Supply Chain Management Adoption Trends and Customer Experience

Transcription

1 TECHNOLOGY ADOPTION SERIES Supply Chain Management Adoption Trends and Customer Experience February 2013 In Brief Competitive pressures, globalization and increasingly complex offshore manufacturing relationships are spurring organizations to expand their supply chain management (SCM) systems, which encompass a wide variety of technologies and capabilities. This report quantifies the current adoption and investment trends for supply chain management systems as well as the benefits that are driving companies to expand their SCM implementations. We assess these trends by organization size, sector and geography. We look at the ROI and TCO experience of those that have adopted SCM along with current investment per SCM user. We conclude with practical advice for those considering investment in SCM technology.

2 Inside this Report TABLE OF CONTENTS Diverse Capabilities Deliver Strategic Benefits 4 Economic Experience Drives Positive SCM Adoption 6 Manufacturing and Distribution Lead Adoption Companies Invest in Variety of Capabilities SCM Technology Market Fragmented Small and Midsize Companies Catching Up Asia and Europe Edge above North America Overall SCM Adoption Continues to Grow Customers Experience Positive ROI SCM Adoption a Series of Major Investments Computer Economics Viewpoint TABLE OF FIGURES Fig. 1: SCM Adoption and Customer Experience Profile 7 Fig. 2: SCM Adoption Trend Fig. 3: SCM Adoption and Investment Rates, by Sector Fig. 4: Types of SCM Solutions under Consideration Fig. 5: SCM Adoption and Investment Rates, by Organization Size Fig. 6: SCM Adoption and Investment Rates, by Region Fig. 7: SCM Investment and Adoption Rates: 2011 vs Fig. 8: ROI Experience of SCM Adopters Fig. 9: TCO Experience of SCM Adopters Fig. 10. Amount Budgeted per SCM User Fig. 11: Amount Budgeted per SCM User for New Implementations Fig. 12: Amount Budgeted per SCM User for Follow-On Investments RELATED STUDIES Technology Trends Current Trends in CRM Adoption and Customer Experience 2013, COMPUTER ECONOMICS INC. PAGE 2

3 Supply Chain Management Adoption and Customer Experience Organizations that have implemented SCM technology report good return on investment. Competitive pressures, globalization and increasingly complex offshore manufacturing relationships are spurring organizations to expand their supply chain management (SCM) systems, which encompass a wide variety of technologies and capabilities. According to the findings of our annual Technology Trends survey, organizations that have implemented SCM technology report good return on investment (ROI), although they must carefully manage the total cost of ownership (TCO). The strong ROI characteristics of SCM are encouraging smaller and midsize companies to join their larger peers in adopting the technology. SCM technology providers offer increasingly sophisticated capabilities at price points that encourage further adoption. The complexity of these applications, combined with the need to change business processes, however, mean that organizations will need to focus on change management in order to realize SCM benefits. Based on the survey, this report quantifies the current adoption and investment trends for SCM systems as well as the benefits that are driving companies to expand their SCM implementations. We assess these trends by organization size, sector and geography. In terms of economics, we look at the ROI and TCO experience of those that have adopted SCM along with current investment per SCM user. We conclude with practical advice for those considering investment in SCM technology. 2013, COMPUTER ECONOMICS INC. PAGE 3

4 Diverse Capabilities Deliver Strategic Benefits Supply chain management systems facilitate the planning, movement and storage of materials from the earliest stages of procurement through intermediate stages of production to final distribution to customers. Whereas enterprise resources planning (ERP) systems focus primarily on the internal operations of the business, supply chain management looks outward to encompass the activities of suppliers, customers and partners (including contract manufacturers), as well as internally to the movement and storage of materials within the organization s operations. SCM functionality includes systems for sales and operations planning, advanced planning and optimization, warehouse management, transportation management, global trade management, product data synchronization, supplier relationship management, supply chain visibility, analytics and fleet management. We describe these categories in more detail later in this report. There are two main types of SCM systems: Supply chain planning systems support planning of supply and demand, both within the production facility and across the supply chain. These systems often incorporate concepts and techniques such as demand forecasting, predictive analytics, rapid simulation, theory of constraints, demand-driven materials requirements planning (MRP), inmemory computing and linear programming. Supply chain execution systems carry out those plans on a day-today or hour-by-hour basis and react to events or disruptions. These systems can incorporate a number of technologies, such as bar coding, radio-frequency identification (RFID), conveyor systems, warehouse automation, automated material handling systems, robotics, global positioning systems and machine-to-machine communications. Successful organizations have understood the fundamentals of supply chain management for decades. Early in the development of MRP systems, practitioners saw the need to extend MRP concepts into distribution. This led to the development of distribution requirements planning (DRP) systems in the 1970 s. Through the 1980 s and 1990 s, supply chain management systems continued to evolve, with development of systems for sales forecasting and demand planning, advanced warehouse management and sales and operations planning. The term supply chain management first gained a foothold in the mid-1990 s to encompass all these disciplines. The systems developed in the 1990 s, however, tended to focus on solving one or another problem within supply chain management and often lacked a holistic view of the entire supply 2013, COMPUTER ECONOMICS INC. PAGE 4

5 chain that encompasses both demand planning and supply planning at the same time. The cost savings from offshore manufacturing can be quickly lost. Today, the rise of global customer demand and increasing transportation costs is providing renewed impetus for adoption of SCM and expansion of these systems to provide a holistic and cross-functional view up and down the entire supply chain. To compete in today s global markets, manufacturers and distributors need to synchronize the activities of multiple trading partners and internal functions, have visibility into their day-to-day activities and be able to react quickly to changes in demand or disruption of supply without having to resort to cumbersome manual processes or informal systems of , faxes and Excel workbooks. The cost savings from offshore manufacturing can be quickly lost if transportation and inventory costs skyrocket because of the difficulty of planning material and resource requirements over long lead times. Modern supply chain systems, therefore, are a necessity in today s global economy. Organizations that have successfully implemented SCM systems enjoy a number of benefits, including: Lower inventory levels while improving customer order fill rates. Quicker response to changes in actual customer demand such as an unexpected new large order or a customer cancellation or disruption in supply. Shorter customer lead times through better postponement strategies and replenishment planning, allowing the organization to reduce orderto-delivery times. Better utilization of assets such as manufacturing facilities, warehouse space and transportation equipment, which leads to a reduction in working capital. On the other hand, supply chain systems are complex applications, and organizations seeking to implement them often face challenges. In a complex supply chain, it is unusual to have all the information needed for supply chain management in a single system, necessitating the complex integration of data from a variety of internal and external sources. This problem is getting worse: As organizations outsource much of their manufacturing and distribution, much of the needed data does not even reside within the organization. Furthermore, these 2013, COMPUTER ECONOMICS INC. PAGE 5

6 disparate source systems both internal and external often have differing data definitions and data models. Supply chain systems can be complex undertakings and the total cost of implementation and ongoing support often exceeds budget, as shown later in this report. Supply chain professionals those who know how to manage complex supply and demand plans and the software that supports them are in short supply. Economic Experience Drives Positive SCM Adoption Organizations that have adopted SCM software generally achieve a return on their investment within two years, even though it can be difficult to maintain implementation and support costs within budget. Figure 1 compares the adoption, investment, ROI and TCO rates of supply chain management systems against the rates for 13 other technologies commonly used in business. The data come from the annual Computer Economics Technology Trends study. There were 244 organizations worldwide surveyed from July to September The average revenue of the organizations was $2.1 billion a year and the median was $287 million. The other technologies surveyed were customer relationship management (CRM), data warehouse/business intelligence, ERP, human resource management systems (HRMS), legacy system renewal, mobile applications, social business and collaboration systems, desktop virtualization, infrastructure as a service, software as a service, platform as a service, tablet computers and unified communications. 2013, COMPUTER ECONOMICS INC. PAGE 6

7 SCM adoption is moderate compared to other technologies in the study. Fig. 1: SCM Adoption and Customer Experience Profile Based on survey responses, SCM and the 13 other technologies are given numerical ratings on the levels of adoption, investment, ROI and TCO. Then, SCM technology is categorized as having low, moderate, or high rates relative to other technologies in the survey. Adoption Rate: SCM adoption is moderate compared to other technologies in the study. That means the percentage of organizations that have SCM solutions in place is within the middle third of the range, defined by the technologies with the highest and lowest adoption rates in the study. It does not include organizations that have plans to implement the technology for the first time but have not yet done so. The moderate-to-low adoption rate for SCM is due in part to the fact that this technology does not have widespread application in some industry sectors, such as financial services or information services. Investment Rate: The percentage of organizations investing in SCM technology falls just shy of moderate and earns a low rating. Investors include organizations that plan new implementations or enhancements to existing systems within the next 18 months. Once again, the relatively low investment rate is because the technology does not have relevance in some industry sectors. ROI Success Rate: Among organizations that have adopted SCM, the experience is positive. The survey shows that, compared to the other technologies in the survey, SCM has a moderate ROI success rate, bordering on the high side. The percentage of organizations at least breaking even on their investments within a two-year period is at the 2013, COMPUTER ECONOMICS INC. PAGE 7

8 high end of the middle range when compared to other technologies surveyed. TCO Success Rate: However, compared to the other technologies covered in the survey, the TCO success rate for SCM is on the low side. As with many enterprise applications, there is a danger of underestimating total cost of ownership. We define TCO success as actual costs coming in at or under budget. Interestingly, the ROI success rate is more positive than the TCO success rate. This indicates that the business case for SCM systems is strong: Some adopters must be achieving positive or breakeven ROI in spite of exceeding their budgets for SCM projects. 2013, COMPUTER ECONOMICS INC. PAGE 8

9 About Computer Economics Computer Economics provides research and advisory services on the strategic and financial management of information technology. Our clients include IT end-user organizations and major consulting firms in North America. Our IT Spending and Staffing Benchmarks study, published annually since 1990, is the definitive source of IT benchmarking data. Other annual studies include Technology Trends, an assessment of technology adoption, spending, and economic experience; IT Outsourcing Statistics, which provides data on the use of and experience with IT outsourcing; IT Management Best Practices, which measures adoption trends of strategic IT practices; and Help Desk Benchmarks,, a study on help desk staffing, spending, and operational metrics. In addition to these major studies, we publish IT management advisories on various issues of concern to IT managers. These reports are made available through our website and our monthly newsletter, Computer Economics Report. For further information on our custom benchmarking services, website subscriptions, advisory reports, and other services, please contact our office or visit our website at Contact Information: Address: 2082 Business Center Drive, Suite 240, Irvine, CA 92612, USA Telephone: +1 (949) ; Fax: +1 (949) , Computer Economics, Inc., All Rights Reserved Unauthorized reproduction or distribution in whole or in part in any form, including photocopying, faxing, image scanning, ing, or making available for electronic downloading is prohibited without written permission from Computer Economics. Prior to photocopying items for internal or personal use, please contact Computer Economics, Inc. All trade names, trademarks, or registered trademarks are trade names, trademarks, or registered trademarks of their respective owners. Information contained in this publication has been compiled from sources believed to be reliable, but the accuracy of this information is not guaranteed. Computer Economics disclaims all warranties and conditions with regard to the content, express or implied, including warranties of merchantability and fitness for a particular purpose, nor assumes any legal liability for the accuracy, completeness, or usefulness of any information contained herein. Any reference to a commercial product, process, or service does not imply or constitute an endorsement of the same by Computer Economics. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold or distributed with the understanding that Computer Economics is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. 2013, COMPUTER ECONOMICS INC. PAGE 9