Scan the small print of the profit warnings issued by manufacturers in today's worsening economy and inventory problems often get the blame.

Not surprisingly, then, software companies whose products help manufacturers better match supply to demand could be one of the few bright spots in a troubled IT industry.

"For now, supply chain software looks recession-proof as long as the vendors keep to the basics and don't try to sell too much hype with long payback," says AMR Research in a note published last week.

AMR qualifies its optimism because supply chain management (SCM) can be a hard sell. For a large manufacturer with many product lines, supply chains, customers and suppliers, the benefits of SCM are not going to happen overnight.

Nevertheless, the challenges of competing in markets with ever shorter product cycles and unpredictable demand have caused more manufacturers to turn to SCM technology to help cut costs and slash inventory in their supply chains.

Sales of supply chain software have soared in recent years. Manugistics, a pioneer in this market, last week reported revenue for its fiscal fourth quarter ended February 28 up 105 per cent to $89.3m. Revenue for fiscal 2001 topped $268m, a 76 per cent rise over the previous year.

Manugistics reported fourth-quarter net income of $3.7m - a year earlier it made a loss of $1.2m. More importantly, it stood by analyst estimates for its current quarter and the fiscal year just started at a time when many other software companies have been issuing warnings.

"We continue to see robust demand for our solutions even in the current economic environment," says Greg Owens, Manugistics chairman and chief executive. "Manugistics numbers, as well as recent results from its competitors like Descartes and Vastera, prove that it is possible to sell software in a stormy economy," says AMR.

The bellwether stock in this sector is i2 Technologies, a much bigger rival to Manugistics. Its revenues for 2000 more than doubled to $1.1bn and earlier this year it increased its profit forecasts for the first quarter of 2001 and the full calendar year.

Like Manugistics, i2 is sticking to its upbeat forecast and at the time of writing had not issued new guidance. The actual first-quarter results are released later this month.

The factor driving growth in the SCM industry is the realisation that demand for products as diverse as memory chips, handheld computers and even yoghurt can change almost overnight in today's turbulent markets.

Companies would like to link to their trading partners and exchange information so that they can get a better picture of changing demand or market conditions.

"Efficient supply chains require that participants have visibility into trading partners' supply and demand signals," says Keith Krach, chairman and chief executive of Ariba, the business-to-business software systems vendor. Ariba has recently started to expand beyond procurement into areas such as supply chain collaboration and inventory management.

But getting up-to-date information about changing market conditions is notoriously difficult. Last November, analysts were forecasting the global semiconductor market would grow 27 per cent during 2001.

Today, the picture looks very different. Revenues from D-Rams - the commodity memory chips - are now forecast to drop 18 per cent and prices will fall even faster, down 46 per cent, according to IDC, the market research company.

"The D-Ram market suffers from a combination of sluggish demand in the PC industry and a harsh inventory correction in the overall supply chain," says Soo Kyoum Kim, manager for IDC's semiconductor programme.

Even Nike's fashionable trainers are not immune from falling demand and tumbling prices. The US footwear company recently reported a slump in profits and a 15 per cent drop in sales in the flagship US market, where the economic downturn has hit earlier. The threat of big markdowns to clear excess Nike inventory spooked investors.

It also highlighted the importance of having a supplychain management system that can better match supply to fast-changing demand.

Paradoxically, Nike is mid-way through an ambitious five-year IT project designed to do just that. But Nike recently said this system was partly to blame for the company's current problems.

As part of this project, Nike is using i2 software for demand and supply planning. At the end of February, Nike warned that "complications" caused by the implementation of the i2 software had led to product shortages and excesses as well as late deliveries.

Financial analysts wonder how much i2 is really to blame for Nike's predicament. But in a nervous stock market, it was the excuse many investors were looking to bale out of i2's once highly rated shares. The i2 share price plunged 22 per cent on the day Nike issued its warning.

I2 stock has continued to fall over the past month, along with those of Manugistics and other vendors such as Commerce One and Ariba. Class action suits have also been started against i2 and Ariba by opportunist US legal firms.

Last Wednesday, these four stocks all took double-digit tumbles as analysts realised the close of the calendar first quarter was near, and profit warnings might be in the air.

While analysts say the long-term future of the SCM sector still looks bright, not even the most bullish will rule out the possibility of painful surprises in the coming months.