Ramesh Kumar, CPIM Page 1 of 7 ES-Infosys

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1 Ramesh Kumar, CPIM Page 1 of 7 ES-Infosys

2 1. Need for Optimization Companies world-over, cutting across industries, have made lot of investments in Information Technology (IT) over a period of time, especially in the last one decade. This has been strongly induced by the following factors: Discerning customers, forcing companies to think differently Mushrooming of technologies in the dotcom era The hype that was built around these technologies that they are the panacea for all the problems faced by the companies. Companies also did not want to be laggards with everybody from Independent Research Firms to Consultants to Systems Integrators to Solutions Providers claiming that Supply Chain Excellence would be a Strategic Imperative and the Competition henceforth would not be between companies, but between Supply Chains. Hence, the focus was on getting new-age, cutting edge technologies (of-course, with not so much commensurate focus on the appropriateness of these technologies from the strategy or business process perspective). However, companies hardly had the time to remove the redundant and obsolete IT applications. Also, forced / intentional mergers and acquisitions started happening with an aim of leveraging the efficiency in supply chain. This has further added to the inventory of applications, increasing the complexity of managing them in terms of too many vendors, products / packages and versions. The result of all these is that many of these companies today, are saddled with bundle / shelf-ware of both home-grown applications and Commercial Off-The Shelf (COTS) products, especially in areas like Supply Chain Management (SCM), part of the Enterprise Solutions space, with billions of dollars sunk in them. If one adds those home-grown applications that have been developed internally by the Information Systems (IS) department in the SCM space over a period of time, then companies are sitting on heterogeneous IT systems, which can result in complex architecture and less extensibility resulting in slowed down business processes and increased costs of operation. This is also because of the strong belief that the companies successfully using supply chain systems, whether they are Suite / End-to-End or Point / Best-of-Breed Solutions, are most likely to have greater supply chain cost efficiency. However, sheer investments in SCM technology alone turned out to be insufficient, as there were equally important issues such as redesigning the supply chain processes to meet the changing business needs and restructuring the organization to support the redesigned processes, which were either not considered at all or were given inadequate attention. On the other hand, companies having good supply chain practices Ramesh Kumar, ES-Infosys Page 2 of 7

3 without the underlying SCM technology could be due to old or inappropriate technology are also not able to reach the desired levels of supply chain excellence. Hence, there is a stronger need for companies today than ever to approach the IT investments in SCM related areas in a scientific manner and with a business context. While attempting at optimizing the usage of applications in shelf-ware, it is prudent to approach the problem in a holistic manner and Portfolio Management for optimizing the SCM Technology Investments is a good approach in this direction. Portfolio Management: Basis for Investment Planning Concept of portfolio theory, its development and subsequent usage in financial management was a major event in the financial world in the 1960s. As per this theory, the risk of an individual asset should not be assessed on the basis of possible deviations from its expected return but rather in relation to its marginal contribution to the overall risk of a portfolio of assets. The degree of correlation of that asset with other assets in the portfolio will determine whether the asset will be more or less risky. This means that risk should be analyzed in terms of an investor s overall portfolio, rather than by looking at individual assets. For every level of risk, there is an optimal portfolio of assets that will have the highest expected returns. 2. Portfolio Management in Supply chain This Portfolio theory can be extended to the IT world by viewing the portfolio as a pie that can be split and analyzed by an array of attributes such as business goals, risks, costs and projected returns that form the basis for planning the investments. Normally, decision is first taken on how much of the portfolio should be allotted to each category. Tactical decisions within the several portfolio categories are taken subsequently. As results of each decision are correlated, the decision making within the context of the entire portfolio becomes easier. Ramesh Kumar, ES-Infosys Page 3 of 7

4 While the reasons for this not so encouraging number could be multiple, it would go a long way in setting the right base for projects, by way of top-down approach in selection of projects through structured project portfolio method. This in turn boils down to deciding the portfolio of IT projects first based on categories / criteria like gaining competitive advantage, Sense and Respond capability, Excellence in Supply chain, which means seamless collaboration with extended enterprise and realtime information visibility, infrastructure, etc., before getting down to evaluation of individual projects based on ROI or whatever measure an enterprise chooses to do so. This helps the executives involved in the portfolio exercise to always have the big picture in mind, thereby ensuring business focus on prioritization / selection of IT projects. The objective here is just not to make use of the systems in shelf-ware, but a need driven by business requirements. Improving the relationship with customers which results in increased revenue and / or reducing the total supply chain costs should be the perspective with which one should look at while optimizing the technology investments in the SCM space. This approach helps in creation of a road-map covering prioritization plans for application retirement / elimination, consolidation, migration and integration, all with the following objectives: Provide a structured frame-work to prioritize IT budgets Reduce complexity in managing applications Lower the Total Cost of Ownership (TCO) that includes maintenance spending Improve capabilities of applications to meet the requirements of business processes Portfolio management greatly reduces the emotional aspects of the prioritization discussion and replaces it with criteria grounded in business strategy TechRepublic Essentially, the idea is to align investments in IT projects with business strategy and goals by balancing the risk and returns. 3. Methodology Four phases of work is envisaged as part of the Portfolio management methodology for Optimizing the IT Investments in the SCM space, which is given below: 1. Inventorize all existing IT applications in the SCM space 2. Map the IT applications with Processes / Functions 3. Evaluate the IT applications 4. Position and Optimize the IT applications Ramesh Kumar, ES-Infosys Page 4 of 7

5 Phase 1: Inventorize all IT applications The objective of this phase is to prepare a comprehensive listing of all the SCM applications that are available in an organization. Many companies would be surprised to see the plethora of applications with them at the end of this exercise. Data collection should be facilitated by appropriate templates to ensure uniformity, comprehensiveness and timely completion. Companies would also realize, once into this exercise, that the magnitude of this phase is not small, given the fact that today s IT landscape for many enterprises is very complex, often spanning multiple business entities and geographies. Here, all the IT applications are listed down with respect to each organizational entity. This would be more relevant for age-old home grown applications, where the IS department was made to develop an application to meet the requirements of each user department. Wherever the applications span more than one organizational entity, which would be truer for enterprise kind of applications (home-grown or COTS packages), they can be listed down with respect to process / functions. The challenge in this phase is the non-availability of a comprehensive list of applications in a single place and the time it takes to prepare one. There could even be cases where hardly anyone would know why certain applications are still maintained. Hence, it would be prudent that there is an active participation of senior executives, both from Business / Process side and IS / IT side to prepare a comprehensive listing of the existing applications. Phase 2: Map the IT applications with Supply Chain Processes / Key Functions In this phase, all the listed IT applications are mapped at the level of corresponding processes / sub-processes / key functions. Again, one can look at organizing this data collection along backward supply chain, operational areas and forward supply chain. Strategic / Tactical / Operational planning, Scheduling, Execution, Collaboration etc. could be another perspective. Usage of Supply Chain Operations Reference (SCOR) frame-work can also be considered at this stage especially in mapping the IT applications with processes like Plan, Source, Make, Deliver, etc. This would immediately throw light on the dense presence of applications in certain areas (processes / sub-processes / key functions) and a minimal presence to absence of applications in other areas. The end of this phase, which is also the best part of this phase, is that it would throw more questions to the Business / Process / IT community, for which there would be few answers. Some of the typical questions that would arise are: Are we sure that our inventory of applications is comprehensive? Do our age-old legacy applications still meet the current business requirements? How could we afford to spend so much on maintaining all these applications, without looking at viable alternatives? Are the current supply chain processes appropriate to meet the market challenges and are they supported by the right applications to have the best combination of Process and IT that could result in Supply Chain Excellence? Ramesh Kumar, ES-Infosys Page 5 of 7

6 Note: This phase, if required, can also include mapping of applications with relevant infrastructure deployed, database environment, hard-ware used, besides process / subprocess / key functions. Phase 3: Evaluate the IT applications Once an inventory and mapping of applications is done, the IT portfolio can then be analyzed based on criteria such as alignment with the overall business strategy, significance to various business units in meeting their short-term / long-term goals, expected / projected returns and perceived risk. In this phase, all the IT applications are evaluated against key parameters, viz., Levels of Technology sophistication Business value generated / added Vendor credentials (especially for COTS products) The above parameters can be further broken down into micro-level parameters, for a detailed understanding and analysis. A sample listing is given below: Weights can be assigned to micro as well as macro-parameters to arrive at a final weighted score. Ramesh Kumar, ES-Infosys Page 6 of 7

7 Phase 4: Position and Optimize the IT applications The resulting scores are then plotted on a graph with Technology Level on X Axis and Business value generated on Y-Axis. In the case of COTS products, scoring on vendor credentials could be merged with Business value generated. What would then result, typically, is shown below. The kind of treatment that needs to be given for each of the Positioned IT applications is shown in each quadrant. HIGH H Business value generated Migrate Judgment Zone Reengineer Re - engineer / / Discard Discord Retain Enhance / / Develop HIGH LOW LO W LOW Technology level Those applications that fall in the LOW-LOW quadrant, if found to have certain competitive advantages built over a period of time by the organizations, should first be Re-engineered, if required, to extract those competitive advantages, before discarding them. Some of the redundant applications can also be retired at this stage. Those applications that fall in the Judgment Zone should be further examined critically by an internal panel of Business / Supply chain process and IT executives to re-position them, if required, in the appropriate quadrant. This is necessary to set-off any slight imbalances in weights assigned to macro / micro parameters or quantitatively an IT application would get positioned in one Quadrant, but actually would fit more into an another Quadrant, going by the collective wisdom of Business / Process and IT executives. 4. Conclusion The approach and methodology detailed here brings the Cross-functional team of Business / Supply chain Processes and IT executives together on a common platform, enabling them to collectively look from a strategic, financial, process and operational perspective, at both the Home-grown and COTS products in the SCM space, with the aid of frame-works and data collection / analysis tools. This in turn results in the winning combination of right supply chain processes enabled by the appropriate SCM technology applications, leading to the realization of the end objective of Optimizing the investments made in these SCM applications. Ramesh Kumar, ES-Infosys Page 7 of 7