How to Leverage Your Systems Investment

By Jim Welch and Peter Wietfeldt -- Supply Chain Management Review, 11/1/2005

In their quest to tap the highly touted benefits of an integrated supply chain, many companies have invested heavily in software that is intended to link them seamlessly to their customers and suppliers. But are companies deriving maximum return on these investments? The answer is not at all clear.

Companies rely upon supply chain management (SCM) software systems to connect to their customers and suppliers and to optimize those relationships. SCM systems include applications such as order management systems, materials requirements planning (MRP), forecasting/demand planning, and warehouse management systems as well as sophisticated advanced planning systems.

Because many senior managers have believed (and continue to believe) in the promise of SCM systems, they have put substantial resources behind these projects. During the past four years, companies across a range of industries have spent more than $1 billion on SCM system software licenses alone. They've made a huge investment in implementation resources as well. The time required to implement an SCM system ranges from six months to four years, depending on the number of business units, functionality scope, and configuration complexity. After implementation has begun, it can take 18 months to three years to reach targeted benefits. If measured from the time of the initial investment decision, the typical time to achieve steady-state performance levels and to recoup the investment can be five years or longer.

With so many resources on the line and with such a long nail-biting period before seeing a pay-off, companies must be prepared to make required changes even after an SCM system project is complete. We call this the "post-implementation era."In the last 10 years, many companies employed aggressive implementation schemes, often emphasizing IT functionality at the expense of business-process development. As a result, expected benefits were sometimes not fully realized.

The post-implementation era presents a second chance—an opportunity to diagnose and address process management and other nontechnical issues missed the first time around. In this phase, companies work to get the results originally planned but not yet achieved: They implement new functionality upgrades and drive continuous improvement.

Through our work with clients, we see that SCM implementations repeatedly encounter a set of common problems (see Exhibit 1 at bottom of page). In helping companies address these areas, we derived seven "lessons learned" or imperatives for successful implementation. These imperatives transcend conventional IT project scope because they address management as well as technical issues. They apply to virtually any supply chain-related system or application, whether it is a monolithic, fully integrated system, or a so-called best-of-breed approach.

Each of these imperatives can have a substantial impact on the value realized from SCM systems investments not only during planning and deployment but also after the tools are established. Companies can use these imperatives to maximize their supply chain performance going forward. Let's look at each imperative in turn.

Companies that quickly achieve their intended results from their SCM system initiatives have secured their executives' backing for the programs right from the start. Top performers clearly define the planned changes and how these changes will support the company's strategy going forward. The executive management team then ensures that the organization understands what will be required—both in terms of the practices that must change and the resources required to sustain the change. The top team must demonstrate unshakeable commitment to the initiative as commitments "written in stone." The plan should have a robust multi-year roadmap with measurable milestones. Even if the executive team starts out with that level of alignment, they should reinforce it as often as necessary in the post-implementation phase.

Companies that lack the strong organizational commitment needed to drive strategic change often look for reasons to avoid presenting clearly targeted benefits and expectations from SCM systems. During the Y2K rush and the dot-com boom, a familiar quote was, "We don't need a business case to know that this is the right investment to make." To be sure, not all SCM benefits include tangible, measurable savings. But successful companies continually test long-term commitment and executive alignment in their reviews of investment plans and the anticipated return on investment (ROI).

We know of one chemical company that went through a series of mergers and acquisitions. Afterwards, it operated as three separate regional companies across the Americas, Europe, and Asia Pacific regions. Although the three entities manufactured the same commodity chemicals, each used different information systems for financial, human resources, sales, production planning, quality management, and inventory management. This arrangement made it difficult to forecast global sales, source sales volume, control inventory, and meet customer needs, so the company turned to an SCM system. The chief goal of that initiative was to present a single face to the customer so that orders could be efficiently and effectively taken and fulfilled from anywhere in the world.

The chemical company's president secured executive alignment by getting the regional business managers to drive the change process in their respective autonomous regions, forcing them to let go of individual biases. That posed quite a challenge. Managers of the regional units voiced resistance to harmonized processes and common systems. They insisted that their region was "different" and needed to retain special legacy processes and software. So the company president communicated his vision in clear terms: An SCM system solution was critical to running a more profitable, global company. Once the SCM system went live, the company would shut down all legacy systems that were to be replaced by the SCM system. His approach forced regional managers to support the change process or be left behind. For this company, the "go-live" date was only as important as the "go-dead" date.

Here are a few ways that companies can achieve executive alignment. One is to take the time to develop a clearly aligned strategic plan that directly links potential SCM system solutions to business challenges. Using "voice of the customer" research is another way to bridge the strategic gap. Having customers articulate their unmet needs and expectations is a very effective method for highlighting a lack of synergy or a need for integration. Once the executive team can articulate how the SCM system can solve fundamental business challenges, they find it easier to get themselves on the same page—the precursor to getting the rest of the organization on board.

A new governance model is typically required to shift from a functionally driven business model that has disparate information systems and limited visibility to a cross-functional business model that boasts clear process owners and effective decision making. Process owners must have the accountability and authority to drive results. The cross-functional management team must define and make tough decisions spanning multiple functions. And senior management must be adequately engaged in the change process, visible as supporters and drivers of the new ways of working.

The governance model has to be structured properly. Far too often, though, companies take the path of least resistance, organizing the model along lines most familiar to them and reinforcing pre-existing functional or regional demarcations. The pitfall here is trying to strengthen the organization without addressing the organization's weaknesses.

PRTM recommends structuring and organizing governance to ensure that weaknesses receive the proper attention, even if a time-phased plan is required to shore up those weaknesses. The organizational model should mirror the "future state" vision and become a foundation on which to build.

For companies with deep functional or well-established regional orientations, it's even more critical to take a cross-functional or global approach to governance. It is crucial that key leaders are drawn out of their functional silos and given broad, process-based responsibilities. Otherwise, the capabilities now available with SCM systems will not be fully exploited. The key here is to get the right alignment between processes, systems, and the organization itself. For example, if broad organizational chasms exist in the handoffs to fulfill a customer order (from sales to order entry to planning to manufacturing to distribution to invoicing), then the best processes and systems will not provide maximum benefit.

To handle both steady-state governance and post-implementation development many companies establish an SCM system program management office (PMO). The PMO is described more fully in the fifth imperative discussed below, "Tackle Organizational Needs Directly."

Another approach is to organize around key cross-functional business processes with executive process owners. Examples of this are supply chain organizations aligned around the major processes of plan, source, make, and deliver or around "mega-processes" such as order-to-cash or buy-to-pay. In these two examples, one executive may own the full process from taking orders to collecting payments from customers.

Changes to the business process are what count most in SCM system implementations. The benefits from the system cannot be claimed until the underlying processes change. Since business units sometimes operate like independent fiefdoms, they must be the ones to enforce these changes. Enforcement happens when the chiefs of individual regions mandate that business processes in their respective regions match the processes being used across the rest of the company.

As system deployment concludes, post-implementation begins, and a continuous improvement plan picks up where the initial road map left off. This plan must define specific performance metrics and targets for major processes, with appropriate phases and milestones for monitoring ongoing improvement against longer-term goals.

One global company that we know, sees business process management as a critical part of its goal to present a single face to the customer. Instead of making multiple calls to locations throughout the world, a customer can book and confirm an order with a single phone call to the company's call center in the customer's own region. As a result, it no longer takes a customer hours or days to receive an order confirmation. To implement the process, executives chose a leading SCM system and opted for a "wall-to-wall" implementation—one that addressed all supplier-to-customer processes. Analyses of each major business process indicated that the implementation would generate recurring annual savings of more than $30 million, with a 30-percent reduction in inventory. The company established a comprehensive scorecard to track the savings realized over a three-year payback period.

The first step in the process change was to use the new sales, production planning, quality management, and inventory processes embodied in the SCM system to create a global available-to-promise (ATP) process for customer orders. For the first time, a customer service representative (CSR) in Belgium would be able take an order from a customer in Germany for a product manufactured in Ohio and provide a confirmed delivery date—all in a single phone call.

Only after demonstrating quantifiable benefits from the new ATP capability, as measured in the new scorecard, did the company take the next step and launch an online sales portal. Customers could now place orders online, obtain immediate confirmations, and even evaluate "what-if" scenarios. For example, they can now look at what are the trade-offs between getting products shipped from inventory from another region and having them made in the same region at a later date.

Eventually, the company added advanced planning functionality to drive improvement, such as being able to vary inventory-replenishment policies based on the frequency and volume of demand. However, the company was able to use this advanced system's functionality only after mastering the global sales and operations planning (S&OP) process, which allowed it to balance its supply with global demand over a 12- to 36-month planning horizon.

Another company also had a successful implementation as a result of paying attention to the underlying business processes. This company was looking to substantially improve its S&OP process by implementing a new demand/supply planning system. However, the management team knew that the information technology was not going to be sufficient to drive the organizational discipline needed. So as part of the new S&OP process, they increased the level of detail and focus on profit forecasting. By having the S&OP process provide new and more tangible visibility into the "latest view" of the financial results on a monthly basis, adherence to the new process became more meaningful. When executives began focusing on the outputs of the new S&OP process, the new way of doing business immediately got traction in the organization.

Reaping maximum benefits from an SCM system also requires end-user support, master-data maintenance, and plans for realizing additional value from the system in the future. Whether implementing an SCM system for the first time or resuscitating one that is underperforming, companies should give the system adequate support. User support and resources help sustain day-to-day operations. To achieve this, organizations need specialized help desks and local "super-users." Because of their extensive knowledge, these super-users will inevitably be promoted to different positions, so companies need to cultivate replacements to keep this vital function active. To appropriately train both new and experienced end-users, organizations need to employ a sufficient number of qualified, accountable trainers, even in the post-implementation phase.

At the same time, master data, such as customer information or supplier lead times, should be maintained by the accountable "data owners" rather than by a massive clerical staff. For example, the buyers within the purchasing team are the data owners for supplier lead times.

Successful companies also provide for ongoing upkeep and improvements to their SCM system assets. This ongoing improvement includes not only systems upgrades and new software functionality but also business process improvements. Leading companies have fully dedicated experts and resources, often outside of the IT department, who lead the planning and oversight of this ongoing strategic process.

The company's organizational model often needs to evolve during the post-implementation stages. This includes upgrading traditional roles, creating some new roles, and applying the appropriate change management processes.

In these phases, a program management office can prove invaluable for driving new SCM system processes; that's especially true for large, diverse, and globally dispersed companies. Dow Corning, Monsanto, and Colgate have all used this approach, tailoring it to their specific circumstances.

The PMO represents a brand-new organizational construct for ensuring that the SCM system is leveraged to its fullest extent. It supports ongoing global implementation of the SCM system and related new processes and, in many cases, makes use of an SCM advanced planning module. The PMO leader is the overall program champion who plays a role in critical decision—making. Typically, he or she manages the overall SCM program and works with the business leaders to define and implement the SCM strategy. The PMO leader's objective is to get optimum business benefit from the SCM system investments through direct and indirect management of the entire SCM implementation lifecycle. A typical charter, used to launch the PMO, is shown in Exhibit 2.

The PMO either includes or engages subject-matter experts from the business side and the IT side as well as external partners that specialize in SCM solutions. There are typically fewer than 20 dedicated PMO core team members. However, when mid-sized or large companies count the entire number of people engaged by the PMO across business units, regions, and IT departments, the stakeholder members may number in the hundreds.

The PMO core team should also include SCM business analysts, technology specialists, and a program administrator. SCM business analysts clearly define business and application requirements and ensure successful implementation, while technology specialists define systems requirements and ensure successful deployment.

Successful post-implementation efforts often require enhancing three traditional supply chain roles: CSRs, purchasing managers, and supply chain planners. The CSR requires special training to use available-to-promise methods for promising customer orders from other regions or even other continents. Another key requirement is that the CSR is in charge of maintaining and updating master data, which should be measured as part of the CSR's overall performance evaluation.

Purchasing managers also need more sophisticated analytical skills to comb through the newly available global spend data to identify opportunities to consolidate spending. In addition, purchasing managers may require advanced leadership skills to forge important joint initiatives across various business boundaries. They may, for example, have to convince heads of business units to give up favorite suppliers to help reduce costs.

Supply chain planners should be able to take advantage of advanced supply chain planning tools. For example, they may need to create optimization routines for determining the best inventory-stocking policies and to select appropriate algorithms for reorder policies. Some companies have placed high-powered operations-research experts or mathematics PhDs in these roles.

Because of their complexity, SCM system projects are often inundated with seemingly endless IT configuration issues that, if left unchecked, can confound the business mission. In the post-implementation phases, individual business or regional units often want to change their IT configurations or add instances that deviate from harmonized business processes and the standard business model. By referring to and upholding standard processes, managers can prevent undue complexity and avoid higher investment and support costs.

Leveraging newly accessible data often requires applications above and beyond the core SCM system application. In our experience, data mining and other creative uses of available SCM system data are best done with a data warehouse, an application that usually is not included in the SCM system itself. If data mining is important to the overall plan, users should consider adding a data warehouse during post-implementation.

It is also important to define roles and security needs thoughtfully so that qualified users have access to the data and applications they need to work effectively in a cross-functional enterprise. While there may be valid reasons for limiting access privileges, supply chain analysts, planners, and managers typically require broad-based access to supply chain performance data. For example, local pricing among global markets can be a sticky issue, but the need for global visibility into inventory levels and planned production is fundamental to an efficient supply chain.

One company has demonstrated how to handle IT-related configuration issues in keeping with its business goals. From the get-go data a warehouse solution was integral to the SCM system design. However, because it was scheduled to be online much later than the core SCM system application, the company required both a longer-term IT application plan and a "bootstrap" plan to sustain the business until the data warehouse was available. When implemented, the data warehouse simplified reporting processes and allowed mining of supply chain performance data, which is now available in a single repository. Business owners accountable for supply chain performance can specify the data tracked and stored there.

Corporations now have several years of experience in evaluating, deploying, and operating supply chain systems; they have learned much about planning infrastructure needs. Clearly these systems require complex IT networks. Robust infrastructure planning must include network-capacity planning for anticipated traffic volumes. It also must address how frequently the data is refreshed on the server farm. This ensures that the infrastructure has acceptable response time, uptime, and accessibility (Web-based user access, for example). If the infrastructure disappoints or frustrates users, they are likely to become disenchanted and won't fully embrace the tools available. And with these complex networks comes a need for specialized performance monitoring tools-themselves sophisticated computers that help pinpoint and solve network problems at the outset of any infrastructure program and throughout its lifecycle.

Just as key performance metrics are essential for monitoring supply chain operations, so are they important for monitoring the IT operations that support the supply chain. If IT operations are outsourced, organizations can use performance metrics to measure and hold the outsource provider accountable. Such metrics include system response time, uptime/availability performance, or help desk support. These metrics should reflect the scope of the contract.

Finally, when establishing a hosting contract, companies should provide for later re-evaluations with an "out clause" that can be invoked if the subcontractor does not meet expectations.

The post-implementation era provides an opportunity to resolve critical SCM system issues, many of which go well beyond the traditional scope of early supply chain system implementations. By properly addressing these management issues, companies can finally realize the promises made by SCM systems and ultimately exceed them.

The pitfalls shown in Exhibit 1 represent the cumulative experiences of dozens of companies and should be regarded as mistakes to avoid. This set of pitfalls is also useful in post-implementation as a summary-level diagnostic tool. The seven imperatives we have enumerated provide a useful program guide for companies that are a) not satisfied with their existing SCM implementations, b) evaluating new SCM systems, or c) considering replacement or upgrades of existing systems.

It is obviously important to acknowledge that SCM systems are not automatically going to confer competitive advantage. (See sidebar on "The Maturity Framework.") It is equally important to accept that they require constant "care and feeding" supported by the right processes and organizational models, backed by the appropriate governance, and championed by the executive team. As such, the SCM system is not simply another complex solution to hand off to the IT department and to a few dedicated and tech-savvy business users. If the SCM system is to deliver a clear performance edge quarter after quarter, it must be wholeheartedly embraced by senior business leaders too.