Functionality and Fellowship: Oracle and the Supply Chain Management Software of the Future
Legacy Supply Chain Management (SCM) software providers try to keep pace and maintain position as new technologies transform the SCM landscape.
Supply chain leaders identify visibility tools and cloud technology as key components of the “supply chain of the future,” but 69% of leaders report that less than 25% of their current software solutions are cloud-based [1]. More surprisingly, 71% of leaders report that they still rely on manual tools to manage their extended supply chains, even though digital transformation and technology adoption is widely noted as a key business initiative [2]. Supply Chain Management (SCM) software vendors have typically catered to manufacturing and retail customers, but real-time data, powerful analytics, and inter-connectedness across all business units are becoming key drivers of competitiveness for companies in all industries [3]. As a result, the SCM software market has grown quickly from 2010 to 2017, and SCM software vendors are vying for market share [4].
These technology adoption trends are critically important to Oracle, a leading provider of enterprise software solutions and the second largest player (14% market share) in the SCM market with $1,552 MM in software sales [5]. As companies rush to adopt or upgrade their SCM systems, Oracle is faced with two major challenges. First, the company has traditionally delivered complex, on-premise solutions that are highly specialized, customizable, and expensive to deploy and maintain. As a result, their customers are primarily large enterprises. With digitization comes an expectation of cloud-first technology, SaaS business models, lower implementation fees, and broader accessibility for small and medium-sized businesses (SMBs). Second, the fast pace of change in SCM requires that companies build platforms and solutions that are highly flexible, allowing for iterative and incremental changes as technology continues to advance. Will Oracle’s Supply Chain Management software become companies’ first choice?
First steps
In 2011, Oracle signaled their growing focus on cloud technology when they first reported cloud services revenue as a separate line item in their financials. The revenue contribution of cloud services (inclusive of all applications, not only SCM) grew from $1,378 MM in 2011 to $4,571 MM in 2017 [6]. In an effort to encourage clients to migrate to the cloud, Oracle offers Fusion modules which allow customers to gradually migrate from on-premise systems to the equivalent cloud-based systems.
Additionally, in late 2016, Oracle announced their acquisition of NetSuite Inc., a provider of ERP solutions for SMBs [7]. With this acquisition, Oracle is now able to offer solutions to customers of all sizes. Further, NetSuite is recognized as a leader in cloud-first ERP solutions, bringing Oracle much needed expertise in the cloud technology segment.
Short term, Oracle’s primary focus has been establishing themselves as a leader in cloud-based services and expanding their customer based along these lines. Longer term, Oracle is focusing on strengthening their developer eco-system and the customizability and reach of their platform. Their new Oracle IoT Cloud Platform allows businesses to collect and collate data from various devices and input systems in their supply chains [8]. The Oracle AI Platform Cloud Service helps businesses capitalize on this data to improve their supply chains by uncovering patterns in the collected data [9]. The Oracle Blockchain Cloud Service is intended to enable real-time transactions across business units and between partners, greatly enhancing logistics and introducing wide-spread visibility into the supply chain [10].
Facilitating Fellowship
Only 3% of supply chain leaders report that they have access to comprehensive data from their extended supply chain partners [11]. To establish a true leadership position in the SCM market, Oracle should focus on facilitating, streamlining, and improving the interactions between all parties in the supply chain, not just those within a single company. While Oracle and NetSuite both offer supply chain collaboration tools, the success of these solutions depends on partners’ willingness to engage with new technologies or applications imposed on them by partners in the supply chain. There are many non-technical reasons – uneven power dynamics, partner mistrust, fear of information reaching competitors – why companies may be reluctant to share more detailed data with partners. To truly succeed in this market, in addition to offering purely technological solutions, Oracle should work to lower the existing barriers to communication by aiding information sharing in ways that do not require companies to give up full control.
Potential obstacles
While Oracle’s progress in cloud development has been impressive, cloud revenue accounts for only 15% of Oracle’s software revenue, and a study by Daitan Group found that providers of on-premise software have typically struggled to shift their business models towards SaaS/cloud-based models that demand expertise in multi-tenancy, scalability, integration with third-party applications, and continuous integration, testing, and release processes [12, 13]. Will Oracle be able to beat the odds, leave their reputation as an on-premise software provider behind them, and out-perform their cloud-first competition, all while keeping pace with technological advances in SCM?
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[1] Mathieu Dougados and Boris Felgendreher, “The Current and Future State of Digital Supply Chain Transformation,“ 2016, pg. 7, http://mktforms.gtnexus.com/rs/979-MCL-531/images/GTNexus-Digital-Transformation-Report-US-FINAL.pdf, accessed November 11, 2017.
[2] Inspirage Management Consulting Services, “The Future of the Integrated Supply Chain,” 2017, http://www.inspirage.com/downloads/Inspirage-ISC-Research-Study.pdf?elqTrackId=8F3BC39A65A3A60719480A965FF70E04&elqaid=422&elqat=2, accessed November 11, 2017.
[3] Albert Chiang, “Supply Chain’s Future Rests in the Cloud,” Material Handling and Logistics, October 16, 2017, https://search-proquest-com.ezp-prod1.hul.harvard.edu/businesspremium/docview/1951444817/FB6C780773964A76PQ/9?accountid=11311, via ProQuest, accessed November 11, 2017.
[4] Josh Bond, “Top 20 Supply Chain Management Software Suppliers 2017,” July 13, 2017, http://www.mmh.com/article/top_20_supply_chain_management_software_suppliers_2017, accessed November 11, 2017.
[5] Josh Bond, “Top 20 Supply Chain Management Software Suppliers 2017,” July 13, 2017, http://www.mmh.com/article/top_20_supply_chain_management_software_suppliers_2017, accessed November 11, 2017.
[6] “Q4FY17GAAP EPS UP 15% TO $0.76 and NON-GAAP EPS UP 10% TO $0.89,” press release, June 21, 2017, on Oracle website, http://s1.q4cdn.com/289076952/files/doc_financials/quarterly/2017/Q4/4q17-pressrelease-June.pdf, accessed November 11, 2017.
[7] Shelly DeMotte Kramer, “What Oracle’s $9.3 billion NetSuite Acquisition Means,” November 07, 2016, http://www.supplychain247.com/article/what_oracles_9_3_billion_netsuite_acquisition_means/infor, accessed November 11, 2017.
[8] “Oracle Cloud Platform for Integration Enhances Application Integration Across Cloud, Mobile and IoT,” press release, October 27, 2015, on Oracle website, https://www.oracle.com/corporate/pressrelease/cloud-platform-integration-102715.html, accessed November 11, 2017.
[9] Hannah Williams, “Oracle pushes out AI across its cloud services,” Computerworld Hong Kong, October 9, 2017https://search-proquest-com.ezp-prod1.hul.harvard.edu/businesspremium/docview/1949754220/fulltext/FB6C780773964A76PQ/16?accountid=11311, via ProQuest, accessed November 11, 2017.
[10] “Oracle Introduces Enterprise-Grade Blockchain Cloud Service,” Entertainment Close-up, October 8, 2017, https://search-proquest-com.ezp-prod1.hul.harvard.edu/businesspremium/docview/1948040172/fulltext/FB6C780773964A76PQ/17?accountid=11311, via ProQuest, accessed November 11, 2017.
[11] Inspirage Management Consulting Services, “The Future of the Integrated Supply Chain,” 2017, http://www.inspirage.com/downloads/Inspirage-ISC-Research-Study.pdf?elqTrackId=8F3BC39A65A3A60719480A965FF70E04&elqaid=422&elqat=2, accessed November 11, 2017.
[12] “Q4FY17GAAP EPS UP 15% TO $0.76 and NON-GAAP EPS UP 10% TO $0.89,” press release, June 21, 2017, on Oracle website, http://s1.q4cdn.com/289076952/files/doc_financials/quarterly/2017/Q4/4q17-pressrelease-June.pdf, accessed November 11, 2017.
[13] Daitan Group, “Reference Model for Cloud Applications,” October 2013, http://www.daitangroup.com/wp-content/uploads/2013/10/2013.10_Reference-Model-for-Cloud-Applications_file-358430293.pdf, accessed November 11, 2017.
Based on my former company’s supply chain management system, I wonder if Oracle can also do more to educate companies on the benefits of the cloud based systems. I wonder if the real opportunity is to try and convert the businesses that, as your research suggests, are still using manual processes. It seems that cloud-first companies may not be targeting this segment as heavily and it might be the best way for Oracle to segment itself rather than try to compete.
On the other hand, Oracle could also establish itself as the most “secure” option in this cloud space. Many companies hold back from converting to this model because of security concerns [1]. As such a well known provider, they are well-positioned to be a trustworthy option for companies who are weary of the cloud.
[1] http://www.logisticsmgmt.com/article/scm_races_into_the_cloud
I agree on both points. When my company first started selling our cloud software, we targeted innovative companies who were more likely to be receptive of the cloud, rather than legacy companies that had used manual processes for years mostly because it was a much easier sell. This is starting to change (both in my company, and in cloud-first ERP systems) as new entrants’ offerings become more robust, but I do agree with your point that Oracle has the opportunity to grab that market now (especially the larger companies that are a bit too sophisticated to use some of the downstream cloud systems) before others gain too much traction. And the security point is a great one as well. This is a huge concern, especially for the legacy customers because they don’t know how/whether to trust new technology, but I do have some concern whether Oracle actually has the in-house expertise to credibly claim that they offer the most secure solution.