Commentary: Navigating supply chain projects

By Jennifer Chew, Senior Analyst

The lingering downturn in the economy has forced companies to look for ways to cut supply chain costs and improve productivity.

To learn more, Forrester surveyed 124 North American executives in businesses ranging in revenue from $500 million to more than $10 billion. The results show that their projects are:

• Complex. Our respondents are spending an average of $6.8 million and 1.6 years per project--and 19 percent of companies report that cultural clashes and business-process changes are crippling their implementations. Eighty-eight percent of respondents' supply chain management (SCM) projects crossed divisions or geographies. One bright spot for struggling application companies is that only 4 percent of respondents say that application problems are their biggest challenge.

• Running in parallel. Nearly half of our respondents had concurrent implementations in progress in three or more process areas, and 18 percent had undertakings in all six areas. Inventory management implementations are the most mature, with 56 percent of the projects already wrapped up, while manufacturing planning has the furthest to go, with 33 percent of respondents having no current plans to tackle the area now.

• Dependent on an ERP vendor. We asked executives to select a single vendor that they turn to for their supply chain projects. Enterprise resource planning (ERP) companies outnumbered "best of breed" companies by a margin of more than 4-to-1. Combined, packaged-application companies are in 53 percent of the implementations, matching the involvement of systems integrators. And 22 percent of companies are solely relying on in-house skills despite their intent to streamline business processes.

Forrester believes that there are three key questions that companies must ask to keep from taking on too much, too quickly. One: How do I prioritize my projects? Two: What is the right vendor choice? Three: Who is the best service provider?

Map it out
Realistically, taking on simultaneous projects in inventory management, demand planning, logistics and manufacturing planning is too tough--and risky. Instead of setting priorities based on the executive flavor of the week or perceived low-hanging fruit (think e-procurement), companies should use a structured supply chain mapping process to identify which projects should go first. Specifically, companies should:

• Identify the longest chains--and shorten them. In the supply chain process, mapping the length of the chain represents the time lag between operations. As the length of time increases, the amount of buffering inventory required to make up for the lag also increases. Simply put, long lines mean high costs. Companies should prioritize the projects that shorten these long chains. If Calvin Klein identifies inbound procurement as the longest chain in its mapping, it should aim its resources at a company-managed inventory initiative instead of transportation planning.

• Identify the most complex chains--and simplify them. Complexity is easy to identify in supply chain mapping: The number of steps from point A to point B directly correlates to difficulty. More steps mean more chances for excess inventory to accumulate, for late shipments and for faulty demand signals. So companies should also prioritize projects that simplify the number of operational steps in a given process.

As favorable tax laws are phased out in Puerto Rico, for instance, companies like Pfizer should invest in network planning tools to redistribute manufacturing operations to other locations, minimizing excess shipping requirements to and from the island.

Speed limits
Until recently, companies have had two choices for SCM systems: ERP or "best of breed." Add to the mix a new category--business process management (BPM), from companies like Fuego--and executives really are in a pickle when picking a provider. Forrester recommends that companies decide based on the degree of business velocity; that is, how often the process changes. Depending on the rate of process change, companies should:

• Stay with their ERP provider if processes change infrequently. If a company is struggling to standardize "siloed," static processes across the organization, its ERP company will meet their needs. Companies like Nestl? rely primarily on SAP for their enterprise backbone; Nestl? has saved $325 million since June 2000 through process standardization.

• Use a top company if the process changes moderately and often. Companies like Yantra and Descartes Systems Group pride themselves on developing the latest in supply chain wizardry. And early-adopter companies like DHL strive for being top in their industry, even if it means taking a bet on an up-and-coming company and altering processes as often as every one or two years.

• Use a BPM tool for the ultimate in flexibility. The new kid on the block is BPM--and it is the right answer for projects that require a very high degree of process flexibility. BPM enables companies to design, automate and optimize their own processes across their existing applications infrastructure. Early experimenters with BPM include manufacturer Lonseal, which is using Savvion's tools to shorten its new product introduction cycle.

The role of the expert
Some SCM projects aim to change a process from top to bottom. Others focus on getting a new application up and running to support the existing process. Virtually all projects involve both process change and technology implementation. SCM vice presidents should:

		Related story IBM goes to school for supply chains Big Blue is funding joint research centers at universities to aid in the study of supply chains, with a goal of improving its own operations.

• Play the integrators and application companies against each other for applications expertise. Software companies have played up the idea that only they really know the product, and they are charging users a premium for their implementation services. While that level of knowledge might be true for a specialty company such as Axeda, don't let the big application companies fool you. Implementation skills for SAP and i2 Technologies applications abound in the marketplace, and people should hunt down the best price for application configuration skills once the supply chain process experts and reputable project management skills are in place.

• Don't overestimate vertical expertise. While verticalization is important, a cross-fertilization of skills from comparable industries can be helpful. So in addition to pharmaceutical supply chain gurus, Johnson & Johnson should sprinkle consultants from the consumer-goods and high-tech areas on its projects to spark out-of-the-box ideas like radio-frequency tagging and multitier outsourcing.

© 2003, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.