GLOBAL RECESSION TO IMPACT SUPPLY CHAIN PLANNING

The supply chain planning (SCP) market is expected to shrink in 2009, and grow only modestly in 2010, according to ARC Advisory Group. It has predicted a five year CAGR of only 3.4 percent through 2013. Between 2005 and 2008, the SCP market’s CAGR was 11.3percent.

ARC is projecting that the SCP market will shrink by about four percent in the coming year, which in some ways can be considered a success. The market shrank more substantially, approximately 10 percent during the last recession.

Most SCP solutions have a payback period of about two years. The two most commonly bought forms of SCP – manufacturing planning and demand management, have a lengthened payback period during a recession.

Demand planning tools have a difficult time making accurate forecasts when large exogenous events, like a deep recession, occur. Manufacturing planning’s payback period tends to lengthen as well. One key form of payback from manufacturing planning is higher throughput, which expands production capacity.

However, during a recession, production capacity is often not constrained. Manufacturing planning can be installed to cope with frequent schedule changes, to facilitate order pegging, and to reduce raw material and work-inprocess inventories. Nevertheless, a key impetus for implementing manufacturing planning is diminished, says ARC.

ARC sees maintenance revenues as an important firebreak to dramatic shrinkage in the market. Maintenance revenues are more predictable and stable than software and implementation service revenues.