Why do supply chain projects often fail? As Joe Peppard, a professor at University College Dublin's Michael Smurfit Graduate Business School, raises the question in an article in the Wall Street Journal, the subtitle of which is: "Too Often, Investments in Technology Fail to Achieve Promised Results."
In the article, Peppard gives four causes for failure:
- The illusion of control. Companies often have a hierarchical structure where business units request technology solutions from the IT department. However, this separation creates an illusion of control for the business unit, as the numerous decisions made during a project can be invisible to them, leading to unexpected project outcomes.
- Conflicts of interest. The IT department may prioritize meeting deadlines and budgets, while the business units are more concerned with value creation. This misalignment of priorities can result in decisions prioritizing short-term success but compromising long-term quality and value.
- “IT amnesia” syndrome. After a project is completed successfully, knowledge about it is often forgotten as team members move on to new projects or leave the company. This lack of documentation and institutional memory can lead to unforeseen challenges when new projects need to update or change what was built.
- Managing expenses, not assets. Companies often treat technology investments as expenses rather than assets, failing to actively manage and maximize their value. Unlike airlines that maximize the use of their assets, for example, many organizations do not ensure that technology investments continuously add value.
Adding to Peppard’s list are some reasons for failure that must be explicitly spelled out for the supply chain. These include:
Taking the safe option. In the old days, it used to be "Nobody ever gets fired for choosing IBM hardware." Choosing a safe option is often justified by "It fits with our architecture.” And software salespeople, often heavily commissioned, are experts at convincing managers that "it can do the job." The software probably does the job, but it just gets in the way, like a Pinto racing at Le Mans.
Overlooking the small vendor. All innovation doesn't come from the big guys. Consider the warehouse management system (WMS) space. Many vendors make WMS systems, but none truly "manages" the warehouse — instead, they rely on the user to say what to do next. Tools exist from small vendors that automate and optimize all decisions within warehouse operations, actually acting as the “brain” for the WMS.
Forgetting that sunk cost is, well, sunk. So you invested in some "just-OK" system. Call it quits. Sears needed to adapt its systems to support changing operations, but it didn't. That should be lesson enough.
Slow failure. It's almost like the item above — not knowing when to say "enough.” This is often the case with software developed in-house. Businesses sink more and more money into these tools, only to have them fail even harder.
Lack of talent. The people implementing and running the system must know the business and be innovative. Smart is, by itself, not enough. So often, the expectation is that the users will keep it working and improve its operation over time. This doesn't always happen. Since few supply chain systems are "set it and forget it," there needs to be a Center of Excellence that is rewarded by the value created by the system.
Lack of commitment. Value creation is critical to commitment, which generally means senior managers must be reminded of the savings.
Missing statistical process control. Systems should be treated just like machines. Are they in acceptable ranges of performance?
Peppard recommends companies take the following actions – some of which align with a business's needs, but others that are unlikely to be implemented:
- Search for value, not funding. Instead of fully funding IT projects upfront, adopt a metered approach to funding where progress and utility are evaluated periodically. This reduces risk and encourages alignment with business goals.
- Own and manage digital systems as productive assets. Assign ownership of digital assets to the parties responsible for deriving value from them. This ensures accountability for achieving expected benefits, and prevents unused technology from becoming a liability.
- Eliminate conflicts of interest. Decouple design standards, quality compliance, and project management roles to minimize conflicts of interest and ensure impartial decision-making.
- Restructure IT. Integrate IT into every department to promote collaboration between those creating digital assets and those benefiting from them. This approach ensures that technology isn’t managed in isolation but is deeply embedded in the organization's operations. This one is tough for many companies to accept.
- Audit results. Understanding and addressing the causes of IT project failures can help organizations achieve better outcomes and maximize the value of their technology investments. Executives must adapt their approach to technology in the digital-first world to avoid future failures.
Here, then, are some lessons for the supply chain space:
Use "loss analysis." One leading consumer products company has a defined process for examining the supply chain. Step 1 is a loss analysis to determine where cost and service could be if everything were "perfect." From there, they work backward to determine what’s feasible. For example, if the space in the trailer is 4,000 cubic feet, why are they using less than 3,000 cubic feet? Working backward, why is the load palletized? Pallets take up space and add cost. What could be done to eliminate pallets? The next step is determining what systems are needed to get more cube in the truck. Can load optimization achieve more stacks? Quantify savings? Quantify costs?
Be bold. One of the enduring pain points in consumer products is variability. The consumer drives the grocer to order more or less products. The grocer, in turn, places orders in the customer-facing distribution center. That DC is resupplied from the factories by the deployment system. Enter the bullwhip effect and day-to-day volatility, which drives transportation departments wild. They ship two loads one day, and 20 the next. Costs skyrocket. Tools that help to “level” the transportation load and replenishment schedule can help smooth this variability, saving millions of dollars annually.
Measure. Check everything. In the above example, check deployment volatility — is it increasing or declining? If it’s increasing, get the Center of Excellence involved. Change the settings until the results go in the right direction.
Don't be bullied by IT. Reforming the IT structure is a hard sell — so stand your ground.
Listen to the vendor, but insist on hypercare. The vendor often knows the best way to manage interfacing and implementation. But insist on them performing hypercare with defined performance goals: no performance, no pay.
Supply chain software is an ever-changing landscape. Failure to move on can be fatal.
Tom Moore is founder and chief executive officer of ProvisionAI, AutoScheduler.AI, and Transportation Warehouse Optimization.