January 2004 | Commentary | IT Matters

Seven Deadly Supply Chain Sins

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If there is one IT system that provides the greatest immediate benefits to a company, yet also poses the greatest challenges to implement, it has to be supply chain management. It is also the most risky to work with because failure and success are so visible to your trading partners.

Supply chain management (SCM) has replaced ERP in my book as being the most difficult to implement. At least with ERP systems, you know what you're buying. You can't say that about SCM. When implementing this unique application, companies confront specific potholes, obstacles, and challenges.

The following are seven supply chain sins you must avoid at all costs in order to be successful at implementing SCM. Do not sidestep or pretend they don't apply to you. They do. And I assure you, they have the ability to cripple your project if you are not careful.

1. Assuming SCM technology will control your vendors, service providers, and customers. The biggest industry misperception is that SCM technology allows you to control your supply chain and vendor resources. Nothing could be further from reality. Let me be so bold as to offer the following advice: If you don't already have some definitive level of organized control regarding your supply chain relationships, you will be sorely disappointed with the results of your efforts.

When I say definitive level of control, the examples Wal-Mart, Dell, and McDonald's come to mind. Now don't be disheartened. I know not every company or industry has, or aspires to have, that type of influence. But you have to start somewhere. So, if you think implementing SCM technology is a good starting point, think again. You will need to address other, more critical prerequisites, depending upon the specific SCM application, before you start thinking about software.

SCM technology works well when you already have control in place. But please don't think that implementing this type of software will automatically optimize and organize your supply chain. It won't if you do not first have the ability to control your trading partners and logistics providers.

The great part about an SCM solution is that it gives you the tools to enforce the control of your relationships. But this is only one part of the total solution. Think integration. Your company must be willing to proactively control those relationships in order to achieve the cost reductions, time compression, labor efficiencies, and competitive advantages that are the fruits of the effort.

2. The inability to manage trading partner relationships.

Consider the possibility that you must actively and authoritatively manage your supply chain relationships. I am not talking about managing the individual relationships; I am talking about managing them collectively so you can get some leverage from the process. That's where SCM technology makes a big difference.

3. What is SCM anyway? You have 33 guesses.Another reality check is that few are able to precisely define SCM technology. There are too many competing views and opinions. How are you going to evaluate, then implement, SCM solutions when you can't even define what the software solution will do for you? For instance, when people use the words "distribution," "logistics," and "warehousing" interchangeably with SCM, you have to know that something is askew. Don't you?

As long as this level of confusion and lack of definition regarding the functionality exists, your ability to fully optimize the software to fulfill your requirements becomes increasingly more difficult.

To overcome this obstacle, it is critical that you become aware of the following:

  • The specific functionality of software packages available.
  • Results and benefits you expect to achieve from implementing the system.
  • Your SCM system requirements.

This means you need to get educated and informed about what's real and what's vaporware—what is required by your company and what is not. I know it is laborious and takes time, but so does cleaning up a mess after it is made.

4. Lack of executive appreciation. The industry's inability to dimensionalize and define SCM has one huge ramification for you: The people in the executive suite do not understand the functionality or benefits. As a result, they do not have a full appreciation of SCM's true relevancy to the organization.

You need to educate your management. This can be difficult because most don't quite understand how it all works (generally speaking, of course), or how to achieve the benefits you illustrate in your PowerPoint slides.

Therefore, you must actively engage in an educational public relations campaign to give management the information they need to make the wise and intelligent decisions you need from them.

5. Failing to establish a foundation of trust. The biggest human challenge of implementing SCM is establishing and sustaining the open, trusting vendor/supplier relationships required to make the system successful. This is especially true for companies grounded in traditions and culture, and in an environment of vendor competition.

Access to information presents major opportunities and challenges that must be addressed. The minute that operationally vital information is withheld—or worse, misrepresented because of negative political, perceptual, or financial ramifications to the trading partner—the system is immediately compromised. And with it goes the efficiencies you anticipated.

Let's say that a vendor knows a shipment will be late but delays entering or reports otherwise. Obviously that is a problem. You say that won't happen? Well, have you ever heard of companies ignoring the definition of the words "promise date?"

I'll bet you have. It happens every day and the vendor won't give future visibility into such situations in a timely manner unless it is forced to do so.

6. Too many options to choose from.The difficult part of evaluating SCM players, software products, and services is that there are so many of them. Many are brand new, their offerings are unproven, or the company is financially on the ropes.

To complicate matters, picking a brand name system does not necessarily guarantee results. The merger and acquisition landscape changes weekly. And while they'll never tell you this, a vendor company's portfolio of software solutions may not quite integrate because of a hodgepodge of solutions that have been merged together. But don't resign yourself and plead ignorance. Once again, you have to do your homework.

Another thing to watch out for is a massive shakeout of SCM applications and vendors to occur down the road. Count on it. There are way too many small marginal players, and the economy is still taking its toll. (I'd like to say I know when it will happen but I'm still waiting for the WMS shakeout to end.)

7. Anticipating collaboration.If you justify your SCM endeavor because of the potential opportunity to collaborate with your strategic alliance partners, don't hold your breath.

I'll give you one example: I am privy to a rather common situation where the customer of one company prohibited technical integration of its systems because of the potential for security breaches. Is this a valid concern? Absolutely. But because the customer's IT department did not understand the solutions available to them, they did not cooperate to resolve the issue.

This kind of technical foot-dragging is common today and requires persistence, patience, excellent communication skills, and a constant focus on the benefits and results you are trying to achieve. Otherwise you'll be saddled with only a partial solution that does not fully achieve your intended results.

Worth the Extra Effort

So have I put the fear of God into you? I hope not. Implementing SCM is an extremely worthy and ambitious endeavor with lots of promise, possibility, and potential. It requires innovation and ingenuity, too.

But it is imperative that you proactively and deliberately deal with the "soft" issues in an intentional way. By focusing on these soft issues as well as the technology, companies have the opportunity to deliver hard results, real benefits, and financial savings as well as to simplify their whole SCM systems implementation.

Most companies are initially ill-equipped to deal with these challenges. But they soon learn these issues are part of the SCM landscape. My goal is to give you visibility into what you may encounter while executing your SCM endeavor. I hope I have hit the mark.

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