Over the past decade, companies have invested heavily in wiring their supply chains with software designed to manage information flows among their internal operations, suppliers, and customers. From 1999 to 2002, vendors sold more than $15 billion in supply-chain-management software licenses—the first step in a process. And that figure doesn’t include the cost of the expensive installation and maintenance contracts to come.

The software and its developers—companies, such as SAP and Oracle, that sell applications for resource planning, as well as supply chain specialists such as Ariba, i2 Technologies, and Manugistics—have attracted attention because the software promises to track and predict customer demand and, as a consequence, to adjust the flow of goods more precisely. When supply-chain-management software works, it can help cut inventory levels, improve delivery schedules, and ensure that supply meets demand—all of which should make customers more satisfied. One supply chain executive calls the software oxygen for his business.

But the results have been mixed. Some companies (including Dell Computer and Wal-Mart) have harnessed the power of this technology to improve their supply chains or, in certain cases, to transform their business models. Others have run into trouble, some publicly acknowledging that they have spent hundreds...