The Technology Dividend
Buying the glue and getting it to stick can be expensive. Managers must watch closely the return-on-investment (ROI) of supply chain technology.
"Any investment in software, including service supply chain software, should be justified with a measureable return on investment," Andreae says. "Returns are driven by significant reductions in inventory, as well as increased service levels which result in more revenue and reduced costs."
Implementation can take as little as two months, with returns within four months of purchase. ROI can be estimated before implementation by analyzing customer data, thus reducing risk. And Software-as-a-Service can ensure rapid payback. "From a process perspective, change management is critical so that users can define their organization and planning processes in a way that maximizes the potential of the technology investment," Andreae says.
But payback doesn't come overnight. It takes months and years to understand, and often comes when larger strategic goals are achieved. "Most software implementations take over a year to complete and disrupt a company's people and processes," says Chris Allan, chief strategy officer for Quantum Retail. "Software that can instead be implemented in an agile way, giving users early access to the software while it is integrated, will have the best opportunity for user adoption and will allow them to hit the ground running more quickly."
In the retail industry, every program should have a definitive return on investment. "The retailer must understand what it is they are looking to achieve in implementing the software and then measure, measure, measure to ensure that they are getting what they paid for," Allan says. "This goal might be in throughput, top line sales, bottom line, availability, waste, fill rate, et cetera, but it must be stated, baselined, and measured, with the methodology agreed by both sides ahead of time."
Getting Real About Technology
There are numerous misconceptions about selecting and using supply chain management software. It's important for managers to not fall prey to them.
"It's not just about the software you choose, it's how you implement it," says Dan Kinzler, principal with Deloitte's Strategy and Operations practice. "A common misconception in the marketplace is that the specific software chosen is the most important decision. Although that selection decision is very important, the configuration and implementation of the software is the real key to supporting business processes and interactions with end users to drive the targeted benefits."
Whether supply chain managers try to implement a complex configuration or basic, piece software, "either extreme will result in sub-optimal results, as the end user quickly resorts back to process workarounds and shadow technologies such as Excel," Kinzler says. "Pragmatic, business-case-driven configuration and implementation may sound simple, but the effort put into ensuring a certain solution addresses a unique company's needs takes time and resources."
Supply chain managers often find trouble in this phase. Trying to make a technology solution fit a specific need creates complications, a common mistake when selecting and implementing supply chain technology.
"The biggest mistake is to customize the software to match your process," says Amit Sen, director of business development for Patni Computers. "Most likely your internal processes are very out of date, and to alter the software instead of modernizing your business process is the single biggest mistake managers make. Supply chain and logistics managers are notoriously tactical in their approach. They tend to take an incremental approach, which a lot of times falls far short of delivering the desired impact."
As the number of suppliers has grown and locations shift, strong planning and management is crucial.
"Five years ago, the majority of suppliers and supply chain outsourcers seemed to be in China. A few years later, Central and Eastern Europe took the forefront. Today it's all about Brazil, and looking forward, we're seeing a lot of in-bound business for U.S. suppliers thanks to changes made by the Obama administration," says Darin Buelow, principal in Strategy & Operations for Deloitte. "Companies are investing in better demand and supply planning capabilities and technologies to run a more complicated and more fragmented supply chain more seamlessly."
While most of the money is in the supply chain, pressure also resides there. It takes time to adjust to changing demands. Businesses must still strive to reduce costs, but must be flexible as well.
"Logistics plays a significant role in providing the flexibility in meeting the customer needs, but it is the final margin squeeze in the race for profitability," Vaughan says. "It is the biggest white space of inefficient activity, and also the largest variable cost in the supply chain. Tame logistics and you tame the beast."