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


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With increased M&A among leading supply chain best-of-breed solution providers, consumer goods companies need a strategy for rationalizing their application portfolios and making their supply chain platform choices.

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

  1. 1. • Cognizant 20-20 InsightsConsumer Goods Supply Chain Landscape:Is Best-of-Breed a Dying Breed? Executive Summary such an extent that in many cases “services” constitute the majority revenue stream. This is Consumer goods manufacturers have traditional- a disturbing long-term trend, since it shrinks ly sought large-footprint solutions for their trans- the system integrator partner ecosystem for actional foundation (e.g., order processing, pro- these smaller firms and could significantly curement, finance functions, etc.). However, the increase the lock-in effect that these product supply chain space (covering planning functions firms have on consumer goods companies. such as demand planning, production/distribu- tion planning and execution functions such as • Large-footprint vendors (read: SAP, Oracle) transportation and warehousing) has always have, meanwhile, built up their arsenal of been the forte of “best-of-breed” solutions. These supply chain capabilities and now seem more have historically been stronger in their decision- attractive because of their purported “ease support capabilities and offered richer function- of integration,” stable architectures and large ality that accommodates more complex business skill set availabilities. scenarios. The impact of a typical merger or acquisition in However, the last few years have brought about the best-of-breed space can be quite prolonged, numerous changes to this business scenario: since it is a complex function of market liquidity, size of the merging entities, their organization • An increasingly accelerated spate of mergers structures, cultures, etc. It may take several and acquisitions among leading supply chain months and even a few years for the resulting best-of-breed solution providers (see Figure merged entity to align and communicate a unified 1) has called into question the long-term vision for its roadmap. Among the key implica- continuity and roadmap of some of these tions: solutions, as well as the viability of the software companies themselves. • The consolidation period is beset with doubts over the strategies that the solution vendor • A tough economic environment has constrained will adopt in future functionality/architecture, the growth of new license sales. As a result, as well as continuity of support. smaller “best-of-breed” players have moved into the services space to offset the decline of • In the case of products with overlapping func- license revenues; in fact, this has happened to tionality coming together (e.g., JDA and i2), it cognizant 20-20 insights | september 2011
  2. 2. Key Supply Chain Application Software Vendors:* Acquisitions 2005 to 2011 ™ ™ ™ ™ Nov‐10 Jan‐11 Jul‐09 ™ ™ Sep‐05 ™ ™ ™ ™ ™ ™ Jul‐06 Jan‐05 ™ May‐10 ™ ™ 2005 2005 2008 2008 2011 2011 May‐10 Feb‐11 Jul‐08 ™ ™ ™ ™ ™ ™ Jan‐10 i2 Jun‐06 ™ Nov‐10 ™ ™ ™ ™ ™* All logos are registered trademarks owned by the acquiring companies.Figure 1 remains unclear as to which solution/architec- Challenges for Consumer Goods ture will dominate the future footprint. This Companies could have significant implications in terms of Wednesday, August 31, 2011 The aforementioned changes pose a specific set upgrades and support. of challenges for consumer goods companies• In the case of a merger/acquisition that has that are either already leveraging a best-of-breed been funded through debt or private capital, solution or considering one. We list a few key this change in ownership could bring about challenges from our experience: business model changes. • Uncertainty about the vendor’s future• Philosophy of implementation and support precludes customers from making upgrade could undergo significant changes in a post- decisions. But delaying upgrades comes with merger scenario. For example, within the the risk of not being able to leverage tech- JDA-i2 merger, while JDA was known to execute nological advancements (open architectures, shorter projects with lower customization, i2’s faster hardware, ubiquitous access, etc.). core strength typically was longer duration and technically complex projects. This generated • With the changing economic and competi- tive environment, it’s only natural that obvious apprehension about the combined businesses need to become more agile and entity’s ability to handle major turnkey projects seek system changes to do so. Moving to and support existing complex i2 implementa- quicker cycle times, looking at multi-echelon tions involving customized solutions. inventory, rationalizing product portfolios and• Most mergers do result in a flight of talent. adapting flexible manufacturing strategies Loss of key personnel in product firms is a risk, are examples of such changes. Being stuck especially when it comes to teams that possess with a “frozen” system creates inflexibility for unique knowledge of specific customer envi- adapting to such demands. ronments. • Ongoing support of some of the best-of-This paper explores the impact of M&A on con- breed solutions is becoming a challenge,sumer goods companies. It discusses strategies with ambiguity around continuation offor managing M&A transformations and offers support for prior product releases. Inrecommendations for ways to assess the impacts addition, the skill sets available in the marketin order to choose the most advantageous path. for such niche solutions have also dried up, with resources having moved on to more in-demand solutions. cognizant 20-20 insights 2
  3. 3. • In most cases, moving away from best-of- be done by my existing ERP/large-footprint breed solutions is a path to tread cautiously. solution, then it doesn’t need to be done in the It poses significant change management best-of-breed solution.” challenges in dealing with an organization Taking this path reduces The large-footprint that has grown very comfortable using these the extent to which lever- vendors often offer systems and appreciates the flexibility they aging best-of-breed solu- offer. Especially if the move is to a larger-foot- tions is necessary and more stability, a print solution that allows for little customiza- paves the way for an easy better roadmap and tion, the resistance from business can be a future replacement in a better integration significant challenge. “modular” fashion, either with a large-footprint with the transactional• In the case of customers evaluating best-of- solution or with custom environment. breed vs. large-footprint solutions, the afore- systems. Of course, should mentioned risks of best-of-breed providers one decide to retain the ”core functionality” need to be considered. But at the same time, of the best-of-breed solution, that is also an in many functional areas, the large-footprint alternative. vendors haven’t “caught up” yet with niche providers. 4. Replace with a “custom-built” solution: There may be a limited number of situationsStrategies for Transformation in which, especially combined with StrategyThe following are a few alternatives that consumer 3 above, it makes sensegoods companies should pursue to address the to rebuild part of the best- Taking this pathchallenges mentioned above. of-breed functionality in a custom solution and retire reduces the extent to1. Migration to a large-footprint solution: the best-of-breed solution. which leveraging best- There are specific areas in which large-foot- Maintaining a custom-built of-breed solutions is print vendors have closed the gap with best-of- solution is not necessarily breed vendors (e.g., Oracle has accomplished easier than maintaining a necessary and paves this in the demand management space with its highly customized best- the way for an easy acquisition of Demantra and in the transpor- of-breed installation, but future replacement in tation space by acquiring G-Log). The large- the financials may work footprint vendors often offer more stability, better in a model that a “modular” fashion, a better roadmap and better integration with avoids annual maintenance either with a large- the transactional environment. If it doesn’t contract costs. This alter- footprint solution or come with a significant compromise of func- native could be evaluated tionality, it may make sense to migrate to the in cases where there are with custom systems. large-footprint solutions. unique elements to a2. Support scaffolding: Regardless of the future customer’s business model and, in turn, the course taken, it may make sense to sign up best-of-breed installation. Another instance with a system integrator to support a best-of- is where leveraging industry best practices breed solution for a few years. This strategy embedded in a commercial package solution is is more of an insurance policy for consumer not a major consideration. goods companies, as it covers them from the 5. Status quo: As unintuitive as it may seem, risk of internal talent flight and market scarcity weighing benefits, costs and risks may in of skill sets. These risks are transferred to the some instances lead to the conclusion that system integrator, which is often in a position no change is necessary to the current setup to handle them better because of scale and or support model. By nature, this strategy is knowledge/skill management practices. This a time-bound one, so it may be necessary to model could also potentially result in cost revalidate the setup or support model every savings and free up internal resources to focus six months to a year. on the future solution.3. De-scoping best-of-breed: In an effort to An Approach To Determine reduce reliance on best-of-breed vendors with the Best Path uncertain futures, it is possible to reduce the In our experience, many consumer goods compa- scope for which best-of-breed solutions get nies face several of these previously referenced leveraged. The rationale here is, “If it can challenges but are unable to determine the best cognizant 20-20 insights 3
  4. 4. path forward due to lack of alignment between Stage 1: Application Profilingthe business and IT organizations. This is where This phase is focused on collecting informationit may make sense to have the evaluation done on various supply chain applications, across keyby a “neutral third party.” We have often played dimensions. These applications are then groupedthis role with consumer goods companies. What into clusters based on the following:follows is a high-level approach for addressingthis challenge. • Business functions and interdependenciesOur SCALERTM (Supply Chain Application Land- • Business processesscape Evaluation & Recommendation) framework • Key business areas, IT groups/ownersevaluates a supply chain application landscape • Geographical spreadacross key dimensions and provides a variety ofinsightful reports to trigger meaningful actions • Technology needs/issuesaimed at making the landscape leaner and more • The client’s objectivesagile. The framework (see Figure 2) is comple-mented by our team of domain and technol- Stage 2: Application Value Analysisogy experts, who collaborate with our clients to A value analysis is performed on the applica-conduct a comprehensive, top-down (centered tions to determine business, technical, financialaround business priorities and industry best and strategic alignment (see Figure 3, next page).practices) and bottom-up (application-centric) Individual applications are modularized as appro-analysis. We use a structured approach that priate for this analysis (keeping in mind that someinvolves extensive interviews, questionnaires and of the final recommendations may apply only to asecondary research. specific portion of an application).The five-phase methodology, which typically Stage 3: Application Dependenciesspans a period of six to eight weeks, kicks off Dependency analysis helps identify the relation-with a one-day workshop that gathers the overall ship of the application with both internal andcontext and priorities, stakeholder dynamics, external systems. The factors that are evaluatedobjectives and roadblocks. This is followed for the internal and external interfaces includeby inventorying and profiling the application the number of interfaces, types of interfaces,portfolio, as well as conducting a value and data dependency and directional dependency.dependency analysis. Based on these analyses, Dependency analysis provides a view of how easyopportunities are identified, and a future course or difficult it is to upgrade or replace individualof action is recommended. The major activities in applications in the landscape.each of the stages are shown in Figure 2.Cognizant’s Methodology for Application Portfolio Rationalization Application Value and Identification of Implementation Application Profiling Rationalization Roadmap Dependency Analysis Opportunities Collect data on Assess the current Analyze the Understand the Identify Define the applications in state of the IT value of the interdependencies opportunities for implementation the IT portfolio portfolio and applications across applications rationalization roadmap for the on functional assess the based on and utilities in of the application rationalization and technical business- alignment terms of data portfolio. exercise. dimensions. technology with business, exchange, alignment of the functional, interfaces and available services. technical and platforms. strategic objectives.Figure 2 cognizant 20-20 insights 4
  5. 5. Application Value Analysis • Overall alignment of the • Alignment with future application functionality with technologies. Functionality Technology the business. Fit • Application stability Fit • Capability of the application compared with the criticality to match the peak business of an application. demand. • Technology complexity compared with level of documentation. Application Value • Total cost of ownership (TCO) to business and technology view. • Business owners’ view compared with the technical owners’ view on • Financial investment compared the ability of an application to meet with business appreciation. Financial Strategic Fit Fit future business needs. • Financial investment on new • Criticality of an application functionalities compared with compared with the time-to-market investment on regulatory changes. for adding new functionalities.Figure 3Stage 4: Identify Rationalization Opportunities applications. The migration plan for the applica-The following steps are performed to identify the tion portfolio is based on the following guidingrationalization opportunities: principles:• Evaluate technology health score: This covers • Determining a target technology platform for application and technical owner perspectives those requiring migration. on dimensions such as stability, complexity, • Identifying candidates that can be decommis- flexibility, availability, support, documentation sioned. and security. • Creating a phased comprehensive implemen-• Evaluate business alignment score: This tation roadmap. covers the business owner perspective on dimensions such as functionality, best • Sequencing the roadmap based on application priorities and dependencies. practices, business objectives and usability.• Compare high-level advantages and disad- vantages, supporting information for each Decision Matrix application: This can be done by categorizing each application, as shown in Figure 4. Year 4 ...• Institute low-level due diligence: This is Year 3 required to inform decision-making related to Excellent Year 2 retire/maintain/reposition/reengineer for each Reposition application group. Asset / Enhance Maintain/ Functionality / Evolve Asset Technical Health IntegrateThe value analysis and dependency analysis, alongwith the decision matrix, will help your organiza-tion arrive at specific recommendations for each Retire / Re-Engineer - Consolidateapplication, as shown in Figure 4. Asset Rewrite / ReplaceStage 5: Develop an Implementation Roadmap Poor Low HighBased on the analyses mentioned previously, a Business Alignmentset of recommendations and a risk-minimizedmigration plan is prepared for rationalizing the Figure 4 cognizant 20-20 insights 5
  6. 6. Our Experience tion/maintenance services around best-of-breed packages (e.g., JDA/i2/Manugistics, Red Prairie,We have worked extensively in the consumer Manhattan), as well as large-footprint solutionsgoods supply chain space and have helped (e.g., SAP, Oracle). We bring a vendor-agnosticmany companies achieve substantial benefits perspective to help consumer goods companiesthrough the rationalization of their supply make their supply chain platform choices.chain IT portfolios (see FIgure 5). Our teams arefocused on delivering implementation/integra-Best-of-Breed Package Experience Summary Demand Planning Supply Planning Supply Chain Execution • Leading maker of branded clothing: • Global leader in household, health • Global leader in fragrance and Provided technical solution; designed and personal care: Conducted portfolio personal care products: Manage and developed new modules to support analysis to help improve supply planning client’s RedPrairie DLx and DM Plus new business requirements; significantly process and reduce overall planning cycle. WMS applications and interfaces. reduced cost of providing application services. • Global consumer goods major: • Leading worldwide brewer: Re-engineered the sales and operations Designed and implemented a product • Leading cosmetic products company: planning (S&OP) process, evaluated ordering inventory net tool, integrat- Completed a Manugistics upgrade in various solutions and provided a roadmap. ing SAP ERP; implemented reverse three business regions – EMEA, North logistics solution to improve claims America and Latin America; provided JDA • Leading consumer electronics process. application administration, development, retailer: Helped build a centralized production support and enhancement inventory management system; • Leading consumer packaging activities. implemented Manugistics for group, the world’s leading beverage forecasting, demand planning, can manufacturer and a global leader • Leading auto parts retailer: Provided inventory and PO planning. in rigid plastic packaging: First produc- space management for replenishment; tion deployment of the SAP TM solu- integrated data for forecast optimization; tion globally; implemented dynamically provided support and maintenance in push orders and order changes into its coordination with a leading best-of-breed transportation optimization and carrier vendor. selection planning processes.Figure 5 cognizant 20-20 insights 6
  7. 7. About the AuthorsNishanth Vallabhu is a Director in Cognizant’s Business Consulting Practice. He has over 12 years ofexperience in the supply chain space and has worked extensively with leading consumer goods companies.Nishanth has led multiple supply chain programs involving both “best-of-breed” and “large-footprint”solutions. He has worked in a line role in the supply chain space and has also served this area as aconsultant and systems integrator. While he has worked extensively across the supply chain planningand execution space, Nishanth’s current areas of interest include inventory optimization, deploymentplanning and supply chain execution (transportation, warehousing). Nishanth has made past contribu-tions to the Supply Chain Council and is a regular speaker at conferences on this subject.Prior to Cognizant, Nishanth worked with the consumer goods consulting group of i2 Technologies andwith the supply chain strategy group of Whirlpool Corp. As a consulting director, Nishanth advises Cog-nizant’s clients on business-IT alignment strategies and is focused on delivering business value to clientsthrough Cognizant’s service portfolio. Nishanth has an MBA from the Indian Institute of Managementand a bachelor’s degree in engineering from the Indian Institute of Technology. He can be reached Iyer is a Consulting Manager within Cognizant Business Consulting and is affiliated withthe Consumer Goods Business Unit. He leads the Supply Chain Center of Excellence, which is involvedin the development of service offerings for consumer goods customers in the supply chain space. Overhis nearly decade-long career in the supply chain consulting space, he has handled multiple engage-ments for multinational consumer goods companies, spanning business consulting, systems integrationand product management roles. Ravishankar holds an MBA from the Indian Institute of ManagementLucknow, India, and a bachelor’s degree in engineering from the National Institute of Technology, Trichy,India. He can be reached at CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 118,000 employees as of June 30, 2011, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing andfastest growing companies in the world. Visit us online at or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: Email: Email:© Copyright 2011, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.