Introduction

A few years ago, our sales team was talking to a prospect about implementing our supply chain planning (SCP) software. They had endured a few rough quarters around that time and were beginning to miss some deliveries, leading to upset customers, which eventually had the executives worried about the situation.

Recognizing the need for a robust supply chain solution, they began evaluating various SCP software providers, including us. The prospect shortlisted ten firms based on their Gartner Magic Quadrant positioning. After initial screenings and demonstrations, the list was narrowed down to three providers. At this stage, the sales cycle became intense, involving detailed product demonstrations and scenario mapping using the prospect’s data. This process emphasized the importance of securing executive buy-in as well as aligning the software’s capabilities with the client’s specific needs.

Demos and User Engagement

In this final round, we had quite a few interesting demonstrations of the product to the user community where we were able to show a lot of functions and features, as well as map a lot of their scenarios to show how they would solve a problem. Using their data made a significant impact, earning positive feedback from users and placing us among the top contenders. This was followed by sessions with IT to address their questions, as well as a brief demo for the supply chain leadership team. It seemed to be smooth sailing until then; our champion gave us kudos for a job well done and hinted that we were in the top 2 and the users really liked what they saw from us as a company.

The Critical ROI Question

A week or so later, we got an innocuous question from our champion. Someone in the company’s executive team wanted us to provide a business case for this initiative. They would like to see a return on investment (ROI) calculation from us, where one would compare the costs of the project against the stated benefits and show in a logical way that this would make the company some money.

Now this was perplexing. Don’t get me wrong. Requests for ROI calculations are routine in our line of business. But given that this prospect had a bad business situation as the leading event, and they themselves had deemed that a supply chain planning software would help them, then this request seemed odd. When we asked, we were told that this executive was new and insisted on a ROI calculation before approving anything. Our champion even shared other examples of very significant investments (>20M) in the past where a detailed ROI calculation was not done. But with this new executive, apparently it was going to be the norm.

At first, we thought that this late request meant that literature review of ROI would suffice. So, we dutifully forwarded research from Gartner, our old case studies etc. to show how much others had saved from similar projects. But the executive was having none of it. She wanted analysis based on the firm’s real data.

And so, we started down the journey of the questions of savings/benefits (we already knew the costs associated with our system). We focused on key areas like:

  • Demand Planning
    • What percentage of your demand is due the next day? Within the next week?
    • Do you know your important customers and the percentage of revenue that is driven by them?
    • At what level of aggregation do you measure the forecast accuracy?
    • At what lag do you measure the forecast accuracy?
    • What formula do you use to measure the forecast accuracy?
    • What is your forecast accuracy today?
    • Do you know how your competition measures up on forecast accuracy?
    • Do you know how your industry does at an average when it comes to forecast accuracy?
  • Inventory Planning
    • How many days of supply do you carry today?
    • What percentage of your total inventory is planned versus unplanned?
    • What percentage of your inventory is in raw materials versus intermediates versus finished goods?
    • What is your slow moving and obsolete inventory picture like?
    • How often do you have stock outs?
  • Supply Planning
    • How often are you late providing products to your customers?
    • What percentage of time do you ship product to a customer from the wrong location? In the wrong package?
    • What percentage of time you are expediting shipments?
    • How often are you rebalancing your inventories across location by transshipping?
  • Scheduling
    • How often do you break into your schedule?
      • Is it done by the schedulers, or can salespeople call the plant and change the schedule? How about management?
    • How costly is one bad changeover for you?
    • How many bad changeovers are you making every month on average?

Using the collected data, we calculated expected levels of improvement based on our experience, as well as their data. For example, given their data was already in our system, we calculated the forecast accuracy we were getting (we did this by withholding some of the data from our engine), and then estimated the percent improvement in forecast accuracy that one could expect in their case.

Then we dollarized these savings. And finally, we prepared the deck to present to this executive.

This idea of calculating expected benefits, and then dollarizing these benefits to present the ROI is the topic of our webinar on building an ROI case for supply chain planning software. In this session, we will guide you through the entire process, from identifying and quantifying benefits to converting those benefits into clear, compelling financial metrics. You’ll learn how to make a strong case for investment to your stakeholders, backed by real-world examples and expert insights.

Register now and join me on Wednesday, July 31, 2024, at 11 a.m. ET or on Wednesday, August 7, 2024, at 1 p.m. IST for the webinar.

Register here.