Last week I wrote about my mistake of not paying enough attention to the math behind Return on Investment (ROI). I got a few comments from the readers; the one that caught my eye read something like this: Of course you need to know ROI as you have to sell your software and projects; the supply chain planners on the other hand do not.
While I had intended to say that everyone in the supply chain should learn the ROI math, this comment made me think of elaborating from a Supply Chain planner’s point of view.
Say you are a supply chain planner at a large company. The annual sales of your firm are about $1Billion and so far you and your team have been able to plan the supply chain with some spreadsheets. Over the years, your team has earned the begrudging respect of the peers as the ones who know what is going on with the business.
However, forces in the market place have made the demand erratic thereby making it very difficult for you to continue to plan using Excel. You have been hoping to upgrade your planning tools and decide that the situation is ripe for just such a project. So, you float this idea to your boss. Their reaction is that they would support it as long as you can prove there are enough business benefits to the case. You take it in stride and invite various vendors to compete to get on a short list. Since you have never done a ROI calculation, you lean on the vendors to help with the business case.
The vendors oblige by providing some general information about how these types of projects save money to companies and quote research from analyst firms. Maybe one of them shares an Excel sheet with some build in formulas for the ROI calculation. Armed with this information, you try and convince your boss of the savings and ask for budget.
While you were expecting a quick approval, your boss rejects the calculation as too general and not applicable to your business. They ask why this or that applies to your business and gives them reasons why they do not. Your boss asks that you work some more with the vendors to get this done. This should be our first hint to invest time in ROI calculations specific to your business.
Fast forward a few months: You persevered and were successful in securing a budget. You went through a selection process, and selected an able vendor (I would select Arkieva but I am biased.) You finish the project. You think you have done major improvements. Your planning response time is much better and you are able to evaluate what-ifs throughout the planning cycle.
Unfortunately, though, the business situation has worsened and the company is going through tough times. While no one is saying that your project caused all the woes, no one is willing to call it a success either. When you share with them the qualitative gains, all you get in return is a blank look.
Or perhaps, the situation is just the opposite. The business is doing really well. Revenues are up, demand is high and you are having to deal with a lot of exciting challenges. As the old saying goes ‘Success has many fathers; defeat is an orphan’. So, you are being told why it is almost impossible to apportion any of the gains to your project because all the gains are from the hard and brilliant work of everybody else.
Either way, you end up feeling shortchanged on the credit that you and your team should have received. And that raise you were hoping for? Well that has to go to other departments. And by the way, better work extra hard to help manage the change brought on by your project.
In my experience, this is way too common in the supply chain field. There is a reason why companies spend millions on sales automation or a shrink wrap robot while shying away from a much smaller spend on planning systems.
So, I return to my original theme: Ignoring the math behind ROI is a big mistake for the supply chain planners as well; do it at your own peril. There are at least three things that you could miss out on if you do not get this right:
- Project Approval
- Credit for you and your team members
- Career advancement
For most of us, at least 2 out of the 3 would be considered very important.
What’s your opinion on ROI?
If you think this is too unrealistic, I would like to hear from you. If you have similar experiences, I would like to hear from you as well. And if you even partially agree, I invite you to read up on ROI.