Invite a supply-chain management tool vendor in, and it's very likely you'll hear the following within the first 15 minutes: “You’ll start achieving results almost immediately," or “Our average client has…[insert one of the following here]: slashed lead times by 70 percent, accelerated order fulfillment time by 65 percent, reduced inventory carrying costs by 35 percent, decreased transportation costs by 25 percent, increased forecast accuracy by 30 percent.”
The spiel always sounds great, but most likely, the actual supply chain management (SCM) results won't materialize. One reason is that many of the SCM solutions being hyped are too young and underdeveloped to make such promises come true.
“Companies expect functionality to be there because the vendors told them that it was,” said Karen Peterson, a Gartner research director. “What they sometimes find out, however, is that the solution is either not scalable, integrated, or tailored to their business needs. All of these things tend to create huge problems.”
Yet the vendor is not the only one at fault for the poor results, especially when a company chooses a product that doesn’t meet specific needs to begin with. A company has to first know enough about its business before it can determine what solution will best fit its needs. IT leadership also carries an inherent responsibility to explore scalability and integration aspects.
We'll talk about how and why your company should explore crucial aspects of your supply chain, how you can identify what your company needs from an SCM solution, and why top management buy-in can make or break your SCM efforts.
Identify and respect the power of your supply chain
Many companies dismiss SCM solutions as irrelevant to their business needs because they don't realize that the key to competitive advantage lies within managing the supply chain. Instead, companies often believe success is tied to product design or the ability to sell. Changing this mindset is the first hurdle in the SCM plan, said Jim Kilpatrick, a partner at Deloitte Consulting.
The ability to manage the supply chain enables a company to solve critical business problems, such as customer complaints. In this scenario, companies need to assess customer communications and the current rapport. To get started, ask the following questions:
- How many complaints do you get from customers?
- Are your big customers telling you what to do?
- How well are you able to serve your customers?
- Can you fulfill their requests in a timely fashion?
- Can you fulfill special requests from customers?
“What we see, in most problem scenarios, is that a manufacturer's SKU counts have increased exponentially, but its supply chain wasn’t built to handle that amount of product,” Kilpatrick explained. “Many companies have designed their supply chain in a one-size-fits-all mentality. The supply chain processes and network were designed to respond to the average customer or to the demands of the strictest customer.”
Companies in this situation are essentially underserving one half of their customers and overserving the other half, and as a result, no one is going to be satisfied. One possible solution is to design the supply chain network to fit mainly the needs of the biggest, and the strictest, customers. That way, the enterprise's SCM program will be overserving a vast majority of customers, according to experts.
Choose a solution based on business needs
Although it is certainly difficult to change customer focus, the most difficult change most companies need to make to prepare for SCM is choosing the right product. The good news is that there are lots of options, two of which are third-party providers and off-the-shelf software.
In the end, the choice of an SCM solution is often dependent on how crucial corporate strategists consider SCM to be and what the business needs from the solution, says Peterson. For example, if your supply chain doesn’t differentiate your company in any way and the goal is cutting costs, then you may want to consider using a third-party logistics company.
But if your supply chain is very complex and company-focused, you may be better off investing in an "out of the box" SCM solution that includes organizational enhancements.
“If you want to gain differentiation and make changes to your business and do that in a way that will allow you to win over some of your competitors, then you really can’t do that from a box,” noted Peterson. “Those solutions are for companies that need just basic functionality.”
Make sure SCM has top management buy-in
No matter what solution appears best for the company, no SCM process should be initiated without top management involvement. The organization's leadership needs to embrace SCM as a transformation occurring within the organization. And it can’t be a transformation through technology alone.
The companies that have mastered SCM do so by implementing technology in conjunction with realigning organizational structures and metrics where appropriate. They do so with new business processes, by making tough decisions involving plant openings and closings, and by reaching out to key trading partners, according to experts.
“If top management is not on board with the importance of SCM and is not treating it as a top-three agenda item, your company is in trouble from the get-go,” says Kilpatrick.
A key reason that companies need top tier buy-in for SCM success is that SCM costs aren't insignificant, even for small businesses. “The costs are going to line up often in technology,” explained Kilpatrick. “More specifically in the systems that today support supply chain planning and execution and that are not meeting user expectations.”
Break down barriers to integration
At this point in the process, you may have determined what solution is best and you might even have top management on board, but you’re still not out of the woods. The next nut to crack is integration.
To be world class at SCM, you must break down any functional or local barriers at your company. You need to make decisions in the best interest of the internal supply chain, and you must be able to seamlessly share information.
Many companies aren’t yet receptive to the idea of sharing information, internally or externally. Although the ERP movement did allay some of these companies' fears about sharing information internally, many still believe that ERP security is suspect. And sharing information externally is even more of an issue, as many organizations still believe that data shared openly with trading partners can sometimes fall into the wrong hands.
“I think the organizations that will master SCM, especially extended SCM, are going to be those that have good information, share the right information with key trading partners, and put the collaborative processes on top of that so they can both make decisions that are win-win," said Kilpatrick.
The future of SCM
Many predict that vendors will eventually move toward Web-based architectures, which will make SCM solutions easier to deploy and integrate. “We will also see SCM vendors working more closely with the EAI [enterprise application integration] vendors, so solutions are even easier to integrate,” explained Peterson. “We’ll see more solutions becoming a commodity, too. For example, today I can get factory planning solutions anywhere, so the price is coming way down.” Because of this, Peterson said he expects a 37 percent increase in SCM licenses over the next five years. Kilpatrick also predicts an increase in company spending on SCM solutions, based on a recent survey that his firm conducted of 400 global companies.
Of those that participated, 90 percent had plans to increase their expenditures an average of 10 percent on SCM technology this year. If your company is in that number, make sure you’re choosing the right SCM solutions and solving specific business problems before spending another nickel.
Secrets to SCM success
If you’ve implemented an SCM solution that worked for your company, share what you think made it successful by sending us an e-mail.