SCM software can increase efficiencies — and if you're not careful, it can also add complexity. Supply chains are more intricate than ever — especially for organizations that operate
globally and with many suppliers, distributors and customers. Keeping track of materials demand and sourcing, product demand and inventory, the location of goods, financial transactions and other factors can be daunting.
Supply chain management (SCM) software can help enterprises automate the planning and execution of supply chain activities, and coordinate the movement of materials, goods and finances. This can result in significant efficiencies and process improvements.
But deploying SCM technology also comes with challenges: selecting the right technology to avoid complexity pitfalls; being realistic about implementation planning and execution; and the need to tweak applications as conditions change over time. Failure to address these could result in higher costs, greater complexity and fewer benefits from SCM.
The market for SCM applications is growing. Worldwide SCM software revenue totaled $6 billion in 2007, up 18 percent from $5.1 billion in 2006, according to a report released in June by research firm Gartner Inc.
Globalization is a primary driver of the growth, through the need for businesses to accelerate time to market for new products, services and geographies, says Chad Eschinger, research director, Software Market Research Team, at Gartner.
Through 2012, several factors will affect SCM software revenue growth, Eschinger says. These include increased global competition and the need for enhanced customer service , which will force many businesses to explore means to achieve greater value within their supply chains.
“Given the economic climate, with credit issues and skyrocketing energy costs combined with increasing SCM complexity, risk and globalization, there is a lot of pressure on [organizations] to deliver basic results,” says Dwight Klappich, v ice president covering supply chain execution applications at Gartner.
For example, Klappich says, over the past two years logistics costs have risen, whereas during the previous decade logistics costs were consistently declining. This is forcing companies to improve basic operating metrics.
Most organizations with a sizable SCM operation now realize that SCM software is critical to their business, Klappich says. “Not all organizations see it as a source of strategic differentiation, but they do still see it as important,” he says. “Many organizations now see that they can either positively affect their competitiveness with SCM investments or lose ground to competitors if they don’t.”
But SCM comes with a set of challenges and risks that organizations must address. One issue is the need to select the right technology, which doesn’t always mean the most powerful system available.
Klappich says he created a model to help clients make this determination. “The model looks at things like user freight spending, complexity, sophistication, process maturity, etc., to help determine an organization’s needs,” he says. “It is not uncommon to find that while [the organization] might need a robust solution, given spending and complexity, [it is] not ready for advanced systems, [due to] lack of sophistication and process maturity.”
Second, organizations need to be realistic about implementation. “Vendors will often present very optimistic plans that are unrealistic, but just as often the users are pushing so hard they develop their own unrealistic plan,” Klappich says. For example, don’t underestimate the time, effort and cost for the upfront modeling phase.
Finally, for many SCM applications, continuing improvement demands that an organization continually adapt the applications to changing business conditions. “This process is continual, yet many organizations do not plan or staff for this, especially if they use third parties for implementation,” Klappich says. “The right thing to do is to not think ‘project’ but ‘long-term process and governance.’ ”
