Spending on applications that focus on the supply chain, and customer and supplier interactions, is the largest and the fastest growing portion of IT budgets, according to a study released today by the Yankee Group.
As much as 34% of IT spending in 2004 will be focused on radio frequency identification (RFID), as well as wireless and mobile applications, to improve efficiency in the supply chain, said Michael Dominy, senior analyst of business applications and commerce at the Yankee Group, which is based in Boston.
According to the Yankee Group's "edge of the enterprise" survey, spending on financial, human resources, sales automation and other internal solutions is expected to grow only 0.4% this year. In contrast, external applications -- those that are aimed at enhancing customer and supplier relationships -- will grow more than 7%.
The Yankee Group surveyed more than 400 IT decision makers at U.S. enterprises in multiple industries.
"Companies are using the Internet to provide both structured and unstructured information to have a better idea of what's going on, both up and down the supply chain," Dominy said. "We're seeing that they're focusing externally by beginning to spend on applications to improve supply chain management."
The study also uncovers wide variations among industries, but companies will spend 28% to 40% of their IT budgets on "edge-of-the-enterprise" applications.
Pedro Freire, an IT manager at Sumol Group, a soft drink distributor in Portugal, said his department has been working on a number of projects to improve the supply chain.
Most of the changes are in the form of upgrades of the company's SAP software to improve functionality and features within the supply chain, he said.
"Changes in our technological products, especially software, tend to occur in very short cycles, because the technology changes so quickly," Freire said.
Consumer goods companies, which tend to be more innovative when it comes to supply chain management, plan to devote as much as 39% of their IT budgets to edge-of-enterprise applications, Dominy said. Public-sector organizations, which tend to lag behind consumer goods companies, plan to spend about 28% of their IT budgets on edge-of-the-enterprise applications.
SAP, the largest vendor in the enterprise applications market, is already taking advantage of this growing need, Dominy said. The company released a complete RFID package in January, targeting consumer goods companies. And this month, SAP announced a partnership with Coca-Cola Enterprises Inc. to develop mobile applications for Coca-Cola's supply chain.
Other vendors poised to take advantage of IT spending in this area include Microsoft, which has been developing a number of initiatives in the mobile enterprise space, and Rockville, Md.-based Manugistics, which has been successful in delivering supply chain applications, Dominy said.
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