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October 4 , 2007 - Supply Chain Digest Newsletter
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Logility Supply Chain Power Hour Webcast:

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October 9, 2007 – 11:00 a.m. ET

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First Thoughts by Dan Gilmore, Editor

ROI and the Elephant in the Room

How can companies best navigate the people issues – more specifically, headcount reduction – when it comes to new automation that in the end really depends on those moves to deliver the ROI?

It’s often the proverbial “elephant in the room” when it comes to new initiatives and achieving the expected results. And it’s a tough question.

It comes to mind after an interesting discussion I had with Raj Kumar of Kurt Salmon Associates this week in relation to our upcoming Workforce Management Videocast Series, as he discussed the challenge of turning productivity gains in a distribution center into true bottom line benefits.

Gilmore Says:

"Then I asked if the local transportation managers were still there. Well, yes, but mostly doing other things, was the response. So did the company actually save any money, or not?"

What do you say?

Send us your comments here

In presentations by software and automation vendors, it has almost become a cliché that when they talk about the productivity improvements that will be achieved by their solutions, the suggestion is that employees in these areas now supercharged with productivity will be moved to “more value-added work” or something of the sort.

Many years ago, I was in a group that made a presentation to our president on a plan to outsource a small bit of software work that would reduce the need for about five programmers, for which we calculated the savings. But the president said, “Are these people really disappearing from the payroll, or are we just moving them somewhere else? I hear all these plans that are going to generate savings, but the headcount never goes down.”

For which we didn’t have a great answer.

It seems we are in an era now where it is relatively easy (or at least easier than in the past) to shutter whole factories or outsource large functional areas or processes, but still (understandably) very difficult to do at a more micro-level.

In many cases, things are a little easier in distribution, where for lots of companies turnover is quite high, often approaching 50%. It would seem in many cases that no one should fear automation from a headcount reduction issue, since the core group of associates that don’t turn wouldn’t nornally be effected even if total headcount is reduced.

It’s also easy, in a sense, for fast growing companies. Often, investments again say in DC automation are not sold or justified on the basis of reducing current headcount, but on slowing or stopping the growth in headcount versus projected requirements based on expected throughput growth over some period of years.

Sometimes the growth happens – but sometimes it doesn’t.

I spoke earlier this year with a VP of transportation for an industrial company that had recently moved from a decentralized transportation operation to a centralized one. Each of several dozen ship sites previously had local transportation managers; now a much smaller central group was managing the whole process enterprise wide, and the efficiency gains in overhead for transportation were significant.

Then I asked if the local transportation managers were still there. Well, yes, but mostly doing other things, was the response.

So did the company actually save any money, or not?

I don’t want anyone to think I’m in favor of firings. I’m writing this just because it is such a tough issue – the elephant in the room – that frankly we often dance around when it comes to investments in process improvement. I’ve see other cases where fear or concern on the people impact has kept companies from investing in automation or technology that would reduce headcount requirements, blue collar or white collar. We all have. And I am not sure what the answer is.

On one hand, it isn’t right to make investments based on theoretical cost improvements that in reality never really show up on the company books; or to too strongly resist clear opportunities for process improvement in this hyper-competitive market environment. On the other hand, how do you keep morale and get employees to provide the critical buy-in to the process when the end result might be a RIF for themselves or a co-worker?

Is that why too many of our initiatives don’t deliver? You’re caught either way.

Last year, in our interview with Theory of Constraints founder Dr. Eli Goldratt, he said it’s no wonder employees often resist change.

“They believe the change is likely to hurt them,” Goldratt said. “Sometimes they are wrong because of a lack of information, but usually they are right! Most changes might be right for the company, but are not right for the majority of people from whom they are asking for collaboration. So no wonder there is a lot of resistance.”

So, since this is such a tough issue either way, we often avoid it by making up numbers that don’t reflect what the real savings tally will be in the end. Maybe that’s why the ROI is often so hard to find later on.

Goldratt passionately believes that there is always a way to find a win-win. But will that win-win approach show up on the bottom line?

Life is sure easier when you’re growing fast.

Is the need for true headcount reductions to achieve ROI for automation projects often an “elephant in the room?” Is it possible to navigate the challenge of the need to reduce costs based on investment with treating employees fairly and maintaining support and morale? How has your company handled this issue? Let us know your thoughts at the feedback button below.

Let us know your thoughts.

Want a printable version? Go to:


Dan Gilmore


Workforce Management in the Supply Chain Videocast Series

Interest in LMS?

You'll Benefit from this Four -Part Videocast Series

Part 1: Getting Real Results from Engineered Labor Standards

View the Entire Series Schedule and Register Today


This Week’s Supply Chain News Bites – Only from SCDigest

October 4 , 2007
Supply Chain Graphic of the Week: Outsourcing and the Supply Chain

October 4 , 2007 Supply Chain by the Numbers: October 4, 2007


Stocks on Wall Street inched higher last week with the tentative deal between GM and the UAW.

Our Supply Chain and Logistics stock index reflected the market’s overall upward trend.  In the software group, Descartes and Ariba were up 7% and 5.5%, respectively.  Both Intermec and Zebra in the hardware group were up (4.2% and 0.7%, respectively).  In the transport and logistics group, the results were mixed with CSX up 6.0% and Yellow Roadway down 3.4%.  

See stock report.


Print Version Here

Cover Story: Can Western Manufacturers Compete Against China's "Dragons?"

Guest Contribution

by: Akhil Oltikar

Next-Generation SIOP

Supply Chain Leaders are Embracing New Paradigms for Success

Guest Contribution

by: Karin Bursa

Closing the Gap Between Supply and Demand

As Manufacturers and Distributors Become More Demand Driven, Supply Chain Plans Need to be Translated into Achievable Execution Plans


Q. The Plan, Do, Check, Act model was developed by what famous manufacturing guru?

A. Click to find the answer below


Reader Question: Can Bucket Brigades Work with Mechanized Order Picking?

Reader Question: Is there a True Global RFID Standard?

See our expert answers at the links above. Share your knowledge or perspective.

Or, ask your question


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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're really behind again - bear with us. But keep the letters coming! In the next few weeks, we'll start adding feedback right on specific story pages, so you can see what others are saying.

We received some good letters on our pieces a few weeks ago how it has recently been pretty good times for supply chain software makers. That includes our feedback of the week from Gartner analyst Dwight Klappich, who offers some excellent additional observations on what is driving user technology adoption. We also have a letter from another analyst and friend of SCDigest Steve Banker, who agrees the software market looks strong, and says where he sees the growth.

We'll also note a that a few weeks after our stories, Investors Business Daily ran a decent size article on the same theme. Coincidence? We think not.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – On Supply Chain Software Market:

I just read you SCDigest article on SCM software. I would add a couple of more pragmatic things that I see driving an uptick in demand for SCM technologies.

  • Short of very small vertical markets like service parts planning, transportation is the hottest area of SCM with double digit growth projections and well ahead of WMS and SCP. Pretty easy to guess why, mostly increases in fuel costs are driving higher over all rates and while capacity constraints have eased they are still a concern for many companies. Since penetration remains very low (under 20% industry wide though higher in large shippers) out side the largest shippers ($100M year in annual freight) this is a green field. Beyond just the economics there are a lot of other issues driving demand for TMS like increased complexity, growing sophistication of buyers, more issues to control and metrics to measure and manage. Changes in lead times have forced mode shifts to more expensive modes so companies are looking for ways to better manage in these environments.
  • Under investment over the last several years as IT funds were diverted to other areas has cause a backlog that is now hitting the market.
  • New delivery options like SaaS making SCM technologies (mostly transportation today) more accessible to buyers.
  • Outsourcing or the virtualization of supply chains has add complexity which companies now understand they need tools to manage (e.g., global visibility event management). Likewise LSP are a large relatively untapped market beyond WMS for packaged SCM applications and Oracle and SAP plus others are aggressively going after this market.
  • Globalization in general is creating a climate ripe for automation though little of the investment is going direct to GTM solutions it is driving investments in other areas.

Dwight Klappich

More on SCM Software:

Certainly, times are good in the Supply Chain Execution market. We have that as a 4 and a half billion dollar market we are projecting to grow at close to 10% for the next five years. That is very good growth for such a large and established market.

For us SCE is composed of Production, Warehouse, and Transportation Management. Production Management is growing much better than the logistics applications. ERP and Production Automation suppliers are growing faster than Best of Breeds. In Production Management the automation suppliers supply a total solution composed of factory floor hardware like robotics and sensors as well as the software. This has made it more difficult for the ERP suppliers to encroach upon their territory.

In some markets, the replenishment cycle is driving growth. So for example, between 1995 and 1999, partially driven by Y2K concerns and eFulfillment hype, the market grew very quickly. On average, the replenishment cycle for WMS is 11 years, so many companies that installed a WMS in 1995 are looking to replace it. So for the next four years or so this replenishment cycle can drive growth.

Steve Banker
ARC Advisory Service


Q. The Plan, Do, Check, Act model was developed by what famous manufacturing guru?

A. Dr. Edwards Deming, father of the Quality movement, all the way back in the 1930s.

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