Implementing Supply Chain Solutions
September 28, 2010
Noted supply chain analyst Lora Cecere wrote last month about an exchange she had with a corporate supply chain executive [“Crossing the Great Divide,” Supply Chain Shaman, 31 August 2010]. The executive said, “Our SAP implementation was expensive. I know we need it, but I am trying to get a Return on the Investment (ROI). I think that I can improve the ROI by using retail Point of Sale (POS) data to improve forecasting and replenishment. How are others using POS data?” Lora notes that simple questions like that rarely have simple answers. She indicates that the question was followed by a “deep discussion.” Lora has learned from experience that when it comes to implementing supply chain solutions, the devil is always in the details.
Sachin Shetty, Principal Consultant for Enterprise Solutions – SAP Practice at Infosys Technologies, reminds us “that the most important phase in supply chain planning implementations is actually post implementation support” [“The most important Phase in Supply Chain Planning Implementations,” Supply Chain Management, 1 September 2010]. He continues:
“Many customers after having spent a lot of money on implementing planning systems are not able to leverage the systems to the fullest extent and the usage of the planning system dwindles down. This can be avoided with much needed management focus on post implementation support. Unlike ERP system which becomes an integral and critical part of the daily activity of a user, planning systems are not critical in [the] short term and [a] planner always has [the] ability to use manually generated plans or previously generated plans in case the system is down. ERP systems constitute the lifeline of an enterprise and, in case of issues, get high visibility & attention. While planning systems issues are not so visible, … in the long run [they] can have equally significant impact. Planning systems can produce excellent results during testing and go live but they can be completely inaccurate post implementation, if the business environment changes. Hence it is very important to track key metrics and fine tune the planning models based on business changes.”
I agree with Shetty that post-implementation support is critical for making any supply chain management tool valuable. The only constant that businesses can count on is change and a system that doesn’t keep up with change becomes more of a hindrance than a help. Shetty continues:
“Planning users need to have a certain degree of systems knowledge and there is a need to continuously coach users, after implementation, to use the solution and exploit additional features. Additional requirements need to be captured and modifications done to system to better aid the planning processes. There is a need for the planning support team to have deep planning process and planning best practice knowledge combined with in depth planning systems skills. Typical IT teams look at support from a perspective of resolving & closing tickets and maintaining the system uptime related SLAs. While this is important, in case of planning systems, this does not ensure long term success of planning implementations.”
Like most things in life, supply chain management tools fit into the “use it or lose it” category. Shetty explains:
“At one of my customers, I noticed that the planning systems were being neglected by users. There were discussions of shutting down the application as the plans were not adding value to the business community and it running them was an overhead. On further probing, I realized that the support team [consisted] of technical team members without a lot of experience in Supply Chain Planning implementations. The team members had not seen any other best practice processes. Also there was no concept of Super Users who could align the technical support team with business users. Coaching the users, auditing the plans, enhancing the applications was not part of support team’s activities and hence planning solution was not updated with changing business environment. This was pointed out to the customer and subsequent changes were suggested to the support model. Hence the post implementation support phase is the most important phase to ensure the success & growing use of planning systems and adequate focus is needed to create the correct support model.”
Shetty’s comments underscore the importance of supply chain management teams. If the right people aren’t involved in decisions, implementation, and follow-up of new systems, then the chances of that system adding significant benefit to the company are greatly reduced. Steve Banker reminds us that we should have a broad vision of who actually makes up a corporate supply chain team [“The Supply Chain Team,” Logistics Viewpoints, 8 September 2010]. He writes:
“Ideally, the supply chain team includes more than just the folks who work in manufacturing and distribution. For the supply chain to work efficiently and effectively, there are other folks in a company (who may not report to the Vice President of Manufacturing or Distribution) that should also be on the team.”
Here are his suggestions for who should be on the Supply Chain Team in addition to the usual suspects:
“Human Resources – They can help you acquire talent, figure out systems to fairly evaluate personnel, and fire underperforming folks without being exposed to lawsuits. If you have managers that are making employees crazy, HR will often be the first to know.
The CEO and Vice President of Sales – When the CEO or VP of Sales pressures the sales force to meet the quarterly (or annual) revenue targets, watch out! In these scenarios, customers are often given unusually deep discounts near the end of the reporting period that trigger a high volume of shipments. The result is increased overtime in factories and warehouses; machines and equipment that are overworked; increased quality issues and, consequently, more returns; and a higher incidence of late or short shipments. Supply chain folks sometimes get blamed for these problems when the fault really lies with the way the firm is conducting business.
The Vice President of Marketing – Promotions can also lead to the surges in supply chain shipments and excessive costs that are borne by the supply chain organization. There are industries, like consumer goods, where many companies would find it very hard to remain in business if they did not use promotions. But if a company is running different promotions at the same time, they are needlessly yanking the supply chain organization around. If the supply chain does not have sufficient advance warning, and a decent forecast of volume surges, extra costs are incurred. And many companies really do not understand which promotions are truly profitable. In these instances, you are making the supply chain work harder for no good reason.
Cost Accountants – Many manufacturers and distributors sell a variety of high volume and low volume products. High volume products tend to be a lot less costly for the supply chain. They flow through the supply chain with less friction – i.e., fewer factory setups, fewer touches in the warehouse, truckload rather than less than truckload shipments, and lower inventory carrying costs. The supply chain likes high volume products. However, if a company lacks good cost accounting, high volume goods get stuck with overhead carrying costs that really belong to lower volume products. The result is that the high volume products look less profitable than they really are, and low volume goods look more profitable than they really are. If that is the case, a company can end up selling more of these marginal goods with high supply chain costs than really makes sense.
Product Development – When products are being developed, the main goal is to make products that customers want to buy at the right price. Well-run companies include ‘engineer for manufacturing’ and ‘engineer for logistics’ methodologies into their product development process. Sometimes small changes in the components that make up a product, or the dimensions of the product, can lead to large savings in the supply chain.
Chief Risk Officer – Supply chain organizations are often under pressure to do more with less. If your company does not have good risk management processes in place, adverse safety, health, or environmental incidents can occur. If these incidents are frequent enough, or significant enough, they can put the company’s survival into question.”
You can understand how the kind of planning systems discussed by Shetty can be undermined by marketing or product development people if they are not a part of the team. I also agree with Shetty that if those tasked with post-implementation support for the system are not included on the team (both within the company and from the system provider) figuring out exactly who should be on what team won’t be easy. As Banker concludes, “Collaboration is an important word in supply chain management.” I couldn’t agree more.