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  - July 1, 2008 -  

Supply Chain News: Companies Need to Re-Architect Supply Chain Application Portfolios, Forrester Research Says


Globalization and Aging Internal Systems Among the Factors Driving New Supply Chain Solutions; Keys to Getting New Projects Approved



SCDigest Editorial Staff

SCDigest Says:
Saddled with inflexible and heavily customized legacy systems, countless supply chain operations are urgently in need of a large-scale IT modernization and transformation effort. 

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No one denies that the business and supply chain worlds are changing rapidly, with an incredible array of new forces and pressures on supply chain and logistics professionals. (See The New Supply Chain Perfect Storm.)

Common sense says that with these rapid changes in the environment and market conditions, a company’s existing supply chain and logistics software applications – which were likely deployed in far different times, and perhaps for business drives that have changed dramatically – may need to be retooled.

That’s certainly the position of Patrick Connaughton, an analyst at Forrester Research. In a recent research report, Connaughton says that “Saddled with inflexible and heavily customized legacy systems, countless supply chain operations are urgently in need of a large-scale IT modernization and transformation effort. Some have flat out reached a point where they can no longer compete or expand globally without a complete rip and replace of their systems.”

Of course, companies facing this reality may be tempted to think they can “outsource” their way out of the dilemma, but that is an unlikely route to solving the problem, Connaughton argues. The systems of “logistics service providers are often just as archaic,” he believes.

Despite this scenario, relatively few companies have major supply chain software upgrades planned. According to a recent Forrester survey, about 11% of companies were planning any major supply chain technology upgrade in 2008.

“That leaves the remaining majority doubling down on legacy investments, essentially bringing new innovation to a standstill,” Connaughton adds. Part of the challenge is that in recent years, concern about rising IT costs, combined with a slowing economy, means companies are putting any new software initiative under “detailed scrutiny,” Connaughton says.

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Supply Chain Projects that are Moving Ahead

Connaughton says he lately has seen more projects moving forward when the focus is on market differentiation and revenue generation, rather than traditional supply chain cost cutting.

He says he sees the following as key to getting supply chain technology projects approved:

Deliver a short-term ROI. Look for initiatives that can deliver a short-term ROI that can essentially fund later stages of the project. One example is Transportation Management Systems (TMS), where companies can first tackle the low-hanging optimization scenarios, achieve large cost savings, and then use that momentum to fund continuous improvements.

Keep the big picture in mind: While appearing to solve an immediate problem, “point solutions” can sometimes lead to disappointing results. Look beyond the immediate problem to see how the pieces will really fit together to deliver a niche total solution, even if that’s in phases, Connaughton says.

Build the foundation for future innovation:  Don’t start with newer, more risky investments or technology – they tend to be more expensive besides. Look for technology that is proven (and generally less expensive) but which provides a good path to more innovative processes as the newer technology matures. One example: mobile applications in logistics, which can offer a sound ROI today, but set the stage later on for more advanced applications that are coming to market now.

By selecting the right SCM technologies to invest in, supply chain and applications professionals can take incremental steps without taking unnecessary risk,” Connaughton believes. Currently, Forrester sees supply chain intelligence, mobile asset tracking, fleet management, and global trade management at the top of the list in terms of application areas that deliver quick ROI and lay the groundwork for ongoing innovation.

Do recent changes in the supply chain mean most companies need to rethink their current supply chain technology? What are the keys to getting new projects approved? How do you balance short-term need with long-term thinking? Let us know your thoughts at the Feedback button below.

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