As business pressures on companies’ value chains have intensified over the last 15 years, we have been witnessing a movement toward implementing IT initiatives in the supply chain era. The focus on such initiatives is usually cost reduction through inventory optimization and process automation or enhancing the visibility in the supply chain. Unfortunately, many such initiatives fail to fulfill their purpose and this forces one to ask: how can we improve the success rate of supply chain IT initiatives? This question provided a motivation for us to study the underlying problems in the IT planning and implementation. Not surprisingly, we noticed that many of the issues arise from the way the supply chain IT initiatives are treated in the companies and specifically the process of decision-making.

In order to find an answer for our question, we conducted a thorough analysis of the decision-making process in one client in the retail sector as our main case study. We also conducted a number of interviews with other players in the company’s supply chain, namely its main suppliers and customers. Suppliers, distribution channel players and customers are not the only stakeholders in a company’s supply chain initiative. We discussed our findings with supply chain software companies and planning and implementation consultants to enrich our insights and validate the results at the industry level. At the end, we conducted a focused survey in a sample of companies where the degree of supply chain change is high to validate and refine our findings.

Our results were quite fascinating: We found out that supply chain software can no longer be treated as a black box. Companies need a system in which all stakeholders in the supply chain—including the board, customers, suppliers and related areas such as finance and IT departments—can contribute to the decision-making process.

In addition to fostering innovation through the chain, this collaborative approach provides two main benefits: First, it prevents a single function, typically IT, being blamed for poor decisions. It also prevents users from later complaining that the systems don’t perform as expected.

We call such a system a “Supply Chain IT Governance System” and based on the results of our research, we believe that designing and maintaining such a system can dramatically improve the success rate of supply chain IT initiatives. In more precise words, the definition and core elements of such a system are described below:

Governance in the IT community is a familiar term. Failure of companies’ IT initiatives in 1990s, new regulations on companies’ transactions and accounts (e.g. Sarbanes-Oxley and Basel II), as well as the increasing role of IT as a strategic issue and its effect on corporate performance gave rise to a new concept called IT Governance. The concept is focused on information technology systems, their performance and risk management issues. Several organizations have developed standards and procedures for these (e.g. COBIT¹ and BS7799²).

But IT Governance has remained an IT term since its inception and also has an internal point of view. We felt this concept should be enhanced to capture the requirements of supply chain and be more business oriented. So we defined the Supply Chain IT Governance as a system that tries to fulfill the following goals:

Supply Chain IT Governance is more than a formal process description but a system and includes three main components:

Having an effective supply chain IT governance system requires the senior managers of the company to attack fundamental problems in supply chain decision-making such as communication and involvement of the players. The next step is to develop a suitable mix of structure, processes and communication protocol that responds and supports the company’s strategy. So it would be beneficial to identify the common problems in the IT decision-making processes and current state of the industry in this respect so that we can craft the framework for a high-quality governance system.

The first and probably the most important problem area for decision making about supply chain applications is related to the way IT is treated in the company. As an example, the case company that we studied hadn’t developed a formal IT strategic plan in line with its business strategy. It viewed IT spending as a means for maintaining transactions that were up and running. As a result, the company was interested in keeping the IT cost per unit of product as low as possible.

We also noticed that if the attendants in the decision committee are fixed, they might not have enough knowledge for certain types of applications at certain levels, thereby rendering the outcomes of their decisions less credible. Also it’s possible that the field requirements are not fully captured as a result of the low involvement of the people throughout the chain. This might increase the lost opportunity cost and also cause a Do-IT-Yourself reaction during the implementation phase.

Exhibit 1 shows the process of decision making about IT applications (including supply chain) in our case company and the problems in each stage.

After aggregating the results of our analysis of the decision making process at our case company and the inputs from our interviewees, we noticed that most of the problems in the process of decision making about supply chain software are falling into three main areas: Communication, Involvement and Approach. These three areas, their subcategories and consequences are presented in Exhibit 2. Below we highlight some issues in each category in more detail:

Involvement of different stakeholders: By “involvement” we mean listening to the voice of people who are using the system and also experts in the area. This does not mean the top management of the organization. It happens often times that management thinks one aspect of the system is important and useful but in practice, it turns out that it’s not the case. Usually if top management had listened to the users of the systems or the ideas of the experts, this might have never happened.

Management should involve the software users, both in the company and among the company’s customers, in the decision-making process carefully because these two groups typically think about the current software requirements. Whenever the vision is to make a breakthrough supply chain innovation with the use of software or to identify the software requirements of the supply chain processes for the future, these inputs might be misleading.

On the supplier-side, if the relationship with the supplier is short-term, then it doesn’t make sense to involve that supplier in the governance development process. The situation in this case is usually win-lose. If the relationship with the supplier is long-term and win-win, then it is beneficial to get inputs from that specific supplier.

Technical maturity of the decision makers: Depending on the type of decisions to be made, the suitable level of technical expertise at least at the general level should exist in the team. But this is not often the case; usually an executive committee comprised of the heads of the departments go through the process and one committee makes all types of IT decisions.

Communication with different stakeholders: Unfortunately, supply chains are usually characterized by a dispersed network which makes communication with stakeholders difficult. Even though there have been lots of efforts going on in this area recently, communication still remains a challenge.

Belief in strategic role of IT: In many cases, software decisions are still treated as a cost decision and not an investment decision, thus undermining the strategic value of IT. As a result, software vendors promise a lot of things and deliver optimistic ROI calculations. But after implementation, because of the lower performance of the software compared to the expectations, internal stakeholders become unhappy and the loop of pessimistic view toward IT is reinforced. This has an internal effect as well and prevents management from considering ambitious projects or true priorities in the decision-making phase.

Our interviewees believed that some sectors such as retail have improved dramatically in recent years, especially in the areas of relationships with suppliers and distribution channels for IT decision making. This is due to the increased power of the retailers and their IT planning requirements. They have also gained valuable experience in collaboration in IT decision-making with initiatives such as CPFR.

We found out through our survey that, even existing IT models which have been developed so far are used only by the few companies. Even though around 52.6 percent of the companies were using some quantitative analysis for their decisions, only 15.8 percent of the companies were using such models and the same amount were using standards such as COBIT or BS7799 in a customized way. In addition, 52.6 percent of the companies surveyed were not using any elements of the existing models for IT decision making.

On the other hand, a majority of the respondents (75 percent) believed that these models are somewhat effective to ensure the alignment between supply chain strategy and IT investment. A relatively high number also thought that these models effectively capture risk attributes of the IT decisions. They also believed that existing models should be modified in the context of Supply Chain IT decisions.

Surprisingly, we noticed that most of the sample companies in our survey (67%) favored highly structured channels of communication over informal relationship and put strong emphasis on what experts were saying in each area of decision making. They actively encouraged following the formal procedures of making decisions and usually had the right information necessary for making the decisions at the right time.

The respondents believed giving the most say to experts weakens the process of making consensus. In the respondents’ view, experts involved in a decision usually made up their minds in the middle of the decision making sessions. In response, subordinates and other participants, due to expert-driven culture of the company or for political reasons, don’t disagree with them. On the other hand, even though the decisions are not taken by consensus, the responsibility is shared within the group members in almost 80 percent of the cases.

The respondents also observed that in their companies, the process of decision making is highly affected by time pressures and perceived importance of the decisions at the moment, which highlights the need for fast and flexible systems to run the process.

We were also interested to see how much industry practitioners are aware of the importance of supply chain IT governance. Therefore, we asked the members of our focus group their point of view about this.

Around 69 percent of the respondents believed that IT decisions are important or very important compared to other strategic decisions taken in the company. Most of them (84 percent) also believed that the company should follow the decisions made by the IT committees. At the same time, they thought it should be possible to postpone IT decisions to some extent in time (higher flexibility in time for decision making) due to the constant changes in the competitive environment. They also thought that the key people should be involved in the process otherwise the results won’t be valid in the implementation phase. Other ideas mentioned by our interviewees include:

We decided to take into account some of the feedbacks mentioned by business community in designing a comprehensive TO-BE model.

A high quality Supply Chain IT Governance system seeks to achieve balance between attributes such as: time and resources (including tangible and intangible) to achieve the optimal decision. The system should also take into account different attributes of a high quality decision-making system, including:

All the relevant divisions plus supply chain and IT functions should be involved in the process of decision making. An effective model consists of bottom-up engagement and top-down decision-making. In the case of a decision about a supply chain software, as an example, the final approval for the decisions should be made in supply chain division. This approach makes sense because in the context of supply chain software packages, the people in SCM function have more knowledge about the reliability of the decision and also they are the people who are going to use the system.

We developed two simple tools to attack the problem of involvement and communication and improve the process of IT decision making.

First, we developed an Extended Map for Supply Chain IT Governance to address the involvement challenge. The map is a two-dimension matrix that tries to relate different players in the supply chain with different areas of decision making in IT. The map can be filled once by CIO and senior management of the organization to determine who should be involved in decision making and after that can be used on a regular basis for normal decisions. A schematic view of the map is presented in the Exhibit 3.

Next, to overcome the problem of communication, we developed a simple web-based application to support the decision-making process. This application, which we call the Collaborative Decision Making System, works in the following way: The information about the new projects, the questionnaires related to IT initiative evaluation and the risk criteria can be put on a web server, along with a decision-making engine. Then users from different geographical locations can log in to a web-portal dedicated to the evaluation process and input their data. The system, based on the type of the decision model which has been used, aggregates inputs and generates the final result.

The use of such system has a number of advantages including:

In the pilot system that we designed, the questions and evaluation criteria were drawn from IT governance standards such as BS7799 and frameworks such as COBIT, which also increases the degree of compliance with IT security requirements.

A high-quality IT decision-making system should be able to cope with fundamental supply chain challenges such as communication and involvement. Successful outcome in the process not only depends on the use of such tools but they can be the beneficiary.

Based on the findings and empirical results of our research, it seems that in order to enhance supply chain performance, the following changes should be made in the IT decision making processes:

Simple tools such as Extended IT Governance Map or Collaborative Decision Making System direct the mind to consider players in the whole supply chain and can be used as a basis to determine which people in the chain should be involved in decision making and for what systems. Regarding the use of collaborative DSS, it’s interesting to see how using information technology itself can solve some part of the problem, but only if it is used wisely. This requires a radical change in managers’ point of view about supply chain software from a black box designed to optimize operational processes to strategic role it can play, a change that has been proven to be hard.

In our research we found out how the quality of the IT decisions in the planning phase can be improved and thus, due to direct link between some SC performance measures and decision-making phase, how improvement in the quality of the decisions made in the planning phase leads to improvement in SC performance. We also tested some of our preliminary findings in a focused web-survey which led to more refinement in our way of thinking. Our present work is highly affected by the point of views in the retail and high-tech industries. The work can be extended to other industries to see whether such point of views are only shared within IT community and consultants in the retail sector or the leaders of other industries as well. This is in fact one of our plans: To check the validity of current findings by testing the results in other case companies and conducting cross-industry surveys that will lead to better insights for use by the supply chain community.