Supply Chain Software Sales Drop 20.5 Percent

New license revenue from so-called supply chain management software fell to $2.1 billion in 2002 from $2.7 billion the previous year, Gartner Inc. said.

Software sold to companies building e-marketplaces plummeted more than 50 percent, as technical difficulties and costs associated with integrating suppliers to trading hubs took its toll on sales. Gartner defines an e-marketplace as a web-enabled trading community that aggregates buyers and sellers to enable transactions, collaboration and sharing of product information and demand forecasts. Examples include ChemConnect for the chemical industry and Covisint LLC, formed by carmakers.

"Marketplaces were a great concept. Unfortunately, they were a bit before their time," Gartner analyst Chad Eschinger said. "People failed to realize the complexity of trying to integrate disparate systems and getting people to share information and collaborate."

Companies have had difficulty aligning their business practices with new processes required to make marketplaces efficient, Eschinger said. Also, the costs of integrating computer systems with an Internet-based hub may be affordable to a Fortune 500 company, but many midsize and small suppliers have found the cost prohibitive.

"As integration technology becomes more robust and affordable, and gets embedded in applications, you may see a resurgence," Eschinger said.

In the Gartner study, marketplaces are a sub-segment of the "sourcing and procurement" category of supply chain software, which covers the whole process of buying supplies, from requests for proposal, contract negotiation and purchasing. The category as a whole saw a 28 percent decline in new license revenue in 2002, compared to 2001.

Software for so-called supply chain execution posted only a slight decline of 3 percent last year. SCE software helps companies track goods in transit, manage orders, monitor inventory levels and more. These products were favored for their ability to make current operations more efficient, without embarking on a major integration or deployment project.

"Within the supply chain space, people have made enormous investments over the years, and are now looking for a piece or two to fix that black hole to try to drive more value out of what they have today," Eschinger said.

Among the vendors, SAP AG had the greatest market share with 11.6 percent, toppling the 2001 leader i2 Technologies Inc., which dropped to No. 2 with 6.6 percent. Market share for SAP and i2 last year were 9.9 percent and 14.8 percent, respectively.

Oracle was No. 3 with 6.5 percent, followed in order by Ariba, 4.9 percent; and Manugistics, 4.2 percent.

Companies like Oracle and SAP, which have extensive software portfolios that go beyond supply chain applications have an advantage in today's market, when enterprises prefer to buy as much from one vendor as possible. I2 and Ariba, one-time powerhouses in the supply chain market, have struggled to regain momentum following the dot-com bust.

"To make a comeback against larger enterprise application providers such as Oracle, SAP and PeopleSoft, they're going to have to develop deeper functionality and a lower price point with integration that will offset the purchase from a suite provider," Eschinger said.

This story courtesy of TechWeb .