Summary

When and how to invest in supply chain management technology is a critical question for all firms that is not a one-time question but ongoing. Alas, the investment is not trivial which drives the question “what is the business value of this investment”?  Two previous blogs have addressed “when is it time” and some “standard return on investment metrics”. This blog will observe the real business value is “survival and responsiveness” and elaborate on the challenges with this evaluation:

  1. Grasping this requires a deep level of knowledge of an organization’s current and future economic role and key points to improve organizational cognitive ability – a skill found with line management working with SCM management, not with the CFO or CIO;
  2. awareness of the investment in technology is a critical component of the organization’s process transformation – technology and process are partners where the success of one requires the success of the other,
  3. understanding the path forward is not a straight one and it is impossible to know at the start of the project all the critical requirements, and
  4. the full value comes from enhancing demand management and central planning – partners in crime.

Additional observations on the return on investment challenges can be found in The ROI Challenge by a Jedi Knight which has the following 2001 quote from Nick Donofrio (then IBM SR VP, Technology & Manufacturing): “The ability to simultaneously respond to customers’ needs and emerging business opportunities in an intelligent, orderly manner is a survival requirement for today’s marketplace. Our customers continue to tell us that the quality of our responsiveness is as important to them as the quality of our products. . .”

Introduction

Two previous blogs addressed the question of investing in enhancements to technology to support your supply chain or demand-supply network decisions

In this blog, I will pass along some observations with respect to the business case question. Future blogs will touch on when is it time to invest, challenges to a successful investment, and improving demand management without improving central planning leaves the renovation half done. The observations are based on 45 years in the trenches, where a good part of the work involved transitioning an organization out of “Excel” to a full system. Excel being placed in quotes since many of the experiences predate the wide use of Excel in the 1990s.

Can You Make the Case for Supply Chain Technology Investment?

This blog identifies three standard levers available to improve the performance of the supply chain: reduction of expense, improved customer experience, and faster decision making.

  1. Everyone starts with the expense and immediately points to the holy grail of inventory costs. Yes, it is important, but… if you are carrying inventory that you will never use, then you have a serious problem – but solving this is low hanging fruit and does not require a large technology upgrade. The real challenge is more complex costs that require an understanding of demand, matching assets with demand, and using these results to determine how much inventory and capacity should be held when and where to meet business objectives and which demand estimates to monitor closely.
  2. The customer experience is a common objective, but as the Arkieva CEO would observe, it is mom and apple pie – there are no specifics or metrics. Customer experience relates to the ability of the customer to get the product needed at an acceptable price in a timeframe needed. This relates to the customer requirements and options provided by competitors.
  3. Faster decision making is in fact more intelligent decision making and community intelligence where speed is a component of intelligence. More intelligence decision making only matters if it generates improved organizational performance across time. This requires understanding the nature of a firm’s demand and its impact on the demand-supply network.

The Real Business Case

I have been involved in the creation, presentation, and/or review of many business cases to justify investment in supply chain (broadly defined) technology. Most pull from the list above with a near term focus. However, the real value is improved performance across time – difficult to envision and estimate. What I learned from the best executives and “agents of change” I have known is the real business case is “survival and responsiveness”. Is the intelligence (speed and quality of the solution) of your supply chain decision making sufficient so your organizational performance five years from now will enable you to stay in the game?

To grasp the real value:

  1. Requires a deep level of knowledge of an organization’s current and future economic role and key points where more intelligent decisions will be needed to improve organizational cognitive ability.
  2. Awareness for the investment in technology is a critical component of the organization’s process transformation – technology and process are partners where the success of one requires the success of the other. The concept of “get my process correct” and then do work on technology is bogus. That would be the equivalent of saying get the process to use trains for transportation correct before transitioning from water transport to trains.
  3. An understanding that the path forward is not a straight one and it is impossible to know at the start of the project all of the critical requirements. Successful supply chain technology projects do not follow traditional IT projects (for example a finance system). It is impossible to know all requirements ahead of time and the new technology creates new opportunities. Examples:
    1. In the mid-1990s the team I was working with introduced demand classes into the central planning engine (CPE) because they believed it would be helpful – it was not in the original requirements from the user. When this was reviewed with the users, their initial reaction was “something that might be helpful, we will never need more than three classes”. Prior to this CPE demand classes where essentially impossible to handle computationally. A year later there were 12 active demand classes and they could not imagine life without this function.
    2. For another firm, the age of the component product was a critical factor. The best production occurred when the component part was four days old. The CPE identified that all production of the component part should occur on Saturday and Sunday. When this solution was provided to the user the response – we would never do that? We asked why?  The answer was if there was a manufacturing excursion on the weekend, the downstream production would be starved of the component product. The CPE was altered to ensure production for the component for the downstream production was spread out to earlier days if at all possible.
  4. The ability to bound the project and put in place checkpoints to flexibly monitor progress to avoid chasing technology down a black hole.
  5. The ability to envision how the future will result in better organizational performance without handicapping the project.

My experience is assessing and monitoring the real business case is difficult for chief financial officers (CFO) and chief information technology officers (CIO). It is not what their role is. Often the manager or director of supply chain is not high enough in the organization to drive the business case forward and avoid having the project handicapped during the development and deployment process. Therefore, the real business case has to be made with those with operational and sales responsibility – aka line organizations. During the project work, an ongoing dialogue between those doing the transformation of technology and process and line management has to be established.

Some Observations for Success

  1. As Arkieva’s partner Solventure observed in a recent publication, “Driving sustainable change and value through S&OP”, the data needed is never sufficient. Any project will require upfront effort to get the data right, that is not anticipated in the first project plan
    1. In the early 1980s, the data needed to manage the factory was on paper reports printed nightly and placed into printer bins. Many people thought this was sufficient. That was what they knew. In fact, what was built was a gateway to pull real-time data to support optimization and artificial intelligence methods.
    2. A “simple thing” such as electronic access to the financial accounting calendar critical to demand management and central planning has taken weeks with multiple workarounds.
  2. A team of “agents of change” is critical.
  3. Regular reviews with line management are needed.
  4. Success is defined when those in the trenches cannot imagine life before the application.
  5. If an organization does just demand management (DM) or just central planning (CPE), then much of the benefit will not be realized. DM and CPE are partners in crime.
  6. The goal of the investment is to facilitate community intelligence.
  7. When your current supply chain management technology is now “write once” and “read never” it is time for a change.

Conclusion

When and how to invest in supply chain management technology is a critical question for all firms that is not a one-time question but ongoing. Alas, the investment is not trivial which drives the question “what is the business value of this investment”?  There is a standard set of metrics floating around the trade press: cost (often inventory, ignoring more complex trade-off), customer experience, faster decision making, visibility, etc. The real business case is survival and responsiveness. Grasping this requires a deep level of knowledge of an organization’s current and future economic role and key points to improve organizational cognitive ability. Awareness of the investment in technology is a critical component of the organization’s process transformation – technology and process are partners where the success of one requires the success of the other. An understanding that the path forward is not a straight one and it is impossible to know at the start of the project all of the critical requirements. Additional observations on the ROI challenges can be found in The ROI Challenge for Supply Chain Projects: Lessons from The Trenches by an Aging Jedi Knight which has the following 2001 quote from Nick Donofrio (then IBM SR VP, Technology & Manufacturing). “The ability to simultaneously respond to customers’ needs and emerging business opportunities in an intelligent, orderly manner is a survival requirement for today’s marketplace. Our customers continue to tell us that the quality of our responsiveness is as important to them as the quality of our products. . .”

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