Measuring Efficiency

Jan 01, 2004 10:30 PM  By

Supply chain efficiency may be hard to measure, but claims for the benefits of upgrading or completely revamping supply chain management IT systems abound. The current period may not be a bad time to do just that. Says Charles Troyer, a partner in the consumer goods and retail practice area of New York, NY-based CSC Consulting, “It’s a bit of a buyer’s market these days. The software and service sectors have been hit pretty hard as a result of the dot.com collapse, as well as the lack of business investment and capital spending.”

Despite his generally positive assessment, Troyer sees a lot of reticence on the part of retailers and others to make many large investments in IT and software. “There is also a much higher degree of focus on the bottom-line return that these investments are going to yield,” he says.

Other experts concur. According to Ram Viswanathan, a principal with Nathan Research in Carrolton, TX, “Operational effectiveness is the mantra today.” Viswanathan considers today’s environment a real challenge for companies that wish to maximize their use of supply chain technology. For example, often when systems are implemented at the corporate level, not all of the efficiencies filter down to the store level, not because of any specific roadblocks but just resulting from a lack of attention to such efforts.

James Dion, president of Chicago-based Dionco Inc., which specializes in helping retailers use technology, finds that companies these days are looking for less complexity in their supply chain management information systems. The difficulty for firms that already have their own systems full of information, especially the larger ones, is to move new product information into the preexisting systems as easily as possible. “When your buyers are purchasing 5,000 to 10,000 new items a year, or you’re changing information in terms of shipping origination location, shipping terms, weights/measures, and packaging changes, the challenge is monumental,” Dion says.

Eric Johnson, professor of operations management in the Tuck School of Business at Dartmouth College, believes that one area ripe for improvement is integrating the various elements of supply chain management information technology systems. “The problem is that no one has rolled all of these up into one supply chain offering,” says Johnson, who believes that there has always been a good selection of warehouse management systems around, and that this product segment is actually rather mature.

SEVEN STRATEGIES FOR SCM IT SYSTEMS

In sum, the critical issue for supply chain technology users is still integration. O+F asked Brian R. Neale, a senior manager at Sedlak Management Consultants, a supply chain consultancy in Richfield, OH, to boil down the complexities of how to determine your supply chain management software needs and then select the best-integrated system to meet those needs. Neale offers the following model of seven primary issues that companies must address when considering the purchase of supply chain execution system solutions:

  1. “In order for potential systems partners to determine the best software solution, companies need to prepare and provide sufficient information to effectively convey their needs,” says Neale. Attempting to purchase a system without this preliminary preparation will result in higher project risk and/or ineffective completion of the objectives. “In fairness to the system provider, they can tell you what they offer based on what their other customers have implemented,” Neale says. “However, without specific guidance from you on what you need, this information may not fully satisfy what you need to accomplish your objectives.”

    During the needs research process, Neale recommends gathering input and consensus from customer service, finance, operations, incumbent business partners, and all others involved in the supply chain. “For example, get a good understanding of what service level agreements will be in place with customers and how fulfillment performance will be measured,” Neale suggests.

  2. Don’t just automate existing processes. “They may be inefficient or suffer from low integrity,” Neale points out. “Make sure operational handling procedures, actual product flow, facility layout, use of material handling equipment, and adequacy of exchanged data are solid before you automate.”

  3. Make sure the system you purchase is adaptable. That is, you should be able to configure your system to ensure flexibility without the need to customize the software constantly. At the same time, try to stay away from purchasing software that will require extensive modifications. “Stray from the ‘base code’ only when real value can be established,” says Neale. “Examples might be an operating model processing requirement or the need to support a competitive advantage of the operation.” In addition, be sure that any changes you make to the software do not void the warranty.

  4. Be sure you understand the requirements to integrate and interface the new software with other existing systems. “The trend today involves real-time, or nearly real-time, information exchange among systems,” says Neale. “This is no small task, and it is not one that software providers typically address beyond their offerings.” However, most of the leading software providers can offer standard bridge programs and data formats to lessen the burdens of integration.

  5. Just as it is important to gather input from supply chain participants in selecting a system, it is important to involve them in the implementation and start-up. “It is important for everyone to understand the full processing impacts of the new system,” Neale emphasizes. “Training is a critical requirement at this stage.” Consider all of the interdependencies that exist and will continue to exist with the new system — relationships among finance, customer service, merchandising, receiving, stock control, picking/packing, and so on.

  6. Evaluate your return on investment (ROI). “Be able to accurately measure this information after the start-up,” Neale warns. “Obviously, you don’t just want to accept the ROI provided by the software provider. For one thing, they don’t know your business as well as you do.”

  7. Finally, consider the skill set of the technicians who will be required to maintain the system once the software provider and/or consulting service partners complete the installation and start-up. “Involve your technical people for the duration of the project as full-time members of the team,” says Neale. “This will establish ownership and ensure a smoother transition to in-house maintenance.”

William Atkinson has been a full-time freelance business writer since 1976. He covers all facets of management, business, and industry.

If the shoe fits …

Here are two additional recommendations from other sources: “One important key to success is to make sure you know exactly what you’re looking for [and] then, during the discussions, make sure that they can provide a good fit,” says Andrew Scott, vice president of operations/IT for Edison, NJ-based footware manufacturer Aerosoles. The company uses a number of different IT systems in its supply chain. One is an Escalate ASP system that allows consumers to place orders online. What Aerosoles likes about Escalate is that it required no capital investment, while at the same time allowing Aerosoles to reap the full benefits of a business-to-consumer e-commerce system. “The main reason we selected Escalate is that they were willing to partner with us,” says Scott. “Escalate, for example, was willing to make some modifications for us to fit our exact needs.”

Dionco’s Dion warns that “the absolute best piece of advice to anyone when purchasing supply chain management software is: Don’t be a beta site. Talk to companies that are already using a provider’s software. See how it’s working for them. Then buy something other companies are using, and using successfully.”
WA