I’ll discuss some of the key pitfalls to pay attention to when implementing a supply chain digital transformation based on my experience championing a digital transformation process at Escalade Sports.
70% of Digital Transformation Projects Fail
Taking the journey of supply chain digital transformation is no longer an option; it’s a strategic mandate to stay relevant and ahead of your competition. Reality is that 70 percent of all transformation initiatives (programs) fail.
Supply Chain Digital transformation has the potential to be, for no better words, transformative; when done right, a transformation can enable your business to reap significantly, and well-documented, benefits. On the other hand, Supply Chain Digital Transformation if executed poorly cost companies millions, go on for years, fail to deliver expected or any benefits, and ultimately end up costing some CEO and CIO their jobs.
Part of the reason is, transformation is more than technical. It’s also procedural and cultural. It can change how thousands of employees do their jobs, make business decisions, and collaborate across the company. It is not just a thing that you can buy and plug into the organization. It is multi-faceted and diffuse, and it requires foundational investments in skills, projects, infrastructure, and, often, in cleaning up current systems. It requires mixing people, machines, and business processes, with all of the messiness that entails. It also requires continuous monitoring and intervention, from the top, to ensure that both digital leaders and non-digital leaders are making good decisions about their transformation efforts. Supply Chain digital transformation can change everything.
CHANGE can be small and incremental, or it can be large and complex. But it is something that needs to be constantly monitored and maintained.
TRANSFORMATION is almost always large and significant. Transformation is an internal fundamental change in your beliefs of why you perform certain actions. Transformation does not require any external influence to maintain, and because of its fundamental nature, transformation is more likely permanent.
A mountain of research today shows that improving forecast accuracy delivers a high ROI. Improved forecast accuracy, when combined with software that translates the forecast into meaningful actions, will decrease inventory and operating cost, increase service and sales, improve cash flow and GMROI, and increase pre-tax profitability.
Read More: Is Your Supply Chain Ready for Industry 4.0?
The forecasting error, no matter how small it is, has a significant effect on the bottom line. From our experience, is that a 15% forecast accuracy improvement will deliver a 3% or higher pre-tax improvement. In an Institute of Business Forecasting study of 15 US companies, found that even one percentage point improvement in under-forecasting error gives a saving of as much as $1.52 million, and for the same amount of improvement in over-forecasting, $1.28 million for a $50 million company.
A successful move to digital requires a well-thought-out strategy and an appreciation that a smooth transformation is a gradual process. An instant overhaul is not natural for an established mature organization. It’s vital to understand that it takes time for businesses to embrace and adopt change, even when you have all the right resources and expertise in place.
7 Key Supply Chain Digital Transformation Pitfalls to Avoid
1. Don’t forget to align technology implementation with strategy
Many failed supply chain application implementations can be traced back to a failure to properly understand and align with the business strategy. Sometimes we get caught up in the change process: the cool technology, the fancy optimization, the improved processes which enable the flow of work. They often forget how these changes need to improve customer relationships or improve shareholder value and help them succeed. These results are a siloed approach to change and eventual results are an improvement on what was there before, but rarely lead to a true transformation for the organization.
To help avoid this any transformation project needs to be explicitly linked and design to deliver to the specific features of the business strategy. This could be a cost, cash, or service strategy with strategic features focused on a specific area. A great example may be a company that plans a growth strategy by acquisition. For them, it may be important to focus more on the cash piece of the strategy with technology and processes that would be scalable across multiple different business models and can be quickly implemented in an acquired business.
2. Don’t overlook creating an ecosystem
Supply Chain Digital transformation is not about fixing a single link within the supply chain but changing the culture of the company and impacting all of the organization. For many companies, it is actually even bigger and impacts how the company is positioned in the industry and how others do business with them. Companies no longer operate linearly and isolated and while there is a whole new business ecosystem, we need to be aware of we need to understand it in the context of our transformation project as well.
Understanding the new economic rules will move you ahead, but only so far. Transformation in the ecosystem means that strategies developed solely in the context of a company’s industry are likely to face more and more challenges. Traditional approaches such as plan source make deliver in a single supply chain or only focusing on optimizing an outdated value chain will increasingly fall behind and not be transformational.
Multiple supply chains and agile digital platforms that allow multiple functions inside an organization to move easily across industry and sector borders are destroying the traditional model with its familiar lines of sight. The Amazon effect has impacted more than just the corner brick and mortar store but impacts the way all supply chains plan. Take Grocery stores in the United States, for example, now need to aim their strategies toward the moves of Amazon’s platform, not just the chain down the street.
3. Get executive sponsorship & engagement
The problem for most transformation projects is not that they do not have CEO and executive sponsorship it is that they do not maintain and have their engagement. There is a difference between sponsorship and engagement. Supply Chain Digital transformation needs engaged leaders and stakeholders, rather than seeking just sponsorship, where the sponsor’s role is open to interpretation. Engagement is a process of being actively involved and seen participating in the process at every level.
Supply chain Digital transformation is about sweeping change. It changes everything about how products are designed, manufactured, sold, delivered, and serviced—and it forces the company and CEO to rethink how companies execute, with new business processes, management practices, and information systems, as well as everything about the nature of customer relationships. Because of this these projects cannot be the flavor of the month and it is not just checking the box saying we are doing a transformation project but need properly resourced, properly and continually supported, and CEOs actively engaged.
4. Identify the resources required
Supply Chain Digital transformations can die a slow death once cost begins to amass, time begin to fleet, and hard savings or benefits fail to demonstrate themselves. This is not always the scope creep, unanticipated business changes, initiatives become bigger and more complex than anticipated but can be the normal time and impact of large transformation projects. Transformation projects are large, and many times take time and generally will not show impact immediately. CEOs or company’s focused only on short term wins many lose sight of the larger picture and maintaining resources become a challenge.
The result is the project ends up starved for resources and competing against other new projects. This can happen at the beginning of the project as well when companies are in the process of implementing several incremental improvement projects like Six Sigma or Kaizen projects, it will be a challenge to add a large transformation program to the mix targeting the same departments. Companies that try to stuff too much into the organization will clog it causing employees and managers’ capacity to execute to become a choke point. To avoid this Supply Chain Digital Transformation, need to be properly resourced through the entire project duration which includes dedicated executive and transformation team.
5. Create a proven change management methodology
Change is easy until you are asked to do it. In business people built their careers and power on what they know and do and with any transformation project, it is hard to have them let go. Indeed, 43 percent of 4,500 CIOs surveyed for the 2017 Harvey Nash/KPMG CIO survey cited resistance to change as the top impediment to a successful transformation strategy. Resistance to change can grind transformations to a halt. For transformation programs to work, there must be convergence between the new process, new technology capabilities, people readiness with the required new skills, and organization structure alignment changes.
Having a structured and proven methodology to show the way in the change transformation journey is a must. Any significant supply chain transformation program creates uncertainty and people resistance. New leaders emerge, job descriptions are changed, new skills and capabilities must be developed. Dealing with these change management issues on a reactive, case-by-case basis puts timeline, morale, and results all at risk. A structured and formal plan for managing change—beginning with the transformation team and then engaging key stakeholders and leaders—should be developed early and executed effectively as changes move through the organization. The plan should be comprehensive to cover planning, implementing, and sustaining the transformation changes.
6. Don’t let your project die on the vine – maintain energy and involvement
Despite solid up-front planning and leveraging effective project management techniques, the unexpected surely will occur. Maybe a key member of the project team will depart, or the software developer will be unable to meet agreed-to specifications, or a new business need will be identified late in the game. You can guarantee there will be at least a few surprises. As supply chain transformation programs progress from defining strategy and setting targets to design and implementation, they affect different organizational levels and stakeholders. Disengaged stakeholders can really slow down progress and can be a reason by itself for transformation failure. Supply chain stakeholders represent different functions and different roles (operators, SC managers, planners, suppliers, customers, warehouse receivers, carriers, etc.) which add another dimension to the challenge.
Building and then empowering an effective transformation team is very crucial to maintain excitement and eventually embrace change. Stakeholders need to know why change is happening, how their work will change, what is expected of them during and after the transformation program, how they will be measured, and what benefits success will bring to them personally. Transformation team leaders should be addressing all these questions explicitly and keep stakeholders involved in the process and informed to maintain energy throughout the organization. But ultimately, digital transformations require embedded into the culture to succeed. Not dependent on only a single leadership from the top or a seasoned employee with a vast amount of tribal knowledge and are doomed to fail if they don’t have it.
7. Select the right external partner
What do you need the technology to do? The first step any company should take when looking for a new advanced planning software is determining your process, your technical and system needs, your budget, and constraints, and a detailed list of requirements. To ensure that you select the right technology for your operation, it is critical to map the demand streams and the demand drivers. Consider a process map that helps visualize each step input and output, as well as technology or information you already rely on that, will need to be integrated. Features like causality, seasonality, top-down and bottoms-up forecasting, and forecast-value add analysis are essential to the selection of the technology.
What is it going to cost? Getting this information up front may seem difficult to get from some vendors, but this is because they have learned the lessons early that you may encounter. Selling the return on investment (ROI) to executives can be difficult without the right information and understanding of the benefits. Rushing into a deal may not provide you what you need that reflects badly on the vendor or be more than what the vendor scoped out and cost you or them money. Finally, a discussion rooted in what a budgeting, planning and forecasting solution can deliver is apt to find a friendlier audience than a truncated, cost-driven solution, no matter what the price.