Supply Chain Solutions with the Best Pain to Gain Ratios
Every two or three years, I do a sort of summary evaluation of different supply chain-related technologies, pondering which really provide the best bang for the buck.
I am back here with the 2013 version - with one major change in my approach. This year, I am not including the very mature type solutions that almost every company that could really use them already has, or has simply decided not to do so, for whatever reason. Those include areas such as demand planning, warehouse management, transportation management, manufacturing execution systems, etc.
"We all know there is valuable insight locked up in all that transportation data a TMS captures, but even today very few companies really leverage the available insights."
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Instead, the focus is on software and in some cases hardware solutions that for whatever reason a large percentage of companies have not yet adopted - and in some cases, I know from my discussions, have not even really considered or in some cases have really even heard of.
The lens I look through what I have called the "pain to gain" ratio. The gain is related to both the size of the benefit and the consistency of achieving it. The pain part has to do with the ease of implementation, and the percent of projects that just don't seem to go very well. In other words, we do not accept the "no pain, no gain" concept. We want low pain, lots of gain.
Now to be clear, every supply chain solution out there has a strong value prop of one kind or another, else they would have been erased from the market years ago. But I do think the average pain to gain ratios can be different across solutions.
Another way to look at this: I am listing in order, all things being equal (meaning there isn't some huge immediate issue in some particular supply chain area) where I would likely direct attention for investment were I chief supply chain officer at say, Mongo Foods, the fictional company in our Chain Reaction cartoon series.
So that said, below is my list. Of course, I could add all sorts of caveats relative to any individual company's current situation, skill sets, maturity, etc., but I assume that is understood by our readers here.
Pain and gain levels are out of a maximum score of 5.
(1) Voice Technology in Distribution: For companies with heavy piece and case picking volumes, there is almost no reason not to invest in voice versus traditional handheld wireless RF terminals - you are likely to get 20%+ productivity gains and high ROI from the hands and eyes-free nature of the solution, and today voice implementations are really straightforward. You can also look at voice as included part of "wearable" mobile systems that provide bar code scanning and a display with voice that keeps the hands-free element. Pain: *, Gain: $$$.
(2) Spend Management Visibility: While these procurement analysis tools have been fairly highly adopted, nevertheless many still firms are still on the outside looking in. Spend management tools provide greatly improved visibility to what a company actually spends, where, with what vendors and more. Amazing insight is thus revealed - as well as opportunities for savings. The pain is primarily around systems integration - and perhaps mentally with all the silly things companies find they are doing in buying stuff. It works at home, doesn't it? Why not in business? Pain: ***, Gain: $$$$$.
(3) Inventory Optimization: I have moved this software category up considerably in the list this year for two primary reasons: (1) as more companies adopt these tools, it is clear to me they are real gaining competitive advantage over those that haven't; (2) the success rate of late is improving significantly. Case in point: Procter & Gamble, which has reduced inventories by 3-11% depending on product category through use of IO, and this at a company that was very skilled in inventory management already - huge savings. Pain:***, Gain $$$$$.
(4) Labor Management Systems in Distribution: While not the most exciting technology in the landscape, Labor Management simply delivers time and time again. A combination of software, engineering and mindset change to improve logistics productivity, an LMS is typically built on discrete, engineered standards for specific tasks in a distribution center, plus detailed reporting at the individual operator level against the resulting dynamic goal time calculations for the day's work. Very little pain and risk, with labor savings of 10-20% or more, which are substantial and very consistent across companies. If these benefits are not achieved, it is almost always an implementation issue. Combine LMS with voice and drive huge DC labor savings, Pain: *, Gain: $$$.
(5) Network Optimization Tools: Specifically, using network planning and design tools not just every few years when there is an acquisition or something but on a continuous basis. With globalization, virtualization, supply chain risk management, insource versus outsource questions, etc., who can possibly think they can optimally make these decisions or well understand tradeoffs without such a tool on hand? Some integration is required to get the data, but the technical implementation is actually simple. The "pain" is mostly related to process and maintenance. Leading companies are running dozens of supply chain issues through these models before making decisions. Pain: ***, Gain: $$$$$.
(6) E-Auctions Tools: Use of technology tools to empower on-line contract bidding for a growing array of both indirect and indirect materials is also well penetrated, but far from universal. Once viewed as a cure-all, there has lately been some realization that there are limits to how far this can/should be taken (though not all feel this way). Increasingly being used for services procurement as well as products. Direct materials are harder than indirect, but many do both. Fighting entrenched procurement methods may be the largest barrier to deployment success. Reports of 10-20% savings for first events in a category are common. Pain: **, Gain: $$$$
(7) Transportation Carrier Bid Optimization: In my mind, it is very odd why more companies don't use these transportation procurement tools. Yes, some early adopters got into trouble from too much year-over-year carrier churn, but we've learned these lessons. 10%+ savings over what can be achieved using non-automated procurement processes are fairly common - and that's a lot of money. Steep learning curve at first, but easier each succeeding year. Pain: *, Gain: $$$
(8) Sales and Operations Planning Workbenches: With the incredible rise of S&OP in the past decade, to an almost universal practice in mid-size and larger companies, far too many companies are trying to become excellent at the process with basic supply chain tools (i.e., spreadsheets). The decisions are too many and complex, the need for scenario analysis too massive, to try rely on spreadsheets. Not much pain at all, beyond spending the money. Pain: *, Gain: $$$
(9) Transportation Analytics: We all know there is valuable insight locked up in all that transportation data a TMS captures, but even today very few companies really leverage the available insights. But I've heard from Sears and others about the value and savings that can be unlocked from the effort. Transportation touches everything, and logistics and business managers can benefit from these BI tools. Large savings are available, but it can be a multi-year effort to complete. Pain: **, Gain: $$$$
(10) Distributed Order Management (DOM): It's not for everyone, but the need for a system that can understand orders, inventory, pricing, sourcing and more across increasingly complex channels of distribution is becoming a must-have for retailers, consumer goods manufacturers, and even others (e.g., Dal-Tile). DOM solutions are still generally little understood, and today really sit on top of regular order management systems - but eventually they will simply be the order management system - and the "Order is still King." Pain: **, Gain: $$$
So that's my list. I am by no means claiming this is a scientific analysis, just a representation of what I have seen and continue to see in terms of what is being achieved. Take it as one input, nothing else.
Just missing the top 10: "demand sensing" tools; master data management, "control towers" and supplier portals.
What is your reaction towards Gilmore's analysis of supply chain technologies and the "pain to gain" ratio? What would you add to the list? Let us know your thoughts at the Feedback button (email) or section (web form) below.