If It does not Work, Blame the Technology?

Today, most business processes are enabled through technology. That should ideally put technologists (read CIO and their teams) in an enviable position. But the reality is far from it – technology actually gets a pretty bad rap when it comes to such assessment from the business. Most often, from the business’s point of view, technology fails to create significant value, fails to deliver the promised efficiencies and the desired value on the investments. This is true for most major corporate IT initiative, whether they were a result of business driving technology or the other way around. Most supply chain initiatives have a large functional and organization footprint and therefore, often fall into a similar trap. But is technology really to blame for the low returns or is there more to it?

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When firms invest in packaged business solutions, one of the most common and misguided expectations is that the solution will fully enable their existing processes. This is misguided because the packaged software solutions are built to provide only a certain amount of process support that is (1) common across industries and (2) generally considered the best practice in an industry/segment. None of which ensures that the solution will fully enable their existing processes. To make matters worse, such business initiatives generally do not involve any planned changes in the business process even when the existing processes do not fully support the needs. In fact, most of the initiatives do not involve any capability assessment to ensure that the business processes are designed to support the business strategy and the advantages it seeks to create.

No wonder, a large number of such ill-planned initiatives fail to produce the expected results. Jim Shepherd of Gartner (First Thing Monday column, 2/21/2011) estimated that 30% to 50% of ERP projects are thought to be “failures” by the people who were thinking of implementing one. But he says that this may just be another “urban myth” – because of the unrealistic expectations of the organization from a technology. He think that an ERP should be seen more like an “infrastructure” (enabling transaction processing, data management, process integration and information access) rather than the “streamlined (business) processes”. To quote him, “ERP should be viewed as the stable infrastructure that allows an organization to create and deploy the kind of innovation and differentiation that drives real business improvements”.

That is a view I fully support – technology is simply an enabler. The differentiation and hence the competitive advantages can be created only through business capabilities that are superior to others. Such superiority is never an accident, but must be a result of deliberate design of business processes that support your strategy. To learn about how you can assess your supply chain capabilities and drive competitive advantage by designing the right supply chain capabilities, continue reading on the subject in my book on supply chain strategy.

 

Related Articles:

© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my books on Supply Chain Management at Amazon.

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Supply Chain Strategies: Time to Refresh?

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Conventional thinking on supply chain strategies has been quite restricted to a few major concepts. My objective in presenting this series is to review these concepts, critique where they fall short, and finally, present an alternate way to think of supply chain strategies – that will actually help you build capabilities and design effective supply chains. Designed, ground up for creating and sustaining competitive advantages rather than simply filling up feature/functionality gaps to automate your operations.

image There is a reasonable bulk of literature available on supply chain strategies. Most of the literature surveyed presents similar concepts by varying names in different contexts. They tend to typify the supply chains as being one of four types: lean, agile, speculation, or postponement-oriented. Hau Lee of Stanford identifies four types as Efficient, Risk Hedging, Responsive, and Agile, which are quite similar to the earlier characterizations but with subtle differences. Similar themes are repeated but all of them suffer from the same problem: They are all so generic that they frequently drive the business strategy rather than being driven by it. The level of abstraction precludes the possibility of going into specific details, which are useful in designing the business capabilities for a real-life supply chain. Being lean, for example, is viewed as simply a cost-reduction strategy and will be just as applicable to supply chains as it will be to human resource management or any other business function in a corporation. With that amount of directive, do these concepts really qualify as supply chain strategy?

In the next few days, I will review the following four basic concepts that appear time and again as supply chain strategies. I will argue why they fall short of being of “strategic value” and what alternatives exist. Till then, the briefs below will have to suffice:

  • Lean – The supply chain strategy concept that revolves singularly around cost-reduction abilities of a well-designed and well-run supply chain. (Why would you ever build a supply chain that is not optimized for cost?).
  • Agile – The supply chain strategy with a singular focus on creating responsiveness. (Is there such a thing as an unresponsive, yet effective supply chain?).
  • Postponement – The strategy concept based on the idea that supply allocations or creation of finished goods should be postponed as long as possible towards the time of actual demand. (Great concept, but is it really applicable to you – when you are in build-to-stock business model for a commodity item? What if you were manufacturing staples?).
  • Speculation – The strategy based on the idea of leveraging economies of scale to reduce the incremental cost of supplies for addressing incremental demand. (Once again, great concept, but what if your business model is not suited to a build-to-stock scenario? What if your business’s value proposition lies in providing custom-tailored jackets?)

Next few weeks, I will expand on each one of them and finally conclude with a supply chain design paradigm that will allow you to actually build an effective supply chain rather than chasing the phantom strategy concepts that are too abstract to be useful in a real-life scenario! Keep tuned.

 

Related Articles:

  1. Strategy Alignment: Poor State of Affairs
  2. Business Strategy & Supply Chains
  3. Business, Functional & Deployment Strategy Alignment for Supply Chains

 

© Vivek Sehgal, 2010, All Rights Reserved.

Want to know more about supply chains? How they work, what they afford, and how to design one? Check out my books on Supply Chain Management at Amazon.

Enterprise Supply Chain Management

It is a great pleasure for me to introduce my first book on supply chain that was launched recently. The book is titled, “Enterprise Supply Chain Management: Integrating Best-in-class Processes” and available at Amazon as well as other book stores.

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This book presents a functional view of the supply chain across the enterprise and covers all processes of demand management, supply management, warehousing, transportation, supply chain network design, and partner collaboration. This book is targeted at supply chain managers, technology managers managing supply chain projects, and students interested in learning about supply chains. If you like books that are written in a lucid, short, succinct manner, you will like it. This book does not go into the theory behind supply chain solutions, but points out what these processes can do for you, the inputs and outputs required by these processes, and their interaction with each other.

This book essentially covers the following:

  • A primer on supply chain and finance
  • Elements of a supply chain model
  • The scope of the supply chain
  • Demand and supply planning
  • Supply chain network design
  • Transportation and warehouse management
  • Supply chain collaboration
  • Reverse logistics management
  • Supply chain technology

Hope you will enjoy this book.

Business, Functional & Deployment Strategy Alignment for Supply Chains

Business strategy alone can direct, but does not deliver. It can set the direction, provide objectives, specify the desired corporate goals, but does not take you there. That important step is left to the strategy execution. What does that consist of: converting the business strategy into the functional and deployment strategies, and converting them further down to individual plans and projects that can be executed. If each of the functional strategies are aligned with the business strategy and support the goals set by the business strategy, then it becomes a powerful roadmap for achieving the desired results. The rest of the discussion deals with the functional and deployment level strategy and execution, and tries to establish the correlation and the need for alignment among these three levels of strategies.

I am using the words “functional strategy” to emphasize the fact that functional capabilities provide functional competencies that allow the corporations to achieve their strategic goals, as well as establish competitive advantage in most cases. This is also the premise of competitive advantage that Porter talks about in his strategy discussions. The “deployment strategy” is primarily a reference to technology strategy since technology has become the de-facto enabler for the business processes, and it directly affects the cost of creating, enhancing and maintaining such capabilities. This (enabling technology) is generally seen as a support activity in conventional strategy literature, but the acute dependence on technology for day-to-day operations has changed the way companies must plan for technology today.

Functional strategies most important to a retailer would be the strategies for supply chain, merchandising, and store operations. Depending on the business of the corporation, this focus may change. In retail or manufacturing industries, supply chains will remain a huge focus area for developing process competency through strategy planning, as a very large part of the corporate operations fall within the scope of supply chain management processes. Ensuring that the supply chain strategy is aligned with the business strategy not only helps reach these goals, but also provides an objective method for prioritizing the supply chain initiatives within other organizational and functional constraints. An example of such organizational constraint can be the available funds that must be spread across all functional initiatives including the supply chain. An example of a functional constraint can be the unavailability of consistent item master data across various stores, that may then constrain the ability to correctly plan for the optimal inventory across the enterprise. A functional strategy defines the guidelines for the prioritization of functional areas where the development of organizational competence will get the biggest rewards.

Consider a retailer whose business strategy revolves around providing value pricing. This strategy can be achieved through merchandising functions by changing assortments to cheaper products that functionally serve the same utilitarian function as a more expensive product, or by creating store brands where costs are closely controlled by the retailer. The same strategy can also be achieved through improving supply chain functions that reduce the cost of operations like better inventory planning, transportation optimization, cross-docking; by having a lower cost basis, the savings can then be passed on as value based pricing. The strategy objectives can also be reached through enhanced store operations like better labor planning, reducing floor associates through installation of price checking stations, product finder stations, and self-service POS lanes; again the savings can be passed to the customers in the form of value based pricing.

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Which one of the above is the best course of action? This question can only be answered by rising above individual functions and considering all of the following:

  • What is the target for value based pricing? How much difference does the retailer wish to maintain with the competition?
  • Is changing assortment for pursuing the value based pricing even feasible? This could be true for commodity items, but not where consumers value the brands.
  • What is the potential of each strategy for providing the value based pricing, which one provides the largest profitability potential?
  • What is the cost and time for implementation of each of the functional strategies?
  • What other benefits each of the strategies provide? As none of these solutions work in isolation, they do have other consequences as well. For example, reducing knowledgeable store associates does affect customer service negatively.
  • What strategies produce synergies with other corporate goals? For example, improving demand and inventory planning may also support more flexibility in refreshing assortments more frequently.

A functional strategy establishes the direction for creating, enhancing, and maintaining the functional competence within the functional area. Such a strategy will not only support the business strategy, but may also provide options to consider that may not be available in absence of a specific functional competence. For example, once the competitive price collection and analysis capability is established as part of the functional strategy execution, then value based pricing may have another option of defining store specific value pricing using the regional competitive data, rather than having a chain-wide pricing strategy. Either way, the functional strategies establish the direction for the evolution of functional competence, and a functional strategy that is fully aligned with the business strategy is always most desirable.

As almost all functional processes are enabled and supported by technology, having a technology strategy that is aligned with the business and functional strategies is equally necessary. Technology strategy is driven by the business strategy, but in turn, it also drives the business strategy. For example, a business strategy for developing inventory planning capabilities drives the technology solution to be pursued, but the technology pursued may drive the need for establishing common master data across enterprise divisions to effectively deliver the inventory planning capabilities. This introduces another level of complexity in aligning the three strategies and prioritizing the investments. I call this a “process sequencing constraint” where a process capability cannot be developed without first developing another process capability. These constraints can be soft when they can be worked around, or hard when they cannot be worked around. In the above example, having a common item master is desirable, but by developing an interim solution for mapping several divisional item masters, the problem can be solved to an extent. However, if the functional strategy wanted to pursue transportation optimization, but master data on the shipping attributes of the items/orders was missing, it would almost be a hard constraint. Therefore technology strategy also affects the business strategy as much as it supports it. 

In fact, as most of the investments for creating a functional capability remain in technology, it has the potential to become a real constraint, limiting the flexibility of the business, if it has not been thought through, and aligned with the other two.

Technology strategy establishes the direction for the applications (custom, packaged, SaaS, etc.), information (master data, meta-data, business intelligence, etc.), and technology (hardware, software, vendors, open source, SOA, etc.). These decisions, in turn, affect the cost of deploying functional strategies, as well as the TCO for creating and maintaining the process capabilities and organizational competence.

In summary, it pays to have functional and deployment strategies closely aligned to the business strategy. It provides a roadmap for organizational evolution, as well as a practical tool for prioritization of spend on developing process competencies mandated by the business strategy.

Do it Right: Don’t Undermine Your Investments in Supply Chain Technologies

In my last post, I talked about why it is important to have the people with the right skills to fully leverage the supply chain technology investments. In this blog, let me expand that equation further to see what are the other factors that corporations must ensure in order to fully leverage their supply chain solutions and the promised returns on their investments.

The following picture represents the main reasons why most of the failed technology/solution investments do not pay off.

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People:

Supply chain planning solutions typically are built as decision support systems with complex algorithms underneath. These solutions require people with the right skills for configuration, tuning, reviewing and resolving errors, and maintaining the planning parameters for the system to function at its best. Depending on the solution, these skills may vary from statistics, to mathematical programming, to data mining, etc. People can acquire these skills through training, academic background, and/or prior professional experience. However, the key is to plan for the people with right skills and not undermine the solution capabilities for want of a few good people. Also remember that we are talking about only a handful of super users that would fall in this category, since the large majority of the users, using the output of such systems don’t have to be specialists at all! Read more about this aspect of supply chain solutions in my previous post.

Process:

Most corporations believe that their processes are unique, and therefore provide them with competitive advantage that others in the same industry do not have. The truth is that for most part, it is a myth. Very few processes in an enterprise actually have the potential of providing such competitive advantage, while most others will be just fine as long as they are efficiently planned, executed, and reviewed. Being open to review the old processes in an unbiased way, and adopting the standard process supported by the solution not only shortens the implementation timelines, it also saves money, and resources. And usually, it provides a standard way of doing business with other partners in the industry using similar solutions. Be open to evaluate all processes and adopt changes where such changes make sense.

Infrastructure:

Successfully implementing complex business applications requires proper infrastructure planning. With infrastructure in this context, I mean hardware as well as software infrastructure. An example of software infrastructure will be ability to manage common master data among many business applications; ability to extract, cleanse, consolidate, govern, and publish such data to all applications that need them; ability to analyze information; ability to collaborate; have automated alerts, and event based messaging to prompt user action when required. often these capabilities are not planned as part of the supply chain solutions since they are not mandatory. However, they allow the enterprise to fully leverage the core solution while absence of these capabilities truly constrains the ability to reap any substantial ROI. To a large extent, this can also be said about the hardware: having centrally hosted servers with proper back-up, disaster recovery plans that are routinely tested, high speed network among corporate locations, RF terminals, large monitors, etc., does add to the overall productivity, usability, and adoption of these applications. Only such investments with the right processes ensure business continuity in natural or man-made disasters. Having the correct infrastructure for a supply chain technology initiative requires holistic planning, the kind that is mostly missing from IT-centric project planning exercises.

Customization:

This is another huge factor affecting successful implementation and adoption of new supply chain solutions. Unless a solution is custom built to your requirements, chances are that your processes will never map a 100% to the process supported by the packaged solution. However, to avoid functionality gaps that may be truly constraining, you must determine these gaps prior to the investment in the solution. Since most of the bigger software vendors would have years of experience with similar customers, it is also a good opportunity to question all such gaps and determine if they are real gaps, or merely entrenched habits that are hard to break. Remember, every custom enhancement to the solution costs money to develop, pushes back the project timelines affecting ROI, becomes a permanent constraint to solution upgrades, increases on-going maintenance fees, and adds to testing and validation costs for original deployment and every upgrade thereafter. This is a sure TCO killer.

Metrics:

What gets measured, gets delivered. Therefore, define clear expectations on prospective operational improvements through well-defined metrics. What is it that the technology is expected to deliver: higher inventory turns, higher number of orders processed per buyer, higher fulfillment rates? Also make sure that you have the historical data on these metrics to compare the new numbers against. All ROI is questionable unless it can be established through consistent trend on the defined metrics, against a historical data set. Finally, make sure that these new metrics are aligned with the people’s individual goals. Many a times, personnel goals are tied to the operational metrics, and when these operational metrics get revised due to new technology, the revision of the personnel goals is easily forgotten. But remembering to realign the two will make sure people have no hesitation in adopting the new technology, since the new technology is going to help them with their new set of goals.

Make People Part of Your Equation on Supply Chain Technology

As awareness around supply chain functions has grown, so has the software applications available to address these functions. In fact the supply chain has been among the most expanded solution area for ERP companies during the last decade.

However, unlike the transaction processing ERP systems, the supply chain functions tend to provide a decision support tool that can be complex. Consider demand forecasting, inventory planning, replenishment planning, transportation planning, bid optimization — these are all areas that actually provide the users with modeling, evaluation, and analysis tools for real-life scenarios rather than simply automating transaction processing. Therefore, these and other supply chain solutions routinely utilize techniques such as statistics, time series analysis, linear programming, mixed integer programming, dynamic programming, decision trees, probability, queues, data mining and so on.

Putting the power of real science to work behind these solutions improves the solution quality, and allows these solutions to model real-life scenarios closely, consider a large number of parameters that may affect the results, and leverage ever expanding computing capabilities to provide solutions within minutes making close to real-time changes possible.

But it also increases the complexity of these solutions, and requires that companies employ people with the right skills who are capable of using such solutions through training, academic background, or both. And that is where most companies appear to lose all their commonsensical ability to judge the value of their investments. There are far too many implementations where the businesses have chosen to spend millions on the best of breed solutions but then pulled back when it came to invest in quality of people who would be using these solutions and actually make possible the solution ROI. No wonder ROI on software solutions has always been questionable even though real results can be achieved with some common sense.

Suppose you spent a few millions buying a jet, you would most certainly invest in an experienced jet pilot, rather than trying to teach your chauffeur on how to fly that damn plane. Almost all large corporations own their private fleet of jets these days, and the pilots and other crew to go with these planes — always without question. Now consider the same corporation investing the same few millions on a high-end demand forecasting system that utilizes sophisticated statistical forecasting techniques, and requires a few people with doctorate or masters in statistics to set up the system, tune the forecasting parameters, review the forecasting errors/trends from time to time to ensure that the system is running at its very best and providing good forecasting projections. While most of the users of this system could be people with average academic and professional experience, but a few of the super users controlling and tuning the system had to be statisticians. Suppose also that the solution vendor is naïve enough to mention this during the sales pitch, where do you think it would go? Chances are such an open admission of skills required to run the system will not go down well, and such naïveté will cost the solution provider the business.

How many times have you heard the refrain that if the system requires a PhD to be run, then that is a problem. But the fact is that some systems are complex, and they do need highly skilled people to run them, tune them, and keep them in good shape. And just like the example with the jet above, these systems do pay back in terms of saved time, increased data accuracies, objective decision support, scenario playing and other similar capabilities that are impossible to achieve manually, or by using systems that don’t quite provide the capabilities to keep them simple.

On the other hand, not everyone may need a jet either. Therefore evaluate your needs clearly, and if you do need a system with all the power of science and mathematics behind it, go for it, but also remember to plan the right people and skill-set to go with that!

Don’t undermine your technology investments, make sure they are leveraged with the right people behind them.