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Reflections: The End of a Decade in Supply Chain Management

As we watched the ball drop on Times Square on New Year’s eve 2000, we witnessed the dawn of a new decade.  Those were go-go years for supply chain management.  Spending was brisk. Year 2000 compliance and e-commerce budgets were growing.  Investments in Advanced Planning Systems (APS) were high and optimism reigned. Three years later, when the e-commerce bubble burst, a new vision was launched.  It was the vision of an integrated end-to-end supply chain brought to life through extended ERP platforms. It has failed.  Here I explain why and what to do about it.

What Happened?

In my work with over 500 supply chain leaders, I can list the number of truly integrated supply chains on one hand.  They include companies like Cisco Systems, IBM, Intel, Nokia, and Wal-Mart.  For the companies that have achieved the goal, the end-to-end supply chain vision is not centered on an integrated Enterprise Resource Planning (ERP) platform that  maximizes IT investment. Instead, the common themes are excellence in building strong supply chain relationships, clarity on supply chain excellence, and investment in supply chain planning as a core competency.  Yes, they have ERP for transactional systems; but ERP is not the extended backbone to enable the end-to-end supply chain.  Instead, these leaders have a zealous focus on process design, clean data and near-zero latency information flows to trading partners.  They are not the poster children on the Oracle or SAP extended ERP signs in the airports. Their supply chain connections are built through best-of-breed systems, custom applications, industry specific trading networks and EDI platforms.
Remember Gartner’s vision of ERP II? of CRM?  I worked at Gartner Group in these days.  I left Gartner because I fundamentally disagreed with this IT-centric vision.  I could not stand in-front of clients and endorse it. As the decade winds down, I believe even more firmly that I was right.   The belief was that packaged applications could be installed within the organization to connect the supply chain from the inside-out through a strong Enterprise Resource Planning (ERP) backbone that linked Customer Relationship Management (CRM) and Supplier Relationship Management (SRM). As I thumbed through seven years of data on working capital from the CFO magazine study last week to formulate my article Mirror, Mirror on the Wall (reference link, I saw a clear trend.  None of the leaders in the study had bought into the ERP II concepts or that the ERP investments to serve as THE backbone for the extended supply chain.
I believed then, and I believe even more firmly now, that the ERP II concept was wrong. In this decade, we first invested in Y2K followed by eCommerce, to get stuck over the course of the last five years in building the end-to-end supply chain.  We stubbed our toe by believing that investment in a strong ERP platform would become the CONNECTOR for the end-to-end supply chain. It is incorrect.  It is time to get unstuck.  Consider these five points:

  • The extended supply chain cannot be designed from the inside-out:  The true design of the end to end supply chain must start from the outside-in.  It needs to start with the customer’s customer with a laser focus on principle-based outcomes. ERP is designed from the outside-in.  The investment in ERP platforms has improved enterprise efficiency; and is a piece of the equation, but is not the connector for the extended supply chain.
  • There was no “R” in CRM or SRM:  Unfortunately, there was no there there.  What?  There was no R– or relationship management– in the definition of CRM or SRM.  CRM missed the  mark more than SRM on the definition and reinforcement of value in extended relationships. We are just now seeing industry-specific technologies like ModelN for pharma, E2Open for high tech, DemandTec and Terra Technology for Consumer Products start to cross the gap of sensing what is happening in customer’s supply chains.  Or the use of unstructured tect technologies for supplier risk managment like that in the Open Ratings’ functionality now embedded in D&B software to sense supplier failure.  While companies bought into the vision that ERP vendors would build or partner to fill in the white spaces of required functionality, neither strategy has worked.  Five years later, the white spaces still remain.
  • The extended supply chain is about much more than transactions:  ERP improves the efficiency of transactions, but the extended supply chain requires much more.  It requires demand sensing and translation capabilties, performance and risk management monitoring and assessments, and near-zero latency information flows.  
  • We must sense before we respond:  Effective extended supply chain architectures have strong sensing capabilities.  In end-to-end supply chains, it is important to sense before responding.  To listen to the customer response before reacting.  ERP platforms are all about the response. In existing architectures, There is little to no sensing or listening capabilities.
  • If everyone standardizes, we will get there faster. Yes, but we standardized on the wrong thing.  The belief was that if everone standardized on one ERP platform that it would be easier to connect the extended value chain.  What the last decade has taught us is that it is the hard work on data standards that is necessary to drive connections.  Having the same ERP brand is largely irrelevant.

What do we do now?

Start by swallowing hard, and facing facts.  An extended ERP investment does not help you get to the extended end-to-end supply chain goal.  Yes, to get there you need strong ERP capabilities; but ERP is not the connector.  The connector is the BI layer.
ERP helps to build order-to-cash and procure-to-pay and having a common code of accounts for financial reporting; but, leave it at that. Companies that built their own or used best-of-breed planning capabilities have out-performed companies that have standardized on large ERP platform investments. Remember that the people that made the most money on extended ERP  investments were the consultants that implemented the systems under the promises of “invest in these systems and the functionality will come” and “80% is good enough.”  To gain insights, network with companies that have done it, and think hard about how you can use new technologies to sense and what drives value-based outcomes in the response.
Secondly, focus on stabilizing ERP investments and building Business Intelligence (BI) capabilities.  ERP stabilization can take many forms: business process outsourcing, focus on ERP transactional excellence or Software as a Service.  Resist the temptation to think that you can get what you need from on vendor.  Building end-to-end supply chain capabilities means much more than one throat to choke.  
When you focus on the BI layer, think about data differently.  Consider three things:

  • Own BI in the Line of Business:  There is an exciting world of BI dawning.  Don’t think about BI as it is currently defined, think about new possibilities.  Consider how to free the data to answer the questions that you don’t know to ask.  Ask How to read unstructured text to listen to true customer needs.  Learn how to use downstream data to sense demand through the building of demand networks.
  • Invest in Innovation:  Build sand boxes to enable learning.  Consider best of breed providers. Look at the mining of unstructured text inputs to improve supply chain sensing, the use of pattern recognition in customer data to better understand demand, advanced analytics and improved prediction capabilities in optimization, and the linkage of scorecards to value-based outcomes.
  • Define new Processes based on Value.  Focus outside-in.  Put money where your mouth is.  Define standards.  Make relationships meaningful and actionable.  True collaboration only happens when there is a sustainable, meaninful win/win relationship.  I had a great discussion with Philippe Lambotte of Kraft Foods on this subject in a taxi on the way back from UConnect. Philippe has put money where his mouth is by defining a program with retailers that enables a menu-list of options that can be used to redefine the relationship for greater value.  Knowing that imposing a one-size fits all program on retailers will not work, the program has a menu of options with appropriate discounts.  Reward performance against these options based on scorecard performance.  Based upon the options selected by the retailer, bracket-based pricing is determined. 

What do you think?  Please share your thoughts on the evolution of technologies to improve supply chain capabilities.  Do you also believe that extended ERP has failed to live up to it’s promises?
Happy Fourth of July week to you and your family.  I only hope that this blog does not set-off a rockets’ red glare.

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