Companies Dissatisfied with SCM

Survey reports issues unsolved despite large investments; executives complain solutions don't provide effective forecasts

Advocates of supply chain management (SCM) software and services typically argue that SCM delivers ROI by streamlining efficiencies and reducing costs. A new study from Booz Allen Hamilton Inc., a UK-based global management consultancy, says that there may be some truth to this argument—when supply chain planning works, that is.

The reality is that about half of SCM adopters report that their supply chain software and services have failed to live up to their expectations. As a result, says Booz Allen Hamilton VP Peter Heckmann, 45 percent of adopters report they’re dissatisfied with the performance of their SCM solutions.

The consultancy's survey of 196 executives in North America, Europe, Asia-Pacific, and Latin America found that a majority—51 percent—was disappointed because finished solutions did not support decision-making across their supply chain. Moreover, a clear majority—58 percent—was unhappy because their “optimized” solutions did not provide performance measures across their supply chain.

Among all respondents, the top reason given for supply chain expectations not being met was an inability to forecast effectively (56 percent of respondents), followed by business-related implementation issues or delays (48 percent). Another 44 percent cited unrealistic expectations of the impact of SCM technology as reason for their dissatisfaction.

The upshot, says Heckman, is that even after spending millions of dollars, many companies were dealing with the same problems: “When we talk with companies that have gone down that path [of optimizing their supply chains with software or services], they realize that it cost them a lot of money, it cost them a lot of resources, but in the end, a lot of those issues were still there.”

SCM vendors who don't properly educate their customers about the requirements of a truly effective supply chain strategy exacerbate this problem, Heckmann says. In many cases, he maintains, supply chains must be restructured—often, radically so—in order to be improved. Heckmann cites the example of a Booz Allen Hamilton client, a prominent tuna company, which relocated its canning operations after it determined that it would be more efficient to do so—in spite of the potential for disruption to its operations.

In its survey, Booz Allen Hamilton found that companies willing to fundamentally restructure their supply chains typically achieved savings over companies that were willing only to make changes within the context of their existing supply chains. The issue, Heckmann says, is that customers are naturally reluctant to risk disrupting their operations by tinkering with their supply chains.

In this regard, he argues, they are often done a disservice by SCM vendors, who convince them that they don’t need to make fundamental changes to their supply chains. “Some of [these vendors] convince them that IT is a silver bullet to solve all of their problems in the supply chain. It’s definitely not a silver bullet. It’s just a tool that helps to make some supply-chain processes more effective. But in order to get rid of issues in the supply chain, you need to just do more than implement IT solutions,” he explains.

Not surprisingly, SCM vendors take issue with this aspect of Heckmann’s account. Hiten Varia, chief customer officer with SCM specialist i2 Technologies Inc., says that his company typically deals with several different kinds of customers, including those—such as Dell Computer Corp. and 3M Co.—that are willing to radically restructure their supply chains to ratchet up efficiency and achieve greater synergy.

Far more often, acknowledges Varia, companies trying to compete against the Dells and 3Ms of the world approach i2. “Those are the ones who are losing because they don’t have any control over their supply chains. They want to get there very quickly, and they tend to look at software and services as a way to get there quickly,” he observes.

In either case, Varia argues, customers can often make substantial improvements to their existing supply chains without radically restructuring them. “We believe that there’s still a tremendous opportunity of going through a system, identifying constraints, [and] exploiting them. You’ll do certain things to work-around those constraints and to get more through-put out of those constraints.”

CEO, C-Level Involvement Key

Heckmann suggests that the risk of operational disruption during supply chain restructuring can be minimized through planning and, in many cases, simulation and modeling.

At the same time, he urges, SCM must become a component of a company’s overall business strategy, which means that CEOs or C-level executives must drive it from the top down.

In cases in which CEOs and C-level management play a role in guiding and overseeing an SCM implementation, companies typically reduce the annual cost of serving customers by an additional 45 percent over organizations in which responsibility for SCM resides below senior management.

This is particularly important in cases that involve restructuring a company’s supply chain. “If you need to reengineer your supply chain, you need to think from a top-down perspective about what are the right structures, what are the right processes, how do I want to run my supply chain,” he explains. “Thinking along the extended enterprise—that requires CEO attention.”

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About the Author

Stephen Swoyer is a Nashville, TN-based freelance journalist who writes about technology.