e-INSIDER

December 6, 2006

Groundhog Day: Supply Chain Systems Implementation Lessons From the Front Line
From AMR Research/Martin White

I visited 18 leading multinational manufacturers the past three months, conducting in-depth reviews of their supply chain system deployments. Although these companies represented the best of the best, they are in the minority of companies that got to the Promised Land and saw some business benefits, though the journey was long and often painful.

Still, these were not unique or unpredictable areas of pain, and after a dozen of these visits, it began to feel like Groundhog Day.This raises a key question: if we all know the best practices for major system deployments, why do we continue to make the same mistakes and fail to build these lessons into subsequent projects?

The lessons are universal and independent of the deployed vendor application, industry, or process area. Here they are, with a checklist to help you avoid the all too common pitfalls. Incorporate these "must-take-into-account" items into your next large-scale implementation.
We have categorized them into four areas:
1. Strategy and value generation
2. People and organization
3. Implementation process
4. Technology

Strategy and value generation
Business strategy and objectives dictate supply chain strategy and transformation: A successful transformation effort should be led by the business, not IT. That business lead should also lead the selection decision and the implementation priorities. After all, it's the functional team that has to deliver the business benefits.

Create an overall supply chain strategy and vision: Again, systems change must be a factor of the functional business requirements. Articulate evolution or revolution to avoid one team taking one approach and a second team taking another. As one IT executive for a global consumer products company said, "Be realistic, practical, and grounded."

Strong top-down executive sponsorship and continuous engagement are mandatory: While this speaks for itself, the projects that lacked such sponsorship saw the scope for fragmentation and politicking increase dramatically. "We had strong sponsorship aligned with corporate strategy and stable management," an IT executive for an engineering business said. "You can't do this without top management support," added another.

For each supply chain process, use a single system across the enterprise: You cannot have two right best systems. This degree of local ownership will always mean some part of the organization isn't conforming and delivering best practice results. "It is difficult to expand the solutions' use because we are a federation, and so we are missing business benefits," said one group IT executive at an A&D firm.
"Business cases use a standardization index against which we measure functionality drift and its value," added a supply chain executive at a high-tech firm.

Establish robust end-to-end measurements, from value to systems performance: Consider the following:
1. Best practice scorecards track business benefit delivery by manager and cost center.
2. Balanced scorecards measure the journey as well as the results, and cover technical aspects too.
3. Comprehensive, one-version-of-the-truth dashboards cut down on the hunt for the guilty and got much faster in defining corrective action.

People and organization
Executive and project management continuity are vital: This continuity is best applied from concept development through implementation and into mature operation. Develop clear on-off plans for team members. If reentry options are not clear, the best people will either not commit to the project in the first place or will leave when an opportunity comes, rather than at a time to suit the program. Finally, project succession planning is as important as normal business succession planning.

Change management needs a strong and sustained focus: Early user involvement is vital. Focus on broad training, including supply chain concepts as well as system capabilities. Consider these comments from some of the leaders we interviewed:

"We knew in advance change management would be a critical component, but still ran into trouble. Midlevel managers needed to be convinced because of other priorities in day-to-day operations." IT executive, engineering business

"Our business people were just as blind as our software people." IT executive, global CP company

Organizational change is often required to build new supply chain skills and processes: A clear model as to what elements will be centralized and what elements localized is essential because it often rebalances in such initiatives. Be sure to import new skills at an early stage. "Resource pools needed to be restructured and new responsibilities were assigned, but it still proved challenging," commented an IT executive for an engineering company.

A single, global IT department simplifies control, implementation, and management: A great deal of complexity was added and generally regretted if multiple divisional IT departments existed. This manifested itself in uncertainty over systems, timing, version control, interfaces, and responsibilities. A CP company IT executive commented that "centralization was key."

Have strong internal competence at system level: This allowed for rapid cycles for system tuning. Many of the best also saw it as necessary in order to keep the vendor honest.

Implementation process (Again, implementation must be business led and IT supported.)
Establish joint project ownership and governance: Incentives and metrics must be aligned between the operations of the business, IT, and external partners. A supply chain executive at a high-tech firm recommended that IT and the business be measured on the same key performance indicators. And an IT executive also from a high-tech firm said, "If IT misses a milestone, then future funding is reduced."

Balance business requirements and system abilities: You must know your technology's limitations versus having new ideas that generate additional value.

Use a phased implementation approach: Although controversial, there was a clear consensus. The size of phases and the gap between phases did vary considerably, however. The leaders recommended using a pilot for quick wins, scope management, and business agility. They also mentioned a clear and structured cascade methodology for rollout, particularly within a distributed organization.
"This is a five-year program, not a six-month project. But focus on successes twice a year to drive belief," said an IT executive at an engineering business.

Testing always gets squeezed: Adequate time and resources for testing is essential in order to maximize user buy-in, tune business rules, and rapidly deploy. Build contingency into plans and don't be bullied into giving it away in order to keep to an often arbitrary implementation date.

Technology
Data accuracy and cleansing are critical to go live: Give clear recognition and accountability at the start of the program. Best practice was to appoint someone chief of data for the business. Also, measure and test data accuracy regularly, as it drifts very quickly. Engage suppliers in enacting their responsibilities to feed accurately into your business.
Use stable systems: Once again controversial but still clear, many of these organizations had gone through periods of what could be called "co-makership," and had the scars to prove it. If systems are not proven, use your early adopter leverage to form a strategic partnership with the vendor to obtain clear commitment, system tailoring, and cost control. Don't leave it all to the vendor. But be warned--early adoption can be a rough road: "If you want stable systems, don't be the first to implement." Supply chain executive, global automotive supplier
"We bought a vision and little of it worked. It took six years and multimillions of Euros to get us there." IT executive, high-tech firm
"We pioneered products, so we did have bloody noses." IT executive, global CP company

Define the required support model up front: Clear agreement is needed on who provides what and what the first and second line of support is. "Iron out a good contract covering a customer support agreement, the type of post implementation support required, and specific vendor resources," recommended one supply chain executive of a high-tech firm. Many also recommended companies ensure that interfaces are owned by the vendor, or that an internal team exists with the skills to manage it.

Maintain one version of the application: This simplifies alignment, maintenance, and upgrade management. Operationally, it lowers the total cost of ownership.

Ensure sufficient attention is paid to performance and scalability: Robust performance measures and test scenarios are required. The appropriate skills, such as database administrators, must also be on board. As an automotive industry IT executive said, "Initial performance was poor. It could only be addressed by reducing the amount of product forecast."

Although a lot of these are old lessons, if you review this list while planning your next deployment, maybe some of these things won't appear on your post-implementation review as "lessons learned for next time." On the other hand, you might simply take the view of one of our senior interviewees: "I still have my job, so it cannot have been that bad."
http://www.amrresearch.com

ADVERTISEMENT

US Department of Defense "Endorses" Active RFID Standard
From ARC Advisory Group/Adrian Gonzalez

The Department of Defense (DoD) sent out a Request for Information (RFI) on November 16th regarding the commercial availability of active RFID tags and readers that comply with the ISO-18000-7 standard. The DoD is considering issuing a follow-on contract to it's RFID-II Contract. In other words, hundreds of millions of dollars will likely be put out for bids sometime in 2007. Savi Technology, for example, announced in February 2006 that the DoD raised its RFID II contract value with the company from $207.9 million to $424.5 million.

While the DoD hasn't formally endorsed ISO-18000-7, this RFI certainly signals their support of the standard. Specifically, the DoD is seeking suppliers whose products meet the following requirements (among others):

1. Active RFID data rich transponders with a memory size of 128 Kbytes, unobstructed read distance of at least 300 feet , battery life of four years, and operate at an FCC approved 433.92 Mhz frequency;
2. Transponders with sensor (humidity, temperature, shock, light) data capture and reporting out-of-tolerance incidence;
3. Availability of handheld and fixed interrogators (readers). The products must be sufficiently mature (minimally a prototype) to verify full functionality and be fully compliant with the ISO-18000-7 standard.

Suppliers are responsible for addressing Intellectual Property (IP) rights; products that do not use the IP specified in the standard will not be considered ISO-18000-7 compliant by the DoD. This requirement will probably spark interest in licensing programs from IP owners like Savi who announced a "Quick Start" program back in August that expires at the end of December.

Briefly stated, this RFI from the DoD is another indication that the ISO-18000-7 standard for active RFID is gaining support. Earlier in the month, the China State Radio Regulation Committee (a division of the China Ministry of Information Industry) authorized the use throughout the country of active RFID products that are compatible with the standard. Similar approvals have been reported in Europe, South America, and other Asian countries, including South Korea, Taiwan, and Singapore (Japan is a notable exception, but they're currently evaluating the standard).

So, while much of the spotlight remains focused on EPC and passive RFID developments, there's a lot taking place on the active RFID front too. And now that a sizeable contract for ISO-18000-7 products is probably on the horizon from a highly-influential user, there will certainly be more support for the standard among RFID suppliers. This is all good news, especially on the commercial side. Having a universally-supported active RFID standard, for example, will lower the barrier to enabling the broad adoption of "smart containers" in global supply chains. More information is available at the DoD URL:
http://www.fbo.gov

ADVERTISEMENT

WMS Market's Fundamental Dynamics Are Changing
From ARC Advisory Group

The worldwide market for Warehouse Management Systems (WMS) is expected to grow at a Compounded Annual Growth Rate (CAGR) of 5.3 percent over the next five years. The market was $1,127 million in 2005 and is forecasted to be over $1,458 million in 2010, according to a new ARC Advisory Group study.

"A growth rate of about 5 percent is only slightly faster than the rate of inflation," according to Steve Banker, Service Director for Supply Chain Management at ARC, the principal author of ARC's Warehouse Management Systems Worldwide Outlook: Market Analyssis and Forecast through 2010. He continues, "With a lower growth rate, the dynamics of the market have changed."

The changing economics of the WMS market, and the larger enterprise software market of which the WMS market is a part, have led to increasing consolidation through acquisition. Leading Supply Chain Execution (SCE) companies, like RedPrairie, and Enterprise Resource Planning (ERP) consolidators, like Infor, have found that if they can acquire a company with a big enough installed base for a price of less than 0.75 times revenues, the acquisition makes financial sense.

In the longer term, however, supporting multiple platforms does create challenges. The installed base wants to know the product will continue to be supported. However, supporting multiple platforms dilutes the product development expenditures and increases the costs of customer support. According to Dr. Banker, "Five years ago most of the leading vendors were investing 18 percent or more of their revenues into R&D. Today, most invest less than 14 percent, and part of that budget is often involved in trying to rationalize the diverse platforms these vendors have to support rather than in adding new functionality."

Dr. Banker adds, "There is arguably more innovation in warehousing technologies on the hardware side than on the software side. My bias historically was to view software as being where you looked for innovation. Material handling vendors would point to conveyors that moved 5 percent faster than the year before. That was not too exciting."

"Software was where processes were instantiated. It is improved processes, after all, that drive improvement. That was my view. Today I am seeing newer more flexible conveyors, improvements in Voice Recognition, wearable computers with integrated scanning and Voice capabilities, and interesting new robotic warehousing applications. And I am seeing how these hardware improvements could also lead to newer and better warehousing processes in many cases. In the future, WMS development will partially be driven by the increased possibilities provided by developments on the hardware side."
http://www.arcweb.com

ADVERTISEMENT

2006 Online Holiday Retail Sales To Hit $27 Billion
From Forrester Research
U.S. online retail sales this holiday season will reach $27 billion, a 23 percent increase over last year, according to Forrester Research, Inc. Almost one-fifth of the nearly 4,000 consumers surveyed say that the Internet will be the place where they shop the most during the holidays.

In general, consumers stated that they are pessimistic about their overall online retail holiday spending, but Forrester believes consumers understate their spending expectations. The survey asked about spending plans in 10 categories and found that consumers expect to spend more on a few core categories -- 13 percent say they will spend more on toys this year and 10 percent will spend more on DVDs and videos. In addition, a significant number of consumers report a willingness to pay for margin-driving upsells like gift-wrapping, rush shipping, and monogramming.

Part of the overall pessimism toward online shopping includes skepticism of the product fulfillment process. Fifteen percent of consumers said they received orders late last year. Returns are also a sore spot with half of consumers finding the process of returning items to be a hassle and 27 percent say they prefer not to buy online altogether because of the prospect of dealing with returns. Consumers also rated their trust in major shipping providers such as FedEx and UPS.

"In order to maximize online retail sales this year, eCommerce executives must recognize that everything consumers experience after they reach a confirmation page is just as important as everything that happens prior," said Forrester Senior Analyst Sucharita Mulpuru. "By emphasizing convenience of returns during the selling process and then exceeding customer expectations for package delivery, retailers can not only reap good sales this year, but also positively influence consumer confidence to shop online in the future."

While price-driven consumers dominated the landscape of online retail for years, Forrester sees a more lucrative value proposition for online retail in making life easier for time-starved consumers. The recent Forrester report "US eCommerce: Five-Year Forecast And Data Overview" states that nearly 40 percent of Web shoppers say they are pressed for time, and more than 70 percent find shopping online easier than through other channels. By catering to the needs of these customers, Forrester expects online retail will reach more than $270 billion and comprise nine percent of total retail sales by 2011, with the greatest penetration in computer hardware, software and peripherals, baby products, and toys and video games.
Forrester defines the holiday shopping season as the period between Thanksgiving and Christmas. The report "US eCommerce Outlook For Q4 2006" is available to Forrester WholeView 2™(clients and can also be purchased directly at:
http://www.forrester.com


Click here to subscribe or renew your subscription to Global Logistics & Supply Chain Strategies magazine