Even the most complex projects can be tackled in an incremental fashion to achieve results quickly--using a "business release" approach and managed services.
The 1990s brought widespread adoption of new supply chain management technology and systems, which translated into dramatic business improvements. As a result, most companies have now maximized their value in areas of improvement that could be quickly addressed. Driving true innovation becomes the next challenge for these companies, as they look to further differentiate themselves from the competition through significantly improved business processes and technology.
Many companies have come to realize that their business models must be on a continuous improvement trajectory. Those that fail to acknowledge this fact are often caught by surprise and are left playing catch-up. As Tom Meredith, Motorola's CFO, and former Dell CFO, once said, "Fortunes are won and lost in moments of transition."
Every year, the push to move toward a better business model becomes even more urgent. Even dominant business models of three to four years ago are under pressure and must be repeatedly refined and modified. Continuous reinvention is now a requirement for success in the modern business landscape.
Nevertheless, this does not mean that the value equation has changed. All improvement projects should be based on a strong return-on-investment framework, such as return-on-net assets (RONA) or economic profit (EP). These equations are measures of wealth creation and, thus, shareholder value. Therefore, all supply chain projects should be placed within a return-on-investment framework. In the context of economic profit, at a high level, each project should be driving higher operating profit, reducing the capital deployed or both.
But it isn't just value that is valued, so to speak. It's also speed. Business executives want rapid time-to-value for their supply chain investments. And when executives think of "rapid," they are thinking of delivering results in a three to six month time frame. Is it realistic that all supply chain projects deliver value within such a time frame? The answer to this is yes, because even the most complex projects can be tackled in an incremental fashion to achieve results quickly. Of course, there are business problem areas and solution approaches that lend themselves more readily than others to achieving rapid value. i2 has identified two approaches to achieve rapid return on investment in supply chain management. The first is an incremental approach we pioneered, based on short "business releases" within a more lengthy improvement program. (See "An Incremental Approach for Software Implementation," Sloan Management Review,Winter 1999.) A business release is an integrated set of changes that results in some business improvement. The changes may be made in one or more of the following areas: processes, people, organization, metrics and technology.
This approach stands in contrast to the traditional waterfall or "big-bang" delivery approach in which the solution is defined, designed, constructed and delivered in total. Many companies still make use of the waterfall approach, which lends itself to much longer cycle times and, potentially, much higher costs. But many executives have become wary of this approach in the past two decades. The reason is clear today: enterprise resource planning (ERP) and similar projects are like multipleorgan transplant surgery--they are complex and risky.
Information technology project complexity is driven by two primary dimensions: the requirements scope and associated customizations, and the depth of how intrusive the new systems are to the existing information technology and business landscape. Innovation is easier when there is little legacy to deal with. As Cisco executive Wim Elfrink said in the October 30, 2007, issue of Fortune: "The reason God was able to create the world in seven days is because there was no installed base." Thus, solutions to driving value quickly should be based on a focused scope and minimum intrusion into the installed base.
Where should you focus for fast results?
The best way to deliver results quickly is to match a specific problem area that is conducive to fast results with a solution approach that is relatively non-intrusive. The table below provides a framework for evaluation, along with examples of solution approaches to problem areas that can deliver fast results. Likewise, it shows solution approaches that will only yield results over a longer period of time (for example, greater than 12 months).
For example, business analytics delivered through managed services or a business optimization center (BOC) will almost always yield fast results. This is the second approach that i2 has found to deliver fast time-tovalue. A managed service is an on-demand capability that is delivered without the need to implement or install software at the customer site. The BOC is a small group of customer domain experts from a solutions provider and technology domain experts who deliver managed services for a business problem or set of business problems. For example, a business optimization center can analyze pointof- sale data, determine sell-through patterns and make recommendations on inventory positioning and shipments, without ever having to install software at the customer site. This capability can be up and delivering value in less than three months. On the other hand, if you are implementing an ERP system, you are probably in for a long haul. In some companies, the blueprinting process alone will take as long as two years. Projects requiring lots of customization or system replacement typically also will be lengthy, just as companies that use a waterfall development and implementation methodology will often see lengthy implementations.
A business release is an integrated set of changes that results in some business improvement.
These projects are "big bang" in nature, meaning that all of the requirements are defined, designed and implemented in an all-or-nothing fashion. Inevitably, project timelines lengthen and costs escalate as layers of requirements and late process changes are added.When big bang is the norm, there is a self-reinforcing loop, since many business users see these projects as their once-in-a-lifetime chance to get their desired capabilities, thus exacerbating the cost and time factors.
It is important to note that faster delivery approaches, such as the incremental approach and managed services, can be used to accelerate value even on the tough, typically longer-cycle business problems. These can be used to bootstrap the overall programs and show early successes.
How to obtain on-demand capability
Projects managed by i2's Business Optimization Center have revealed that executives want an on-demand capability. A sample query might be: "Show me the option penetration rate of the luxury package on the SE auto model within the Omaha region. Explain to me why it was greater or less than planned, and tell me what we can do about it today, please." This is substantially different from waiting for the monthly cycle to complete, then getting an ERP backward-looking report and then figuring out what to do about it in the next planning cycle. Furthermore, these needs may not be previously defined in such a manner that they can be put into a monolithic system.
Managed services delivered through a business optimization center combine human intelligence with tools to deliver improved analytics and answers to daily business problems. This means the BOC may make use of manual techniques, spreadsheets and analytical engines that are installed in an offsite environment. This capability also runs 24x7, so that business problems delivered at the end of one day can be structured, sent to an offshore entity in India, Eastern Europe or China, and then solved for the customer by the beginning of the next business day. This is business-decision support delivered rapidly, around the clock.
A number of companies today are using the BOC concept to deliver an improved sales and operations planning process in a short period of time. Sales and operations planning is rich with needs for information and decision support throughout the process of plan creation and execution.
The pathway from short-term to long-term
Short-term and long-term value delivery do not have to be mutually exclusive. Rapid value delivery should be consistent and act as a building block for additional value in the future. The pathway from short-term to long-term Short-term and long-term value delivery do not have to be mutually exclusive. Rapid value delivery should be consistent and act as a building block for additional value in the future.
A number of companies are using managed services and the BOC delivery approach as a stepping stone to a future system installation. For example, i2 is working with one company that uses managed services and i2's Business Optimization Center to provide financial-impact reports, analyses of inventory and capacity deviations--shortfalls and excesses--as well as to plan scenario management. And now this company wants to build these capabilities into a system in their own environment.
This company valued the fact that the managed services were up and running and delivering results in a three-month timeframe. And they were able to refine in-house the system requirements they wanted as they went through the learning cycles that the BOC provided. They were able to achieve significant business value while going through the definition and design phases of a traditional IT system implementation--without the expense and internal upheaval of those steps, but with the domain and technology expertise of an experienced business partner.
Today, as increased competition and product innovation call for an increasingly rapid time to value, a businessrelease and managed-services approach to supply chain management has become mission critical for the world's leading companies.
by Kelly Thomas
Kelly Thomas is senior vice president of i2's Manufacturing Industries Sector. For more information, contact supply_chain_leader@i2.com. |
