Supply chain management (SCM) isn’t a new concept, but IT leaders and enterprises are still wrangling over ownership, expected business achievements, product selection, and implementation issues. One stumbling block is a lack of understanding of the concept of SCM and the mistaken perception that there’s one perfect solution, say experts.
“There is no such thing as supply chain software,” said David Hough, director of SCM at the PSC Group, a Midwest e-business consultancy.
“Supply chain is a concept, and you have software that deals with certain parts of it,” added Hough. IT leaders often overemphasize the software side of SCM, which can ultimately hinder the effort’s ROI. In Hough’s view, few IT departments have a sufficient understanding of the supply chain to make cost-effective choices about SCM products.
Tech leaders tend to reach for either a familiar or a “best-of-breed” specialty vendor and force business units to fit the software requirements—the exact opposite of how enterprises should be approaching SCM.
Hough believes that IT leaders can make solid SCM decisions by educating themselves about supply chain issues in their respective industry, and by hiring a business consultant to analyze the supply chain and help identify various solutions.
SCM education resources
SCM education is an important first step. Since formal courses are difficult to find, Hough recommends seeking out and joining supply chain organizations, such as Supply-Chain Council, a professional organization founded in 1996 to help member companies learn about best practices in SCM. Hough advised tech leaders to study the group’s Supply Chain Operations Reference model (SCOR), which maps out the supply chain from a content point of view.
“[The model] is not interested in the protocols or communications like the IT guys are,” said Hough. “But it’s the IT guys who need to go back to what the business flow is and how it is modeled, so that they can have a common understanding when developing system requirements with the business units.”
Tech leaders should also investigate industry-specific supply-chain organizations, which can help drill down on key workflow and standards issues. For example, RosettaNet is a consortium of companies working to create and implement open e-business process standards for electronics-related industries. The Voluntary Interindustry Commerce Standards Organization (VICS) focuses on the supply chain for consumer packaged goods. Its Collaborative Planning, Forecasting and Replenishment (CPFR) committee has developed voluntary guidelines to help manufacturers and retailers interact more easily.
The advantage of independent consultants
Hough, an SCM consultant, is obviously a strong advocate for the role consultants can play in planning and implementing an SCM system. He recommends hiring an independent consultant who has relationships with multiple software vendors, which will ensure that the consultant isn’t trying to shoehorn a company into a particular product.
The consultant should also be more than a software reseller, he noted. He or she should have experience in analyzing supply chains and in process engineering.
“You need a company that specializes in corporate strategies and has an understanding of the process. In other words, you don’t want somebody that’s just ‘blue sky’ purely, and you don’t want somebody that just wants to install software.”
Some consultants do have relationships with SCM vendors, and just going with the current best-of-breed technology from specialty vendors may not always be the best decision, said Hough.
“The IBMs, Oracles, and Microsofts have solutions you need for the supply chain, and the reason why you want to look there is that they are going to be here 10 years from now,” he explained. While these companies may not provide the best technology specifically for SCM, they can provide a workable solution.
“If there’s anything that the last two years have taught us, it’s ‘buyer beware’ of wonderful solutions that have been propped up with venture capital money. They are no longer there because they don’t have any more investors, and that leaves you high and dry,” said Hough.
The SCM payoff
Whether IT selects the solution with or without a consultant’s help, CIOs need to quantify the ROI, as with most efforts. Hough said CFOs tend to be more skeptical of big SCM implementations because they remind them of the customer-relationship management (CRM) hype. Hough estimates that as much as 80 percent of CRM projects fail to meet expectations.
Hough says that the equation for evaluating the ROI of SCM includes "TTIPP" factors—time, throughput, inventory, people, and processes. Efficient inventory, for example, can ensure that a company’s assets aren’t sitting unused in a warehouse. As SCM often automates tasks, jobs can also be eliminated, providing ongoing savings.
And tech leaders don’t need to do big SCM implementations to see results. Surprisingly, small investments can be leveraged to big TTIPP savings, said Hough.
For example, a big retailer could use a simple collaborative system to establish a much more efficient relationship with manufacturers. A significant issue for the manufacturer is making sure trucks are full of goods to keep costs down. Yet sometimes, a retailer orders a quantity for immediate delivery that’s too small to fill a truck.
Using collaborative software, the buyer and seller could work to make sure both enterprises’ supply chain goals are met—if the retailer is expecting a shipment at 6:00 A.M., but it’s more economical for the manufacturer to make that delivery later in the day, when the truck is full, they can notify each other via the SCM system. In this case, the manufacturer saves on shipping—savings that it could potentially pass on to the retailer.
As Hough’s example illustrates, understanding the business processes internally, and with customers and clients, can play a fundamental role in choosing the appropriate SCM technology.
What do you think?
Do you agree with Hough that most IT leaders don’t know enough about the supply chain to make good decisions on SCM solutions? Can IT leaders get up to speed on their own, or is it best to hire a consultant? Tell us what you think.