Supply Chain Management: The 'Red Headed Stepchild' Syndrome

Updated: October 27, 2010

The Legacy Supply Chain Management Landscape - The Perfect Storm!

The current economic recession and business concerns for supporting the future business needs is bringing together a perfect storm of influences and pressures to replace legacy applications and especially in the Supply Chain. Businesses must be very careful in their evaluation and selection of a strategy and direction. The results of a failed implementation or a delayed, or bad, decision within the Supply Chain can result in severe and even fatal impact on the business.

In these enterprises the Supply Chain applications have been modified and enhanced to support the specific needs relating to the operation configuration, utilization, culture and work force in such a manner that now the applications fit like a glove. However, these applications also contain shortfalls and sometimes significant manual requirements to support new and additional business requirements. While everyone likes a shiny new tool, you must also evaluate the benefits against the risks when making these decisions. In many cases the best decision for the enterprise may be a program of stabilization and enhancements to support the incremental strategy delivery rather than a program to replace the applications.

Many SMB retailers have delayed spending on SCM solutions for years due to cost constraints and a focus on other priorities perceived to be more important to the business. This is exacerbated by the stovepipe and inflexible nature of the legacy applications. The Supply Chain operation has become extremely resourceful in developing work around and one-off solutions.

Flexibility is a key decision factor, and a key difficulty, or barrier, to increased flexibility is the ability to get timely data. The implementation of new applications does not improve the flexibility and ability to deliver. Many organizations are placing greater importance on delivery of flexibility and the ability to deliver what is promised and when it is promised with a minimal risk to the business. This objective leads to the decision to stabilize the applications and incremental delivery of strategic improvements; most enterprises are not willing now to take on the additional risk to the business that replacing critical business applications raise. The Enterprise Add-On software approach recognizes that on-going, sustainable improvements in performance, functionality and flexibility are only possible if there is an alternative to the high cost of modification or replacement of legacy systems.

The Supply Chain can provide significant benefits from even simple improvements. Studies have determined that Supply Chain operations can provide significant benefits as shown below:

  • The Supply Chain generally accounts for between 60% and 90% of all company costs!
    • A 2% improvement in process efficiency for Supply Chain processes has 3000% - 5000% the impact of a 2% improvement in efficiency for IT, HR, Finance or Sales

These studies suggest that you don't need to make significant and wholesale changes to deliver significant benefits to the business and Supply Chain! In fact, following a strategy of preparation and incremental improvements rather than wholesale replacement of applications and business process modifications is the more risk adverse strategy that can still provide significant benefits. These benefits could be used to fund other strategic business improvements! It is important to ensure these benefits are delivered while controlling the risk to the business.

The critical objective in this process is to develop a strategy that can deliver cost effective and beneficial improvements in a timely manner with the lowest risk to the business. In many cases the best decision and strategy is to provide incremental improvements while stabilizing the environment to support efficient operations. You must utilize all the tools at your disposal to best deliver the improvements with the lowest risk to the business.

Preparing the Supply Chain Environment for Recovery

Organizations are struggling with the impact of the recession:

  • Expense reductions and reductions in force to reduce expenses and try to ‘ride out' the recession
  • Delays and cancelled capital improvement projects
  • Companies are re-evaluating business drivers
  • The spending focus is beginning to shift to business and strategic improvements from expense reductions or control.

Organizations must start to prepare for the recovery. This will be a key differentiating factor in the future success of organizations. The recovery could have an even bigger impact on a company if they are not prepared for the increases brought about by the recovery. Companies must prepare for the recovery through capital improvements to support expanding business from the recovery, being unprepared will leave the company unable to support the new business and customers and could lead to failure of the business.

Organizations have developed a strong dependence on ‘tribal' knowledge provided by the long term employees supporting the business in both operations and IT. This dependence has placed the organization at risk due to the reductions in force that have been executed during the recession. At the very least, companies are at risk of poor decisions and execution of strategy and the worst case is the inability to determine and execute new strategies. This leads to uninformed decisions that can seriously impact the operation.

Key reasons to embark on Supply Chain improvements:

  • Supply Chain accounts for 60% - 90% of all company costs
  • A 2% improvement in process efficiencies for Supply Chain processes has 3000% - 5000% the impact of a 2% improvement in IT, HR or Finance
  • For these reasons improvements and focus on the Supply Chain can provide both business process improvements and significant reductions in cost from the same improvement project
  • These benefits and return on investment can also be used to fund other strategic business improvements.

This also makes any future initiatives even harder to justify! Allowing IT to play a central role in developing and driving the implementation of these incremental strategic initiatives can help organizations to better address the two problems that have plagued these initiatives; high complexity and poor sustainability.

There have been improvements in ‘packaging' and ‘wrapping' services that can provide many of the desired improvements or results in the look and feel along with the Business Process Management and subsequent automation of business processes. These capabilities can provide significant benefits to the operation and business while dramatically reducing the risk compared to a replacement!

Key factors to include in the evaluation and decision making process:

  • Benefits of current applications customized to meet the specific needs of the business
    • Include the methods and risks to these customizations
    • Identify appropriate tools to help in delivering the improvements
    • The full impact of the replacement and risks to the business
      • Business process definition
      • Requirements definition
      • Feature definitions
      • Integration considerations
    • Robust project and program management capabilities

Supply Chain Management Improvement Considerations

Aberdeen research found that custom built applications rank first in current usage for global Supply Chain technology but drop to last place in popularity for new IT implementations. By comparison, on-demand applications (SAAS model) are used today by the least number of respondents but rank second in popularity for future adoption. This would suggest that the risk to the business that can be introduced by these decisions is gaining greater weight in the decision process. The dramatic increase in popularity of the SAAS model suggests that the enterprise decision making process is closely reviewing the promised total cost of ownership at the very least.

The following areas of consideration must be thoroughly evaluated and rationalized. The impact of changes to these areas and the risk to the business is greatly increased in a system replacement program as compared to an enhancement program.

  • The integration of legacy applications in a stovepipe environment
  • The stability, structure and platforms housing the systems and applications
  • Business Process definition and management
    • This is impacted dramatically by the ‘tribal knowledge' understanding and lack there-of brought about by reductions in force to meet expense reduction targets.
    • Any revisions to the application(s) must take into consideration any possible impact to the business process
    • Ability to identify and implement change to the business and Supply Chain operations
    • Successful Off-the-shelf software implementation requires changing the business process, procedures and operation!
  • Integration requirements and interoperability between applications and platforms
    • How is the data utilized across applications and platforms?
    • Are the applications ‘tightly coupled' by the integration and data utilization?
    • Environmental stability and the impact to the stability of changes and especially replacing applications
  • Risk to the business and the operations
  • Change management considerations and the ability of an organization to accept changes
    • Business processes and relationships changes must be thoroughly analyzed and planned
    • Significant changes to the applications can drive significant changes to the business processes. These changes will drive significant changes to the culture of the organization that must be taken into account
    • Training requirements must be thoroughly analyzed from all aspects
      • Leadership
      • Culture
      • Technical
      • Job functions
  • Clearly define the options up to and including the modification of existing systems.
  • Define and quantify the benefits of each of these choices

These efforts and the level of complexity in analyzing and possibly re-designing the business process would significantly reduce the benefit and increase the risk to the business! There are many new BPM/BPA tools that should be taken into consideration for incremental improvements to the legacy application in conjunction with a stabilization and enhancement program.

Identification and implementation of an appropriate tool and strategy to utilize the tool provide the following capabilities to address business concerns:

­Business Applications Continue to Drive the Transactions of Your Entire Enterprise:

  • Do not change their control, command or process; no modification, replacement or integration.
  • Establish a solid base for continued operation without risk, disruption or delay.

­

Business Applications are Stabilized so Change Happens Outside Boundaries:

  • Explore and measure opportunity value in response to change by investing only in projects already proven.
  • Add new technology, data and processes risk free.

­

Changes become Opportunities to Adapt and to Apply Competitive Pressure:

  • Change is seamless, Opportunity is immediate and your Enterprise increases its sales, margin and satisfaction
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