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Supply-Chain Integration Spending Jumps

From Yahoo News - Thu Jul 17, 1:19 PM ET
Kimberly Hill, www.CRMDaily.com

Spending on supply-chain integration will increase by 12 percent this year, according to a study recently completed by Yankee Group. Report author Jon Derome told CRMDaily.com that "supply chain masters" that buy enormous amounts of product from suppliers -- like Wal-Mart (NYSE: WMT - news) and Home Depot (NYSE: HD - news) -- are exerting great influence over the increased spending. Their suppliers must invest in supply-chain technology to meet their mandates, and then competitors often follow suit.

"When one company moves forward and enforces a new policy with its suppliers, "it saves money and improves response time," said Derome. "Then, a whole flock of companies adopt the same or similar technology to match that competitive capability."

Customer Service Enters the Equation

The trend toward making supply-chain applications and information available to customers and business partners continues to accelerate, says Derome. Many of the firms Yankee surveyed reported that they were adopting new supply-chain technologies primarily to better service their B2B accounts.

At the same time, supply-chain activities are expanding into other areas of enterprises, Aberdeen Group's Tim Minahan told CRMDaily. For example, many enterprises are beginning to use supply-chain applications to acquire professional services (news - web sites) and other "soft" items, as opposed to simply using the technology to get the best possible deals on parts and wholesale goods.

Companies with a complex distribution chain are, in fact, having a harder time distinguishing between CRM and supply-chain functionality, especially as they relate to partner relationship management, Deloitte Consulting partner Mark Peacock told CRMDaily. At the end of the day, CRM is about customer care and supply chains are about logistics, he explained, but the intersection in Venn Diagrams mapping is increasingly apparent.

XML Grows Exponentially

The technology on which supply-chain systems are based remains split between newer applications built around XML (extensible markup language) and other Internet standards and older-generation EDI (electronic data interchange) software, according to Derome. Use of XML is growing at a rapid pace -- anywhere from 150 to 300 percent per year.

However, XML is starting from a very low base of use, said Derome. Of all the information flowing between companies -- excluding e-mail -- only 5 percent is transmitted in XML.

EDI Stays the Course

Many companies continue to use older EDI standards to communicate with suppliers and partners. In fact, the 95 percent of information that is not sent in XML format is transmitted either in EDI or proprietary formats.

Thus, although use of EDI-based applications is growing by only about 18 percent per year, its enormous existing user base continues to make it a formidable force in the supply-chain arena.

Hybrid Models Proliferate

In addition to the choice between XML and EDI, companies must decide whether they will send transactions directly to suppliers -- which requires that parties on both sides have direct-connect software in place -- or route them through a value-added network. What most enterprises are doing, explained Derome, is adopting a variety of standards and putting together hybrid systems to address their supply-chain integration issues.

"It doesn't make sense for companies to migrate their entire supply chain to the direct-connect model," he noted. Instead, most enterprises choose to use a service provider to communicate with medium- and low-volume transaction partners. But for those key suppliers and customers with whom they do an enormous business, many companies choose direct-connect software.


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