A year ago, Ames completed implementing demand- and distribution-planning modules from Manugistics. The bottom-line benefits are substantial, says Scott. For starters, when customers place orders, they can now be 96% sure that they will get what they want, when they want it. What this boils down to, says Scott, is higher "fill rates" and lower inventory. "We've already seen a tremendous amount of increased business," he says.

On the forecasting side, Scott says, Ames can now take two or more years' worth of historical data and figure out on a weekly basis how much products cost to make. On the distribution side, the system goes through the inventory and tells managers whether they're in danger of a stock outage. "Before, we were reacting to problems after they occurred," Scott says. "Now, we're producing orders based on anticipation."

Also, Ames and retail giant Ace Hardware Corp. have created a new plan for managing and warehousing inventory. Ace sells Ames' snow shovels, but has had a difficult time getting the right inventory in the right warehouses at the right time. So Ames proposed a plan to produce shovels exclusively for Ace and deliver them exactly when and where the retailer needs them. Ames uses its Manugistics software to keep daily tabs on Ace's warehouse. Says Scott, "This gives you a sense that you are working for Ace just as much as you are working for Ames."

Surge In Interest
What accounts for the s udden interest in supply-chain software? The most obvious reason is that these high-powered packages have been available only since the early 1990s. Another key factor, says John Bermudez, an AMR analyst, is that many companies have spent the last 10 years perfecting their processes inside the plant. "There is not a lot of room left for improvement there," he says. "The way to drive down cost is to go outside the factory and look at your supply chain."

But perhaps the most critical reason for the rise of supply-chain systems has been the shortcomings of traditional enterprise resource planning (ERP) suites sold by vendors such as SAP, Baan, and Oracle. "Many companies actually believed they were getting the supply-chain piece from their ERP systems," says Gartner Group's Mesher. "Companies are finding out that these systems do not cover the supply chain. That leaves companies like i2 and Manugistics in a great position."

ERP systems, explains David Dobrin, a director at Benchmarking Partners, are not constraint-based- they don't take into consideration whether all the resources needed to execute the plan are in place. Supply-chain applications "propose a schedule, highlight bottlenecks, and let users adjust due dates or resources until they find a satisfactory schedule," Dobrin says. The plan can then be zapped into the transactional ERP system.

Mercury Marine, a division of Brunswick Corp., is addressing supply-chain issues before shopping for an ERP system. The Fond du Lac, Wis., maker of outboard motors for boats hopes to complete its implementation of software from Logility Inc. in Atlanta sometime this year. Only then will it start looking for an ERP system. "We expect there will be millions of dollars that come out of our supply chain," says Steve Breunling, a director at Mercury. "It made sense to go with a supply-chain system first because we wanted to clean up a lot of our processes. The money we save can go toward our ERP implementation."

But the ERP suppliers have no intention of being left out. SAP, Baan, Oracle, and others are devising battle plans, both partnering with supply-chain providers and developing products. Oracle has teamed with Manugistics to develop a complete software offering for the consumer packaged goods industry. But Oracle is also creating its own set of supply-chain applications for all other customers. Baan recently released a supply-chain module called Baan Synchronization. SAP is close behind.

Says Mike Capellas, director of supply-chain management at SAP America, "We will make key decisions and difficult trade-offs in determining where we develop ourselves and where we partner." (SAP is also believed by market watchers to be considering an acquisition of Manugistics.) PeopleSoft Inc. acquired supply-chain vendor Red Pepper Software last year for $225 million, about 22 times Red Pepper's earnings, and recently unveiled its first manufacturing application.

Meanwhile, there are serious battles developing between the supply-chain vendors. They are all racin g to create broader, more robust suites. "Our goal from the beginning was to get away from a single component and move across the entire chain," says David Roth, VP of industry marketing at Manugistics. "Right now, there are only vendors who do some of this or some of that. We believe nirvana is the horizontal integration of supply-chain solutions."

Manugistics seems to have the most complete suite at the moment, but i2 is close behind. The company recently made news when it announced plans to merge with both Think Systems Corp., which makes demand planning software, and Optimax Systems Corp., which has developed a suite of scheduling and sequencing tools. The transactions were valued at $146.6 million and $52.2 million, respectively. i2 has also publicly stated that it plans to spend twice as much as its nearest competitor to further beef up its product. But any future acquisition spree could bode ill for smaller point players such as SynQuest Inc. and Metasys Inc., which provide only a piece of the puzz le.

Analyst Bermudez believes all these mergers and partnerships underscore one important fact: Customers must remember that vendors still have lots of holes in their offerings. "These software products are not adequate," he says.

Only The First Step
Even the biggest fans of supply-chain software admit that buying the technology is only the first step. "These systems are part of the solution, but they are not all of it," says Gartner Group's Mesher.

Fruit of the Loom Inc. agrees. Though the maker of underwear and sports apparel is implementing Manugistics' package, it has devised its own innovative method for reaching out to its customers-and to its customers' customers.

This second system, launched last year, is called Activewear Online. It lets Fruit of the Loom create and support personalized Web sites for 30 of its largest distributors. Those distributors can install their catalogs on the sites and use the Web to take orders from customers.

"This is a way to receive reve nue 24 hours a day, seven days a week," says Bob Heise, CIO of Fruit of the Loom, in Bowling Green, Ky. "If a local screen printer is out to dinner Saturday night and hears of a rock concert coming to town, he can immediately log on to the distributor's site and order 100 T-shirts."

Fruit of the Loom has committed 40 full-time employees and a large budget to the effort. "Short-sighted companies may look at this from a cost perspective only," says CIO Heise. "But we look at this as a way to generate more revenue and become better business partners with our customers."

The power of the Internet is not lost on the major supply-chain vendors. Late last year, Logility unveiled its Resource Chain Voyager application, a $50,000 add-on product to its regular suite.

Heineken USA in White Plains, N.Y., is the first company to roll out Resource Chain Voyager on a large scale. Currently, some 100 independent beverage distributors use a client version of the software to view forecast information and adjust be er supplies based on customer demand. In the past, Heineken district managers made numerous personal visits to distributors to determine how much beer they should order. "Our distributors were not thrilled with our order processing because it was taking 10 weeks to get their beer," says Andy Thomas, director of operations planning at Heineken.

Now, Heineken uses Logility's demand-planning module to develop individual forecasts for each distributor. The distributors can log on to the Heineken site, called HOPS, and adjust those forecasts based on inventory levels, promotional activities, and historical trends. "We've cut average lead times down to four weeks," says Thomas.

Heineken, which went live with the system in January, won't disclose its total investment, but expects to start seeing a payback in July. "We wanted to do something that nobody had achieved before," says Carol Schillat, Heineken's IS manager. Now she wonders, "How in the past did we ever manage to get beer to our distributors?"

The expense of implementing a supply-chain management system is still a big concern for many companies. Though vendors such as i2 and Manugistics claim to save users millions of dollars, their packages aren't cheap. A typical Manugistics implementation, for instance, runs $2 million to $5 million. The software is normally implemented with the vendor's direct involvement. But as the market grows, Big Six consulting firms are ramping up their service offerings.

Still, there is no guarantee an implementation will be successful. "These are complex products that require a lot of mediation between the manufacturing, distribution, and transportation divisions of an organization," says Gartner Group's Mesher. "They also require significant skills in the end-user community. You can't just write a check for $8 million and expect to do an all-out global implementation. We have seen projects fail because people couldn't manage the product."

In Grupo Gamesa's implementation of i2's suite, "the biggest risk is the culture shift," says logistics director Chavez. Now, for instance, employees at each of the $600 million company's six manufacturing facilities use experience and gut instinct to determine how much they should produce each day. Once i2 is implemented, however, all planning decisions will made from a central location. "People will have to learn that those decisions will be law and cannot be overridden," says Chavez.

Another major obstacle is training. The i2 suite, for example, "is not a simple system that anybody can sit down and learn in 30 minutes," says Gleason at Thompson Electronics. "It is a sophisticated system that requires a considerable training effort."

Still, Gleason couldn't be happier with the results. "It's not the cost of implementing these systems that's excessive," he says, "but the cost of not implementing them."

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