Competitive Landscape: Target Transformational Software Opportunities Emerging in Retail
Software providers have an opportunity to engage in transformational projects as retailers renew their focus on the supply chain. This research examines the retail supply-side competitive environment and profiles two of the top players in this market.
- The top two providers of supply chain planning and execution software, Oracle and JDA Software, represent 40% of the entire market. Both extend their market reach through active merger and acquisition strategies, creating high profiles through this market concentration.
- In-store pickup of goods ordered on the Web has become a key element to a cross-channel supply chain initiative. As in-store pickup of goods ordered on the Web accelerates, expect to see increased investment and innovation around cross-channel supply chain initiatives.
- Emergence of the "millennial" (adult 30 years or younger) as a key decision maker executive will have a profound impact on TSPs' engagement models with their retail clients.
- The physical store has returned to the key linchpin in a true cross-channel experience, as evidenced by the dominant position of in-store pickup for Web-ordered goods and multichannel forecasting and planning..
- Position supply chain solutions as part of a multichannel customer-centric initiative as opposed to a classic cost-containment approach.
- Enable retailers' innovation strategies around multichannel fulfillment initiatives. Many retailers are delivering research and development initiatives. For ongoing success, it is critical to be a key partner in these labs.
- Consider developing software-as-a-service solutions around transportation and warehouse management, global trade, and supply chain visibility initiatives. This will ensure your access to a retailer's cloud strategy planning processes, as well as protect against new entrants gaining traction in emerging areas of opportunity.
- Develop a merger-and-acquisition strategy to gain market share and needed functionality. With 40% of the market controlled by two competitors' aggressive actions, bold organic growth strategies are needed to develop relevant market offerings.
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If the importance of innovation in the last mile of retail fulfillment was ever questioned, then the answer was revealed on the program, "60 Minutes," on 1 December 2013. It was here that Amazon's previously secret R&D project, known as the "Octocopter," was displayed for the world to see.
Amazon's big idea with Octocopter is to fly a GPS-enabled drone to the customs location, ensuring delivery of an online purchase within 30 minutes. During the interview, Jeff Bezos, Amazon's CEO, said such an offering was years away from reality given existing significant hurdles. Throughout the retail industry there is significant skepticism as to whether this vision will ever become reality. But in a very real sense it doesn't matter, because at a minimum, it was a media triumph.
On the eve of Cyber Monday, many people were pondering the impact of such a strategy. But whether it ever becomes a reality is much less important than the dramatic illustration of how disruptive is Amazon's approach to supply chain fulfillment. Even without drones, Amazon and its 35 distribution centers have and will continue to move the bar foreword until it is standing on the edge of same-day fulfillment. EBay, with its "eBay Now" project, is taking a different approach for same-day fulfillment. Working with Macy's, Bloomingdale's Target, AutoZone, Best Buy, Home Depot and others, eBay allows a consumer to shop at a local retailer via an eBay Now app, and then have an item delivered in approximately an hour. It's available now in New York City, Chicago, Dallas and the San Francisco peninsula, with additional cities to be rolled out in the future.
EBay and Amazon offer a modern example of rapid supply chain innovation. However, innovation around the supply chain is not new to retailers. Sam Walton of Wal-Mart Stores fame developed much of his retail strategy around distribution excellence. He believed if he could move a box of merchandise more cost-effectively, that would give him a competitive advantage.
In 2012, Wal-Mart's total revenue was $467,896,000. That is approximately five times more than its largest North American competitor, Kroger, with worldwide revenue of $92,165,000. What is crystal clear is that every retailer is on notice that 2014 will be the year of intentional innovation toward enhancing the customer experience, as well as the supply chain and last-mile fulfillment. In a 21st century true cross-channel retail experience, all those customer touchpoints need to work seamlessly. Most, if not all, retailers have a tremendous amount of work to do in a very short amount of time. Basic retail survival requires it.
Agility is an emerging and rapidly growing trend in 2014 for every retailer, with information flowing seamlessly within the retailer and shared across its supply chain. The evolution of a true 21st century multichannel retail experience will require retailers to share demand within their environment with partners, while providing inventory transparency to customers to have shipment visibility and the ability to order goods and services regardless of their location.
The key questions retailers need to ask themselves are: How advanced are we in this supply chain transformation, and how can we benchmark ourselves against the capabilities of our competition?
Table 1 provides dramatic insight into the rapid rate of transformation taking place inside retail supply chains. The following findings marry well with those from our May 2013 report "Survey Analysis: Business Priorities in North America Shift Toward Investment in Customer Experience, Providing Opportunity in the Supply Chain Market." Specifically, where business initiatives meet or exceed customer expectations, reductions of supply chain costs and productivity improvements are key business drivers. The following clearly show that retailers are focused on enhancing the customer experience and business growth:
- Nearly 42% of retailers will develop in-store pickup of goods ordered on the Web. This is probably the key component of any true cross-channel retail experience as it finally brings physical retailers' biggest and most-expensive assets (their stores) together with growth opportunities (its online channel).
- Forty-one percent of retailers are planning to develop multichannel forecasting and planning capability. It is a strong indicator that retailers are finally beginning to think about all their various channels (physical stores, online, catalog and call center) as one brand, as opposed to different and competing profit centers.
- Thirty-four percent plan to have multichannel fulfillment capability online by year-end 2014. This fits perfectly in line with retailer's efforts to sync planning and forecasting.
Source: Gartner (January 2014)
A picture is emerging of an industry that is rapidly transforming one of its most basic and mature processes (supply chain) to adapt to its new 21st century mode (21st century multichannel retail). The rapid evolution will create significant opportunities for technology and service providers (TSPs) that can develop deep partnerships with their retail clients. At this inflection point, it is critical for TSPs to be viewed as innovation partners that the retail clients can grow with, as opposed to providers of legacy applications that are targeted for replacement.
The underlying definition for supply chain management (SCM) is a business strategy to improve shareholder and customer value by optimizing the flow of products, services and related information from source to customer. SCM encompasses the processes of creating and fulfilling the market's demand for goods and services. It is a set of business processes that encompasses a trading partner community engaged in a common goal of satisfying the end customer. Thus, a supply chain process can stretch from a supplier's supplier to a customer's customer.
For the purposes of this report, SCM software is segmented into planning and execution. We have excluded procurement market segment.
- Supply Chain Planning — Typically deals with activities to develop demand forecasts, establish relations with suppliers, plan and schedule manufacturing, and develop metrics to ensure efficient and cost-effective operations.
- Supply Chain Execution — Manages the processes and activities to ensure completion of the plans, including creating purchase orders, taking customer orders, updating inventory, managing movement of products in the warehouse and delivering goods to the customer.
Market bifurcation is the word of the day for the retail sector supply chain application market. During 2012, the top two providers represented 40% of the addressable market worldwide.
A growing number of acquisitions have occurred over the last several years as software providers sought to bolster their existing capabilities within the retail market.
Figure 1 and Table 2 represent Gartner's estimates for global market share within retail for supply chain revenue, inclusive of supply chain planning and supply chain execution. Although many acquisitions occurred during 2013, the major one was JDA Software acquiring RedPrairie. For the purpose of Figure 1 and Table 2, 2012 revenue for JDA and RedPrairie are kept separate.
Source: Gartner (January 2014)
Source: Gartner (January 2014)
As retailers fully embrace the concept of one brand with many touchpoints, or true multichannel retailing, intentional innovation must be at the forefront of their thinking. However, the never-ending pressure to squeeze IT investment hangs around executives charged with leading this transformation. How will executives respond to these opposing forces? Will the desire to be more agile in bringing retail processes overcome retailers' reluctant to give over significant chunks of their core functionality to cloud architecture? Increasingly the answer looks to be yes, forcing incumbent vendors to respond and providing nimble new entrants with opportunity.
Retailers' desires to look to the cloud for delivering functionality has increased 20% in little over two years, as measured by the Gartner/RIS News technology study. Thirteen percent of respondents anticipated using the cloud in such a fashion. In 2013, that number ramped up to 30%. The cloud promises to deliver new functionality far quicker to the market, at a lower cost to integrate. Both of these factors are attractive to retailers that are in the process of transformation, and will serve cloud solutions well in the coming years.
Incumbent supply chain software solution providers need to navigate these waters very carefully over the next five years. On one hand, they need to bring innovation to their clients. This is a highly valued component of a long-term partnership. Having cloud-based solutions provides that valuable insight to their partners and ensures they will stay in the strategic conversations. However, porting entire solution suites to the cloud in anticipation of retail interest risks upsetting a long-established software/IT services provider ecosystem. Once IT services providers are convinced that large portions of their system integration revenue (as much as 50% of a practice) could evaporate in a cloud world, they will need to develop strategies to replace that revenue. It is highly likely that some providers will choose to develop their own software solutions that compete with the incumbent. This could create an unstable environment, with the retailer forced to choose which partner to move forward with.
Another interesting variable in the competitive landscape is the emergence of the millennial (adult 30 years and younger) as a key technology decision maker. These executives have vast experience with cloud functionality in their personal life (iCloud, iTunes and Google, for example). Millennial will bring that expectation for seamless interaction with information into their work world. They will be much more likely to look at a cloud solution first, as opposed to a baby boomer or even a Gen X executive, making a cloud strategy for a TSP even more important.
Invitations to participate in the competitive profiles section were sent to Oracle, SAP JDA Software and Manhattan Associates. JDA and Manhattan opted not to participate in this section.
Oracle, headquartered in Redwood Shores, CA, operates in 145 countries and 22 industries, with more than 120,000 employees worldwide.
Oracle's supply chain assets are in the Retail Global Business Unit, although some are also in Oracle's value chain footprint. Gartner estimates that Oracle's supply chain revenue by geography, to be 50% in North America, 35% in EMEA, 10% in Latin America and 5% in Asia/Pacific. Gartner believes that Oracle expects its top three supply chain solutions in 2014 to be forecasting, inventory optimization and replenishment, and supply chain execution.
Oracle Retail's overall go-to-market theme of "Commerce Anywhere" includes a major pillar regarding inventory alignment and transparency. We believe Oracle expects to increase its marketing effectiveness by articulating the Oracle Retail value proposition tailored to specific markets, describing its understanding of that market's needs and positioning relevant offers. It defines "offers" as the combination and integration of multiple enabling solutions that solve a customer's business problem. Offers can be global or tailored to specific regions, formats or tiers. Oracle's market segmentation defines target prospects in terms of retail segment (chain drug, convenience, department stores, fashion and apparel, grocery, hardline specialties, and mass merchants), company size (Super Tier 1, Tier 1, Tier 2, and midmarket) and geography (region, country and subregion). Enabling solutions include the software, services and deployment approach that a customer implements.
Its go-to-market strategy is to communicate offers through a variety of programs and campaigns. Programs are the external messaging and packaging of the offers, and are intended to create interest and position the value proposition and the competitive differentiation. Campaigns are the tactical, time-bound activities and events that drive the programs to the prospective customer. Campaigns are developed for sales, sales consulting, and Oracle Direct and partners.
Oracle invests in thought leadership efforts, including:
- A supply chain customer advisory board
- Supply chain-focused sessions at Oracle events:
- Oracle Industry Connect (formerly Oracle Retail CrossTalk)
- Oracle OpenWorld
- Oracle Value Chain Summit
Oracle supply chain solutions are also showcased at industry and analyst events such as National Retail Federation's Big Show and the Gartner Supply Chain Executive Conference.
Supply chain content is also featured on Oracle's Insight-Driven Retailing blog and on the Oracle Retail Asset and Centralized Knowledge Portal (The RACK), a community and informational portal. The RACK hosts documents, presentations, videos and webcasts created primarily by customers that share success stories, best practices and strategic insight, and provides the ability for members to connect with one another.
SAP, headquartered in Walldorf, Germany, operates in 180 countries and 25 industries, with approximately 66,060 employees worldwide. SAP expects its top three solutions in supply chain for 2014 to be SAP Forecasting and Replenishment, SAP Customer Activity Repository, and SAP Supply Chain Execution platform.
For each SAP solution, a comprehensive solution launch program is planned that consists of various enablement strategies (internal, external and partner enablement), sales and presale materials, marketing assets, consulting know-how, and demos (offline and online). SAP believes one of the most important elements of the launch is what it calls a Rapid Deployment Solution, which is packaged software along with project accelerators and a fixed amount of service days. Rapid Deployment Solutions are meant to improve effectiveness and reduce time to implement the software implementations. Today, SAP leverages Rapid Deployment Solution packages that include the following areas:
- SAP Forecasting and Replenishment
- SAP Extended Warehouse Management for Retail
- SAP Order Tracking and Exception Management
- SAP Supply Chain Performance Management
SAP's go-to-market strategy includes a number of global and local marketing activities, such as tradeshows, roadshows, webinars and forums.
- Yearly Executive Council for Retailers (corporate-level people) to discuss future trends
- Participation at the National Retail Federation's Big Show, with a focus on the new supply chain offerings
- Retail forums in all SAP regions
- Regional events, such the Trade Forum in Germany
- Regular analyst meetings and briefing sessions
- Regular press interviews in all SAP regions
- Specific marketing campaign for new customer acquisition to increase the supply chain revenue opportunity and customer base
The analysis in this report was derived from a number of sources:
- A review of published Gartner research on the relevant markets and their key players
- Secondary research on publicly available material on the vendors (such as corporate websites, annual reports and other SEC filings)
- Corporate collateral provided to Gartner by vendors
- Gartner vendor briefings
Supply chain planning is the forward-looking process of coordinating assets to optimize the delivery of goods, services and information from supplier to customer, balancing supply and demand. A supply chain planning suite sits on top of a transactional system to provide planning, what-if scenario analysis capabilities and real-time demand commitments, considering constraints.
Supply chain execution is focused on execution-oriented applications, including warehouse management systems, transportation management systems, global trade management systems and other execution applications, such as real-time decision support systems (for example, dynamic routing and dynamic sourcing systems) and supply chain visibility systems within the enterprise, as well as throughout the extended supply chain. Sometimes, order management systems are also included in supply chain execution.