Hard Times for the Supply-Chain Gang

Gartner principal analyst Chad Eschinger suggests business may take longer to pick up than Walravens thinks, however.

"Supply chain is not going to pick up as fast as ERP [enterprise resource planning software]," Eschinger said. That's because in past years supply-chain software makers overpromised and underimplemented, resulting in a glut of shelfware and more skepticism among customers, which in turn will lead to greater scrutiny of new purchases, he says.

Indeed, in the first half of this year, supply-chain license revenue declined 6% from the same period last year, while ERP license revenue remained flat, Eschinger said. Gartner forecasts supply-chain license revenue will grow a measly 2% in 2004 from 2003 and about 4% in 2005 from 2004. ERP software license revenue is expected to climb 5% in 2004 from 2003 and 7% in 2005 from 2004.

Meanwhile, in 2002, German behemoth SAP's supply-chain management license revenue surpassed i2's, with SAP taking 12% of the market to i2's 7%. A year earlier, i2 claimed 15% of the market and SAP trailed at 10%.

"From a total market perspective, it's unlikely a pure-play will regain leading market share ... in the short-term," Eschinger said. One area of supply chain, supply-chain planning, is particularly being overrun by enterprise application providers, which have massive installed bases to sell to, he added.

But Walravens argues that vendors such as Oracle(ORCL Quote - Cramer on ORCL - Stock Picks), PeopleSoft (PSFT Quote - Cramer on PSFT - Stock Picks) and SAP have not been able to develop comparable supply-chain planning products, citing one customer who called an ERP vendor's products "basic and immature."

"It's rocket science," Walravens said of i2's supply-chain technology. Unfortunately, figuring out when customers will start demanding that technology again also may well be.

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