The trend is straight out of Business 101: When the economy takes a dip, companies must look inward in order to stay profitable.
That's exactly what has happened in the wake of the Great Dotcom Crash of 2001. At a time when many businesses are struggling merely to survive, their focus has shifted from growing market share to boosting internal efficiencies.
Information technology projects are coming under particular scrutiny. Gone is the willingness to spend several years and millions of dollars on massive software packages, touching on every part of the organization. Instead, companies are looking for smaller, more targeted projects. Most of all, management is demanding a fast, demonstrated return on its limited investment dollars.
"[Technology] still needs to be part of a long-term strategy," says Alan Nager, a principal with Operations Associates in Greenville, S.C., "but our clients are all ROI-focused now."
Corporate priorities today include better demand forecasting and inventory reduction. Nager says companies are scrutinizing inventories "SKU by SKU, item by item." When it comes to IT solutions, they are more likely to purchase software addressing those specific problems, rather than sweeping enterprise resource planning (ERP) or supply-chain management (SCM) packages.
Consultants, who reaped big benefits in the 1990s from advising on seemingly endless ERP implementations, have had to adjust. With clients less willing to support extended engagements, major consulting firms have turned instead to providing rapid deployment techniques for targeted software.
The methodology devised by Accenture, for example, lays out a series of activities with promised results over a short span of time, says David Grasso, senior manager in the SCM practice in Phoenix. Projects include both software and hardware, along with the organizational changes needed to make them work.
Accenture divides the job into five phases: planning, preliminary design, prototyping, building and live deployment of software. Each phase lasts from three to five weeks and includes measurable results along the way, Grasso says. The strategy can be applied to a variety of discrete business processes, such as weekly demand planning, the creation of a shared signal for all supply partners, and data management for product introductions.
Companies need these short-term "deliverables" in order to justify nearly every IT investment. And it's not simply because management is trying to satisfy impatient investors. The markets themselves are changing. CSS, the Dutch IT consultant, recently spun off an electronic marketplace for multiple resellers. The venture was faced with shrinking product lifecycles, running two to three months, and some 750 new products a week.
CSS turned to SAP, the German software giant, for a supply-chain package which promised better inventory visibility, as well as the flexibility needed to accommodate rapid growth and a constantly changing product mix. As a result, claims SAP, order-cycle times shrank from four days to two, delivery commitments from three days to two hours, and information on product availability from one hour to one minute.
Ironically, SAP is one of the software providers to make its name through the sale of giant, expensive systems, particularly ERP, of which the ultimate benefits weren't always clear to the buyer. "The critique of SAP is that customers had trouble figuring out where to navigate the software to get the best return," says Mike Maguire, vice president of supply-chain solutions with SAP America in Boston.
Where customers once were resigned to years-long implementations, now they demand ROI within a year . "Everybody's competing internally for dollars to spend on new ventures."
Now, SAP has developed the E-Business Case Builder, a sales tool intended to shorten the time needed to justify an IT investment, and help the client decide exactly what it wants to achieve. The emphasis is on collaboration among all managers and departments that will be affected by the purchase. In addition, SAP is introducing the SCM Value Calculator, a web-based tool that can create a miniature "case study" of potential benefits for upper management.
In a sense, the lengthy process of ERP paved the way for shorter-term projects with even broader impact. "ERP cleaned up your own house," says Maguire. "SCM systems give visibility to your supply partners and customers."
No More Waiting
Customers used to be resigned to an implementation period that might stretch over two to three years, says John A. White, group vice president of strategic consulting services with Manugistics in Rockville, MD. Now they're demanding ROI within a year. "Everybody's competing internally for dollars to spend on new ventures," he says.
Like many software vendors, Manugistics has adopted the phased approach to implementation. The strategy offers the dual benefits of reducing the amount of capital needed up front, while yielding savings that can be invested in a project's later stages. According to White, successful projects can become "self-funding" at a certain point.
Equally important is applying the right tools in the first place. That means identifying the client's "areas of biggest pain," says White. They might be centered on getting products to market, managing a particular kind of product, or working with either suppliers or customers. Regardless of the specific problem, however, it's vital that buyers see "quick proof of value" -- possibly within a quarter, he says. Manugistics' clients tend to be up and running on new systems within four to six months.
Each company's business case is unique, but certain areas of the supply chain tend to require attention first. Retailers and makers of consumer packaged goods often choose to focus on improving forecasting and inventory management, White says. Their overall goal is improved sales and operations planning. "If you don't have a good forecast," he says, "everything else you are doing could be optimizing the wrong things."
Price and revenue optimization is another area that is ripe for quick action, White says. It allows companies to manage supply and demand through controlled pricing, thereby enhancing overall profitability.
Dallas-based i2 Technologies Inc. agrees that the initial stage of an IT implementation is critical. It launches a "strategic opportunity assessment" (SOA) to uncover the biggest gaps in a client's supply chain, and the strongest opportunities for improvement.
Major customers such as Home Depot and Best Buy might purchase i2's entire suite of transportation applications. But they will implement a piece at a time, turning first to those that promise the fastest ROI, says Razat Gaurav, i2's director of product marketing for transportation solutions.
Home Depot, for example, went for software that would improve its bidding process on truckload freight. The savings from that module alone funded its implementation costs for the entire project, Gaurav says. Best Buy, on the other hand, chose operational planning and execution modules. It is now addressing the truckload bidding process to capture additional savings.
The SOA process is crucial, but short. i2 speeds it up by relying on a series of implementation templates, each built around the characteristics of a particular industry. These pre-packaged solutions describe the workflows that are prevalent in sectors such as retail, CPG and semiconductors. The precise order of implementation, however, varies from company to company.
i2 places equal emphasis on human skills and organization, Gaurav says. It uses the internet to shorten the training period on new systems. And it strives for a common look and feel among all of
its products, in order to simplify the learning process on each new module.
At the same time, i2 works closely with its consultant partners to ensure that a customer is making the necessary organizational changes to accommodate the new software. "You can have the best technology," says Gaurav, "but if you don't back it up with the right change management and process engineering, it's going to fail."
Virtually every IT purchaser is crying out for faster ROI, but competing software vendors are taking different paths to the same destination. Instead of the industry template approach, Denver-based J.D. Edwards has developed a "solution kit methodology" for rapid deployment. It involves a menu of some 70 customized workshops, dubbed Action Labs, by which the user selects the business process needed to implement a particular piece of software, based on a given need. Each workshop guides the user from preparation through implementation for a discrete function, such as inventory, order fulfillment, or manufacturing planning.
A typical user might tackle 30 or 40 workshops at the outset, covering such areas as inventory, advanced pricing and procurement, says Paul Pronsati, vice president of consulting operations with J.D. Edwards. In the past, he says, an implementation might have taken nine to 18 months to complete. Recently, a client of J.D. Edwards went live in two countries, two languages, four currencies and four software suites. The whole job took six months.
J.D. Edwards' methodology consists of five phases: select, adapt, go live, optimize and extend. It ranges from initial workshops to full testing and implementation of software. The strategy even applies to the company's ERP package, as well as modules for advanced planning and scheduling, and customer relationship management.
The Execution Angle
High-level planning or enterprise software has tended to present the biggest challenge to rapid deployment. But companies are also demanding faster ROI on execution packages, especially in transportation and warehousing. Logistics.com, based in Burlington, Mass., offers shippers a strategic bidding program known as OptiBid, and a transportation management program called OptiManage. John Kenneally, vice president of professional services, says the provider labors to balance the need for a customized approach with the speed of a standardized package. Every implementation involves a careful tradeoff between the two, he says.
Logistics.com touts its role as an application service provider (ASP), hosting software from its own servers. Clients needn't bother with locating the right hardware to accommodate multiple systems on site. And updates to the program are easily handled from the vendor's offices.
Fast implementation is neither automatic nor easy. It involves the cooperation of the user, Kenneally says. Top executives might push for quick deployment while operational personnel resist change, preferring their existing systems and relationships. Such an attitude can prove fatal to an execution program that depends on full participation in order to realize promised benefits.
Yet current economic conditions offer companies little choice but to press for complete implementation of new systems. And Kenneally detects less resistance to change among users than before. Legacy systems simply can't perform the tasks needed to optimize a modern supply chain, he says.
The OptiManage suite can be up and running within six to eight weeks, although Logistics.com is working to reduce that time. Variables include the size of the organization, number of people to be trained, and the client's desire for fast deployment.
The real key, Kenneally says, lies in the initial planning phase. A one- to two-week analysis of business processes can allow the user to "blow through the remaining phases." But companies must take care to dedicate resources so that the project doesn't fall victim to competing priorities within the organization.
Phased implementation is crucial even in supposedly straightforward applications such as warehouse management systems (WMS). Columbia Sportswear went live in two phases when it acquired a WMS package from Manhattan Associates Inc. at its warehouse in the Netherlands. Inbound functionality was installed in April 2000; outbound came two months later. The strategy helped the company to avoid an interruption in product flow as the system was coming online.
Rick Franke, senior director of consulting services at the Atlanta headquarters of Manhattan Associates, says the provider has seen growing demand for rapid implementation among users. The trend reached its height last year, when dotcoms and other internet retailers rushed to install distribution management systems before the holiday selling season.
This year, the sheer volume of projects is down, but the need for faster ROI is greater than ever, Franke says. Companies are trying to do more with less. To speed up the process, Manhattan relies on preconfigured software, with content derived from the best practices of some 80 percent of the vendor's customer base.
It takes more than quick implementation to entice today's buyers. Vendors must be able to specify results and how fast they will materialize.
Included in the package are training materials, standard operating procedures and end-user tools. A typical preconfigured system can be operating within six weeks, Franke says.
Now nearly 12 years old, Manhattan draws on its experience in multiple industries in order to define the system's basic processes. At the same time, cost-conscious users are more willing to rely on a vendor's expertise in lieu of customization.
"Before," says Franke, "everybody thought they had the competitive advantage approach. Today, they're coming to us and saying, 'We need to take this much money out of our supply-chain network. How do we do it?'"
Speeding Up Procurement
Automated procurement of supplies, temporary labor, services and capital goods is another favored area for companies with limited IT budgets. Sunnyvale, Calif.-based Ariba employs an internal benchmarking program that tells users how they're doing in comparison with top performers. It also allows them to identify the half-dozen or so variables with the greatest impact on their savings goals. The metrics were developed by Ariba in partnership with CAPS Logistics.
Of prime importance is the ability to identify active users -- those who have submitted a requisition during the month in question. Randy Joss, Ariba's director of customer metrics, says rapid ROI depends on maximizing the number of participants. As with Logistics.com's bidding program, resistance at the operational level can cripple a project. Mere implementation won't translate into ROI unless the customer makes full use of the software.
The impact of a successful application can be dramatic. According to Joss, the top third of Ariba's users moved 200 times the dollar value and volume of orders through the system than the bottom third. And their average spend per user was 38 times greater.
Software may generate the biggest headaches, but companies are just as intent on rapid implementation when it comes to installing hardware. One vendor, Emeryville, Calif.-based CommerceRoute, has developed an integration appliance that ties together disparate systems within a supply chain. The idea is to speed up data transfer without the need for laborious hard coding or rekeying. The product itself promises fast installation, from a matter of hours to a few days.
Known as Syncx, the device applies the principles of appliance-based computing to the integration of back and front office systems, says Ted Colton, vice president of corporate strategy. Early customers include Eldec, a subsidiary of Crane Aerospace, which makes proximity sensors for aircraft. It uses Syncx to import customer orders its via electronic data interchange (EDI), and to generate outbound EDI invoices. Colton says implementation took longer than usual -- about five weeks, due to the complexities of mapping customer data.
That's still a relatively short time, when compared with IT projects of the last 10 years. But it takes more than quick implementation to entice today's software or hardware buyer. Vendors must be able to specify results and how fast they will materialize. "It's important to understand how a benefits case is constructed," says Grasso. "It allows you to make intelligent decisions on where to go first."
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