Will SAP's purchase of SmartOps' inventory optimization software deliver?

SAP's SmartOps purchase makes sense on a number of levels, expert Ann Grackin writes. But how well will SAP be able to integrate it into its portfolio?

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Last week SAP announced its plans to acquire SmartOps, a leading provider of supply chain and inventory optimization software. The move strengthens SAP's ability to compete in the supply chain market, just as Logility's acquisition of Optiant and IBM's purchase of Ilog helped those companies.

SmartOps has been a pioneer in optimization. A small segment of the overall supply chain market, optimization packages are usually bought to augment ERP or supply chain suites with specialized tools for addressing inventory and other supply chain challenges. Though revenues of inventory optimization software vendors have been modest, the software's value to customers can be profound.

Benefits to SAP customers

Inventory management continues to persist as a huge problem for companies in all industries. Yet the market size of the optimization solutions has always been anemic due to users' reluctance to integrate yet another solution to gain the benefits associated with inventory optimization software.

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Additionally, inventory optimization got its start in the days when the planning cycles for longer-term optimization of the supply chain -- so-called strategic planning -- were done on a different business cycle than the weekly MRP or the daily demand sensing and execution capabilities. So optimization was perceived by some as an isolated activity. SmartOps wisely expanded beyond strategic planning to include demand sensing, but this requires integration with a frequent demand stream coming from the customer's orders and replenishment signals. With SmartOps, customers can answer near-term questions about what the most effective inventory position is today, or this week, for meeting customer demand. So fusing SAP's ERP data with SmartOps "demand response" capabilities can provide an integrated solution that can take the customer forward, with more intelligence to meet demand.

Putting SmartOps onto HANA, SAP's in-memory database platform from SAP makes sense, since this can provide a real-time foundation, instead of an inventory optimization exercise conducted away from the day-to-day work. In-memory supply chain management applications have been around for decades, providing big number-crunching capabilities. But they have lived in a parallel world to enterprise database-centric ERP. SAP has been learning its lessons in the last few years about the benefits of in-memory processing, not just for analytic modeling, but day-to-day execution. The potential to blend planning and execution on one platform can be a huge benefit; that's a powerful opportunity for the customer. It remains to be seen if that's what they'll get.

Post-acquisition challenges and direction

No question, this is a good move for SAP and SmartOps. SAP's recent acquisitions of Ariba, SAF and now SmartOps certainly enhance its supply chain prowess. They significantly help SAP compete in the specialized supply chain market and against other ERP players that have pushed further into the supply chain. But issues remain:

  • SAP's supply chain capabilities are sold as separate modules. In fact, SAP has somewhat eschewed being known primarily as an ERP vendor and is selling more module-based supply chain products, such as warehouse management systems. Leaving the SmartOps products in separate modules might diminish SAP's stated goal.
  • SmartOps capabilities have typically been limited to large companies. With SAP's aggressive push into the SMB market, can it make these capabilities -- a lite version -- available to smaller businesses?
  • What will the long-term support look like for SmartOps customers? Today the plan is to provide "the same" support to both SmartOps and SAP customers with existing installations. But SAP has recently announced increased support pricing. In addition, supply chain providers often provide advice on business processes along with troubleshooting the technology. Will this advice-based support continue?

Customers who are looking for more integration in their supply chain should be asking how these components will work together. And what will SAP's next step be in its supply chain integration and acquisition journey? Supply chain optimization involves more than just inventory and can include designing distribution networks and managing transportation routes. SAP has several transportation partners, such as GT Nexus (recently purchased by TradeCard) and Descartes, which can provide those optimization features. Oracle, Infor and IBM all have a presence in this area.

So what will SAP's next move be?

About the author
Ann Grackin is CEO of ChainLink Research, based in Newton, Mass., which specializes in supply chain industry consulting.

This was first published in March 2013

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