Supply Chain Comment

By Nishanth Vallabhu

September 15, 2011

Consumer Goods Supply Chain Landscape: Is Best-of-Breed a Dying Breed?

Mergers and Acquisitions Among Leading Supply Chain Solution Providers have Called into Question the Long-Term Efficacy of Some Best-of-Breed Solutions

Consumer goods manufacturers have traditionally sought large footprint solutions for their transactional foundation (e.g., order processing, procurement, finance functions, etc.). However, the supply chain space (covering planning functions such as demand planning, production/distribution planning and execution functions such as transportation and warehousing) has always been the forte of “best-of-breed” solutions. These have historically been stronger in their decision-support capabilities and offered richer functionality that accommodates more complex business scenarios.

The last few years, however, have brought about an increasingly accelerated spate of mergers and acquisitions among leading supply chain best-of-breed solution providers that has called into question the long-term efficacy of some of these solutions, as well as the viability of these software companies themselves.

Nishanth Says: The last few years have brought about an increasingly accelerated spate of mergers and acquisitions among leading supply chain best-of-breed solution providers that has called into question the long-term efficacy of some of these solutions. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

Key Supply Chain Application Software Vendors:  Acquisitions 2005 to 2011

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Challenges for Consumer Goods Companies

The aforementioned changes pose a specific set of challenges for consumer goods companies that are already leveraging a best-of-breed solution or considering one. We list a few key challenges from our experience:

1. Uncertainty about the vendor’s future precludes customers from making upgrade decisions. This creates a stalemate situation preventing businesses from moving to systems that offer more flexibility (multi-echelon/quicker cycle times, flexible manufacturing, etc.) and ability to leverage technological advancements (open architectures, faster hardware, ubiquitous access, etc.).

2. Ongoing support of some of the best-of-breed solutions is becoming a challenge, with ambiguity around continuation of support for prior product releases. In addition, the skill sets available in the market for such niche solutions have also dried up, with resources having moved on to more in-demand solutions.

3. In most cases, moving away from best-of-breed solutions is a path to tread cautiously. It poses significant change management challenges in dealing with an organization that has grown very comfortable using these systems and appreciates the flexibility they offer.

4. In the case of customers evaluating best-of-breed vs. large-footprint solutions, the aforementioned risks of best-of-breed providers need to be considered. But at the same time, in many functional areas, the large-footprint vendors haven’t “caught up” yet with niche providers.

Strategies for Transformation

The following reflects alternative strategies that consumer goods companies should pursue to address the challenges mentioned above:

1. Migration to a large-footprint solution:  There are specific areas in which large-footprint vendors have closed the gap with best-of-breed vendors. If it doesn’t come with a significant compromise of functionality, it may make sense to migrate to the large-footprint solutions.

2. Support scaffolding:  Regardless of the future course taken, it may make sense to sign up with a system integrator to support a best-of-breed solution for a few years. This strategy is more of an insurance policy for consumer goods companies, as it covers them from the risk of internal talent flight and market scarcity of skill sets.

3. De-scoping best-of-breed:  In an effort to reduce reliance on best-of-breed vendors with uncertain futures, it is possible to reduce the scope for which best-of-breed solutions are leveraged.

4. Replace with a “custom-built” solution:  There may be a limited number of situations in which, especially combined with the “de-scoping” strategy mentioned above, that it makes sense to rebuild portions of best-of-breed functionality by creating a custom solution.