, in-house, hosted, managed services

• A strong training program that addresses local needs

• A consistent set of metrics that identify the level of performance of trading partners

The change management issues associated with this type of initiative cannot be underestimated. Even after the initial program launch, companies need to maintain ongoing communication with their trading partner communities for further process changes and training.

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Appendix A:

Research Methodology

Between November and December 2008, Aberdeen examined the use, the experiences, and the intentions of more than 120 enterprises using or planning to use SaaS applications in a range of supply chain functions.

Study Focus

Responding supply chain professionals completed an online survey that included questions designed to determine the following: √ The use of SaaS in supply

chain execution,

collaboration, and planning operations

√ The implementation timing, deployment, expected versus planned ROI, and Total Cost of Ownership (TCO) √ Current and planned use of

SaaS for supply chain operations

√ The benefits, if any, that have been derived from SaaS initiatives

The study aimed to identify emerging best practices for SaaS usage in supply chain, and to provide a framework by which readers could assess their own management capabilities.

Aberdeen supplemented this online survey effort with interviews with select survey respondents, gathering additional information on SaaS strategies, experiences, and results.

Responding enterprises included the following:

• Job title / function: The research sample included respondents with

the following job titles: procurement, supply chain, or logistics director (21%); operations manager (16%); IT manager, engineer, or staff (10%); consultant (18%); senior management (24%).

• Industry: The research sample included respondents from the

following industries: aerospace and defense (2%); automotive (2%); consumer electronics (3%); consumer packaged goods (3%); distribution (4%); finance/banking/accounting (4%); food and

beverage (6%); general manufacturing (6%); health / medical devices (3%); industrial equipment manufacturing (4%); IT consulting /services (14%); retail (5%); hardware supplier (4%); transportation (14%); wholesale (3%).

• Geography: The majority of respondents (60%) were from North

America. Remaining respondents were from the Asia-Pacific region (19%), EMEA (17%), and Central / South America (4%).

• Company size: Thirty-nine percent (39%) of respondents were from

large enterprises (annual revenues above US $1 billion); 21% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 40% of respondents were from small businesses (annual revenues of $50 million or less).

• Headcount: Thirty-six percent (36%) of respondents were from small

enterprises (headcount between 1 and 99 employees); 21% were from midsize enterprises (headcount between 100 and 999 employees); and 43% of respondents were from large businesses (headcount greater than 1,000 employees).

Solution providers recognized as sponsors were solicited after the fact and had no substantive influence on the direction of this report. Their

sponsorship has made it possible for Aberdeen Group to make these findings available to readers at no charge.

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Table 4: The PACE Framework Key

Overview

Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as follows:

Pressures — external forces that impact an organization’s market position, competitiveness, or business

operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive)

Actions — the strategic approaches that an organization takes in response to industry pressures (e.g., align the

corporate business model to leverage industry opportunities, such as product / service strategy, target markets, financial strategy, go-to-market, and sales strategy)

Capabilities — the business process competencies required to execute corporate strategy (e.g., skilled people,

brand, market positioning, viable products / services, ecosystem partners, financing)

Enablers — the key functionality of technology solutions required to support the organization’s enabling business

practices (e.g., development platform, applications, network connectivity, user interface, training and support, partner interfaces, data cleansing, and management)

Table 5: The Competitive Framework Key

Overview The Aberdeen Competitive Framework defines enterprises as falling into one of the following three levels of practices and performance:

Best-in-Class (20%) — Practices that are the best

currently being employed and are significantly superior to the Industry Average, and result in the top industry performance.

Industry Average (50%) — Practices that represent the

average or norm, and result in average industry performance.

Laggards (30%) — Practices that are significantly behind

the average of the industry, and result in below average performance.

In the following categories:

Process — What is the scope of process

standardization? What is the efficiency and effectiveness of this process?

Organization — How is your company currently

organized to manage and optimize this particular process?

Knowledge — What visibility do you have into key

data and intelligence required to manage this process?

Technology — What level of automation have you

used to support this process? How is this automation integrated and aligned?

Performance — What do you measure? How

frequently? What’s your actual performance?

Table 6: The Relationship Between PACE and the Competitive Framework PACE and the Competitive Framework – How They Interact

Aberdeen research indicates that companies that identify the most influential pressures and take the most transformational and effective actions are most likely to achieve superior performance. The level of competitive performance that a company achieves is strongly determined by the PACE choices that they make and how well they execute those decisions.

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Appendix B:

Related Aberdeen Research

Related Aberdeen research that forms a companion or reference to this report include:

• The On-Demand Tipping Point in Supply Chain Report; March 2006

• Globalization: The Turning Point for Packaged Supply Chain Software in Automotive, Aerospace and Defense Industries; January 2007

• B2B Collaboration: How On-Demand Platforms Accelerate Value and Impact TCO; February 2007

• The Supply Chain Innovators Technology Footprint 2007; April 2007

• Executive Sales and Operations Planning: Process and Technology Strategies; June 2007

• Supply Chain on Demand: Enable Flexible Business Processes; August 2007

• Working Capital Optimization: Improving Performance with Innovations and New Technologies in Inventory Management and Supply Chain Finance; June 2007

• Supply Chain Executive's Strategic Agenda 2008: Managing Global Supply Chain Transformation; January 2008

• Supply Chain Innovator’s Technology Footprint 2008; March 2008

• Technology Strategies for Closed Loop Inventory Management; April 2008

• Process Collaboration in Multi-Enterprise Supply Chains; August 2008 Information on these and any other Aberdeen publications can be found at

www.Aberdeen.com.

Authors:Nari Viswanathan, VP/ Principal Analyst, Supply Chain Planning ([email protected])

Melissa Spinks, Sr. Research Associate, ([email protected]) Since 1988, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter — the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.2 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500.

As a Harte-Hanks Company, Aberdeen plays a key role of putting content in context for the global direct and targeted marketing company. Aberdeen's analytical and independent view of the "customer optimization" process of Harte-Hanks (Information – Opportunity – Insight – Engagement – Interaction) extends the client value and accentuates the strategic role Harte-Hanks brings to the market. For additional information, visit Aberdeen http://www.aberdeen.com or call (617) 723-7890, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://www.harte-hanks.com This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

How to Effectively Implement and Modify Supply Chain Management

The Secret SaaS: On-Demand Supply

Chain Management

December 2008

Executive Summary

Best-in-Class Performance

Competitive Maturity Assessment

Required Actions

Table of Contents

Figures

Tables

Chapter One:

Benchmarking the Best-in-Class

Business Context

Key Drivers for Deploying New Supply Chain

Applications and for SaaS-based Applications

Making the Most out of an Investment in a Down

Economy

The Maturity Class Framework

The Best-in-Class PACE Model

Is SaaS a Long Term Approach?

Chapter Two:

Benchmarking Requirements for Success

Competitive Assessment

Capabilities and Enablers

Process

Organization

Knowledge Management

Technology

B2B Connectivity

Sourcing and Procurement

Supply Chain Execution

Supplier / Customer Collaboration

Chapter Three:

Required Actions

Laggard Steps to Success

Industry Average Steps to Success

Best-in-Class Steps to Success

Appendix A:

Research Methodology

Appendix B:

Related Aberdeen Research