About six weeks ago, Aberdeen released The Supply Chain Innovator’s Technology Footprint 2007, A Benchmark Report on Companies’ Technology Investment Plans for Gaining Immediate and Strategic Payback that noted, among other findings, that five times as many study participants plan to spend more on new supply chain technology in 2007 than plan to spend less. I’m glad to hear it since good technology investments in sourcing and procurement can yield returns that are multiples of what a firm invests.
The report noted that while cost control is a strong desire, 72% of companies have other higher-ranking motivations, such as the ability to better meet customer’s top fulfillment requirements, the ability to better manage increasingly global supply chains, and the ability to minimize supply-demand imbalances. Add risk management to the list, and one would be able to say that companies are finally starting to understand there’s a bigger picture to e-Sourcing and e-Procurement than just cost reductions.
The report also found a sharp distinction between strivers, defined as companies striving to reach industry average with their supply chain technology roadmap, and innovators, companies looking to create new supply chain management innovations. Strivers are still much more likely to continue to focus on reducing costs with their supply chain initiatives while innovators are focused on delighting customers with tailored fulfillment capabilities and streamlining fulfillment across multiple channels. In other words, strivers have a myopic focus on cost reductions while innovators realize that better processes and customer service lead to more efficiency and sales, better supply chain visibility, and fewer returns. This will, by default, reduce costs and risk.
My favorite finding, of course, was that when compared with their peers, innovators are more likely to priortize price optimization and short-term forecasting. Cost reductions are great, but you get more bang for your buck when you minimize input costs and maximize output costs. Furthermore, inventory in the warehouse costs you money, empty shelves cost you sales, but the right inventory at the right place at the right time minimizes product storage costs and maximizes sales revenue – and the best way to tackle both of these problems is through optimization.
Another great finding was that innovators are two-and-a-half times more likely to want to leverage on-demand for sourcing and global trade management. I’ve written many times about the benefits of SaaS and On-Demand (including last summer’s weekend series: Part I, Part II, Part III) and am pleased to see that industry is catching on. Unfortunately, only 24% of respondents indicated they were looking to use new packaged applications from a best of breed vendor to extend their current capabilities as compared to the 38% of respondents that were focusing on upgrading current packaged supply chain applications from their ERP or SCM vendors. Oh well, I guess every company can’t be best-in-class.
But for those that want to be innovative, the study indicates that innovation can be achieved with commercial technology via one of four methodologies for most companies:
- employing existing packaged or on-demand software in ways that are ground-breaking for the industry
- creating new ways to leverage the data and decision-making smarts of commercial supply chain technology for other parts of the organization
- using commercial software but collapsing the gap between planning and execution cycles
- using a composite application approach to create new workflows across multiple commercial applications
As usual, the report concludes with recommendations for action that focus on the technology priorities for strivers, best-practice seekers, and innovators. The priorities for innovators are worth mentioning:
- a profit optimized supply-demand balanced S&OP plan
- short-term forecasting
- true multi-echelon inventory optimization
- warehouse process flexibility
- preferential trade agreement optimization