Supply Chains with Staying Power

Supply chain management (SCM) is not just another acronym in the alphabet soup of the IT space. It is vital to the corporate bottom line and has myriad practical applications. As just one example, semiconductor makers can use SCM to find more cost-effective ways to deliver chips to customers.

Dr. Pallab Chatterjee knows about SCM’s value firsthand. He is president for solutions operations at i2 Technologies, a “best-of-breed” SCM applications maker. Best-of-breed vendors focus on just one or a few specific applications, as opposed to large suite vendors like PeopleSoft or SAP that have offerings in many functional areas. Best-of-breed applications may perform better but can be harder to integrate within an enterprise.

In addition, before joining i2 three-and-a-half years ago, Chatterjee was CIO of Texas Instruments, where he implemented i2’s products for the company after discovering inefficiencies in the chip delivery process.

Finding the Path

Chatterjee told CRM Buyer that he was horrified to learn Texas Instruments’ chips traveled 25,000 miles, taking 10 airplanes and several different trucks, in their journey to customers. An effective SCM solution was vital to reduce the waste in that transportation setup.

Of course, SCM software is useful in many other industries as well, and it addresses a wide range of business concerns, including sales forecasting, order fulfillment, inventory planning and transportation management. However, this is not the type of software a company can install and then neglect, particularly if it intends to grow its business. Putting together the right system involves much more than a generous IT budget.

What is the best path for a CIO to follow to ensure he or she chooses the right supply chain software?

Decision Support System

Lori Mitchell-Keller, vice president of market strategy at best-of-breed vendor Manugistics, described SCM software as a “decision-support system.” Such offerings gather information from various sources, including ERP systems, to help organizations make better decisions.

As an example, Mitchell-Keller told CRM Buyer, a good SCM system could analyze a manufacturer’s inventory, sales and transportation expenses, then conclude that to sell “X” units of its products efficiently in the D.C. marketplace, the company needs to manufacture more units in its Florida plant, rather than in a plant farther away from its destination.

To reap the benefits of SCM, however, CIOs must keep several factors in mind when choosing a system for their organization. These factors range from finding a vendor that understands a particular industry to the so-called “human element.”

Don’t Be a Guinea Pig

Mitchell-Keller said domain expertise in a given industry is crucial because supply chains vary in terms of complexity.

For example, whereas Ford must manage massive production lines using complex parts to achieve ROI on its huge assets, Campbell’s Soup Company must determine when to package and deliver the contents of its giant storage tanks of soup. Circuit City, meanwhile, does not manufacture anything, so its supply chain involves buying, storing and selling merchandise.

In addition, AMR Research senior analyst John Fontanella told CRM Buyer that companies should not purchase supply chain applications before investigating the top SCM vendors in their industry.

“You do not want to be the guinea pig,” he said. “Doing so can be terrifically expensive, a high-risk proposition that your company cannot afford.”

Rethinking Your Business

For his part, Meta Group vice president Dwight Klappich told CRM Buyer that SCM system failures rarely involve flaws in the applications. Generally, such failures result from the way systems are deployed and maintained.

“Often, there are issues that need to be addressed before implementation” of a SCM solution, he said. “And we’re saying to clients that this is an ongoing learning process that requires maintaining and refining as [the system] adjusts to events.”

“It’s necessary to rethink your whole business processes [in order to] get full value from supply chain software,” i2’s Chatterjee added. “Make sure you understand how to get your organizational structure to improve with or without the software.”

According to Chatterjee, “Supply chain software is similar to buying a health club membership. If you never go to the health club, you won’t get any results no matter how much you spend.”

Cost vs. Functionality

Klappich noted that most vendors are no longer selling large SCM suites to their customers. Instead, organizations now are building systems according to their needs and strategies.

Fontanella said the biggest battle for CIOs is weighing cost of ownership against superior functionality. He noted that best-of-breed vendors have about a five-year head start in design and development over big ERP vendors like SAP.

However, larger vendors offer products that integrate easily into preexisting ERP systems. Fontanella estimated that integration eats up 30 to 40 percent of an SCM project budget, making it typically the biggest expense incurred.

As a result, he said, if a piece of SCM software sold by an ERP vendor offers 80 percent of the functionality of its best-of-breed counterpart, lower total cost of ownership would make the tradeoff worthwhile.

In the end, each organization will have to make its own decision to ensure it chooses a supply chain with staying power. Prudence in the planning stage is vital, as is awareness that what is right for one industry may not be right for all. Ultimately, the CIO’s prime goal should be to pick an SCM system that can grow and change along with the company, helping it achieve specific goals that boost the bottom line.

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