Greasing the gears

Spending on supply chain processes will outpace spending on applications over the next five years, according to a recent report by Cambridge, Mass.-based Forrester Research Inc.

Forrester surveyed 26 executives in US$1 billion-plus revenue manufacturing firms and found that users are scaling back supply chain management investments. Supply chain investments over the next five years are estimated at $35 billion–with a focus on extending supply chain processes across departmental and partner boundaries.

Nearly all respondents (92 percent) said the primary goal of supply chain management is to improve operational efficiency. Improvements in customer service ranked second (54 percent), followed by reduced time-to-market (23 percent).

The major impediments to supply chain performance had little to do with the technology. Just 19 percent listed immature technology as a major impediment. More often, supply chain problems were identified with process inefficiencies. Nearly half (46 percent) of respondents said they had difficulty changing processes and people behavior to accommodate their supply chain plans. Meanwhile, 42 percent a high variability in supply and demand was to blame.

Over the next three years, supply chain executives expect their budgets will increase or remain the same. Just 8 percent of respondents expected a moderate or drastic decrease in their supply chain spending. Half of respondents expect spending to moderately increase while 27 percent expect spending to remain flat. Only 8 percent expect a significant increase.

U.S. firms will spend, on average, $4.8 billion per year through 2008 to fine-tune their supply chain network processes, according to Forrester. Most investments will come from consumer packaged goods companies, which will be spending on order and demand management software.

Forrester also says small and medium-sized businesses will also be increasing their supply chain investments. By 2008, small businesses will be investing $323 million in their supply chains–up from $109 million in 2003. Medium-sized business spending on supply chain investments will grow to $1.3 billion in 2008, up from $316 million in 2003.