Management Update: How to Implement a Successful Supply Chain Management Project

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1 IGG B. Zrimsek, K. Peterson, P. Phelan Article 25 September 2002 Management Update: How to Implement a Successful Supply Chain Management Project Gartner provides insights and recommendations on how enterprises can make their supply chain management (SCM) projects successful by managing six critical aspects of the implementation. In these tough economic times, many executives are looking more closely than ever at the costs, benefits and return on investment of major project implementations in their enterprises, including supply chain management (SCM) projects. Gartner discusses how enterprises can make their SCM projects successful by managing six critical aspects of the implementation. The SCM Hype Cycle and Balancing Risk and Reward Many traditional ( four wall ) SCM applications have reached functional maturity and are suitable for broad adoption by all types of enterprises. However, many technologically aggressive enterprises are supplementing traditional SCM applications with new variants to gain competitive advantage. Consistent success and proven return on investment (ROI) remain elusive for some newer SCM applications. Applications that some vendors call supply chain execution management (SCEM) have reached the peak of the Gartner SCM Hype Cycle (see Figure 1), but 2003 will bring some failures and abandoned implementations of those applications. Figure 1 The Gartner Traditional SCM Hype Cycle Gartner Entire contents 2002 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Visibility Capable to Promise Strategic Sourcing SRM TMS Suite SCEM Collaborative Planning SCP Technology Peak of Trough of Trigger Inflated Disillusionment Expectations As of 2H02 ASCE B2B C-Commerce ASCE Adaptive supply chain execution B2B Business-to-business C-Commerce Collaborative commerce ERP Enterprise resource planning SCEM Supply chain event management Source: Gartner Research WMS ERP II Factory Scheduling Slope of Enlightenment SCM SCP SRM TMS WMS Routing and Scheduling Plateau of Productivity Time Supply chain management Supply chain planning Supplier relationship management Transportation management system Warehouse management system Supply chain planning (SCP) is emerging from the Hype Cycle s Trough of Disillusionment. Supplier relationship management (SRM) and advanced order-promising capabilities continue to build market visibility on their way to the Peak of Inflated Expectations, as market hype outstrips the capabilities of the underlying systems. The warehouse management system (WMS) market continues to undergo changes as large, global vendors in the Visionaries Quadrant of the Gartner WMS Magic Quadrant continue to develop functionality (see Figure 2). Figure 2 Warehouse Management System Magic Quadrant

3 Challengers Leaders Manhattan PkMS iseries Ability to Execute Provia ViaWare Catalyst EXE Exceed 2000 LIS Irista Optum PeopleSoft Yantra Baan IMI Vertex ewms MARC McHugh DLx/P EXE EXceed 4000 Swisslog WarehouseManager McHugh DLx/D SAP HighJump Manhattan PkMs n-tier Oracle Logility J.D. Edwards As of April 2002 Niche Players Visionaries Completeness of Vision Source: Gartner Research IMI: Industri-Matematik International The transportation management systems (TMS) market continues to evolve, but is still led by Manugistics and i2 Technologies. As enterprises deal with those complex markets, they should be building transactional and analytic foundations for increasingly complex business-to-business (B2B) collaborative-commerce (c-commerce) SCM projects. Action Item: Enterprises must continue to pay attention to where applications are on the Gartner Hype Cycle to ensure a match between organizational requirements and application selection to balance risk and reward. How to Avoid SCM Project Disasters Because of bad press, negative perceptions or experiences, or previous project failures, many enterprises are wary of SCM projects and specific vendors. Although lessons can be learned from other projects and those lessons can help enterprises separate implementation facts from fiction just because a similar enterprise succeeded or failed with a certain vendor doesn t mean that yours will. Gartner explores six key issues that, if managed correctly, can keep an SCM project from becoming a disaster. 1. Manage Expectations The Why Expectations for business improvement are set early in the implementation process, and they form the foundation for all measures of project success. It s easy for enterprise management to get excited by the promise of a better future enabled by SCM, with market hype, glitzy demonstrations

4 by overzealous salespeople, and consultants promising drastic business improvements. Enterprises often create inflated expectations of the capabilities of applications, looking to them to answer all that s wrong with an enterprise and its supply chain. Expectations that are not backed up with facts based on an application s demonstrated abilities to meet business needs are likely to be disappointed. Expectation inflation is most significant during the software sales cycle. Salespeople often demonstrate what sells instead of what the customer needs. For example, collaboration has become an exciting and greatly hyped area of SCM. The sales team will demonstrate the ease of Web-based trading partner collaboration, rather than the underlying planning or execution system. Although collaboration has tremendous benefits, most enterprises must begin with internal software implementations before reaching out to trading partners. If that happens without trading partner collaboration, the initial go live will not meet the expectations set during the sales cycle. Enterprises should carefully set realistic expectations and then manage them throughout the implementation process as project conditions evolve. This foundation should be completed with a detailed statement of expectations that relate business process change and application functionality to specific business benefits (the business case). The statement of expectations should not be something provided by the vendor, but should be formulated by customers based on enterprise realities. The improvement targets should be visible to the implementation team throughout the project, so they can keep their eyes on the ball. Enterprises should reference the Gartner Hype Cycle for the application in question (see Figure 1) to understand how mature the solution offerings are and what the near future may hold. That is particularly important when technologies start to descend from the Peak of Inflated Expectations, and bad press starts to document implementation challenges at other enterprises. Understanding the Hype Cycle at the start of the project can better prepare the team and enterprise for bad press when it happens. 2. Know Your Scope The What The scope of a project provides an overview of the degree of complexity involved. The larger the project, the more risk is involved, the more challenging the project is to manage and, ultimately, the more likely the project will fail. Scope can have many dimensions, including applications, processes, geographies, locations, users, and significant organizational and IS infrastructure changes. The larger the project across those many dimensions, the more likely it is to fail. Enterprises often try to do more than is realistically possible when considering the scope of an SCM project or a particular phase, especially when the constraints of time, money and people are considered. As a result, enterprises fail to deliver the project as planned, while getting mired down in

5 complexity. Often, enterprises are required to revert to a reduced scope to make a planned deadline, or they are forced to extend the project deadline and increase the budgets, while executing on planned scope. Enterprises should be realistic about what is achievable in the time frame of the project and, if benefits are not achievable in six to nine months, the scope of the project (or phase) should be adjusted to deliver benefits sooner. Enterprises should plan projects with the ideal future state in mind, but execute individual phases that move the enterprise and its trading partners from the current state to the future via a few transition states. That is usually easy in SCM projects, because the solutions are modular and can, therefore, be implemented incrementally with little or no additional integration cost. However, the solution should be thoroughly scoped out before beginning the first phase of implementation to ensure that business process or data-level decisions do not cause problems for future phases. This incremental, coordinated program approach will enable the enterprise to derive value throughout the program and enable it to respond to changes in the business environment. 3. Pick the Right Approach The How The answer to the scope question is only half the story, because the implementation approach is so heavily correlated with the scope. Enterprises with limited scopes are often able to embrace a more aggressive implementation approach. Likewise, more complex scopes require more measured implementation approaches. Gartner has related those two dimensions of project planning (see Figure 3). Enterprises should avoid the combination of high complexity and a big bang approach as the magnitude of effort required for success is often more significant than anticipated. Figure 3 The Dimensions of Project Planning

6 High Complexity of Scope Big-Bang Oriented Approach Highest Risk Appropriate With Proper Risk Management Appropriate With Proper Risk Management Safe, but Slow Modular- Oriented Approach Source: Gartner Research Low Complexity of Scope Enterprises with high degrees of complexity should avoid big-bang implementations in favor of more modular implementations that address the varying dimensions of scope into realistic, implementable combinations. Enterprises with simpler environments should explore more comprehensive implementations, with appropriate risk management strategies, to drive benefits earlier in the program. Enterprises with more simplified scopes can pursue modular implementation strategies, recognizing that project risks will be reduced, while project benefits will be delayed. The selection of the various phases is generally made based on ROI and enterprise readiness. Although it s more beneficial to implement the part of the project that will provide the highest cost reductions or enable the greatest potential growth, that approach must be balanced with the enterprise s ability to be successful at implementing that phase. That means ROI must be balanced with the availability of data, as well as the complexities of change management, to determine the optimal set of implementation steps. Enterprises should select a first phase that is easily achievable to give the overall project good momentum. If the first phase gets bogged down or does not meet expectations, it will be more difficult to obtain approval for subsequent phases.

7 4. Focus on the Users The People SCM projects are made up of people, processes and technologies. Often, the people dimension has the greatest effect on project success. Another key factor in change enablement is the culture of the enterprise and its supply chain. Enterprises that have historically had issues with change tend to continue to have those issues within the scope of an SCM project. Supply chains with large trust issues or those that are more closed due to regulatory or technology constraints require more change management when collaboration is one of the goals of the project. Enterprises and supply chains that embrace change and can more easily transform themselves will fare better in these initiatives. Enterprises achieving success typically pay significant attention to the following: Communication. Communicate about the project to the enterprise, on a regular basis, throughout the project. Consistency. Consistent messages originating from the project team create a consistent view of the project within the enterprise. When the supply chain is involved, this consistency must span corporate boundaries. Inclusion. Include people not directly involved in the project in such activities as validation of design and conference room pilots. Because SCM is likely to affect people from other enterprises, external parties will require attention and involvement the sooner and more frequent the exchanges, the less frequently change will be required later on. Education. This helps people understand why the project is important, what the organizational benefits will be and provides them with knowledge required to assist in achieving the benefits. Training. This prepares users for the changes to their daily activities. Metrics. Performance metrics are modified to support ongoing process changes. They include individual and corporate performance metrics. In addition, enterprises embarking on SCM implementation should assess the change readiness and change capability of their organizations and trading partners, and then create specific change-enablement plans to address those requirements. 5. Have Committed Sponsors The Backers Gartner research shows that enterprise projects that are owned by business units (instead of the IS organization) and with sustained executive involvement have a greater chance of success than those with SCM placed solely in the hands of the IS department. Executive involvement reinforces the importance of the project to line managers and other people tasked with project execution and eventual deployment into the business. Like cultural issues, this area has little to do with the actual application selected, but can have a significant role in the overall success of the project.

8 Enterprises planning SCM projects should ensure business executive sponsorship, ownership and commitment throughout the life of the project. Executives should be involved in steering committee meetings, quality reviews, issue escalation and conflict resolution. Trading partners should be represented in the review and approval processes. 6. Avoid Modifications to the Package The Enabler Two specific dimensions related to the package must be clearly understood: The ability of the solution to meet the needs of the business The willingness of the business to adapt to the capabilities of the solution The combination of those dimensions is different for all processes within each enterprise. One enterprise may see a need to customize an application, whereas another may be able to embrace the application as delivered. Although most SCM projects have a guiding principle to use the package as delivered, enterprises often find reasons to stray from that directive, and, in those decisions, they put their projects at greater risk for failure, because customization efforts often take longer (and cost more) than planned. Enterprises looking at other enterprise implementation experiences, especially in their industry verticals, should understand what customizations were required to meet industry-specific requirements and plan for similar efforts as part of their implementation efforts. In addition, enterprises should perform their own gap analyses to determine where other customizations may be required and then analyze the specific business value associated with each gap to determine how the gap should be resolved. Bottom Line SCM implementations are risky endeavors, and enterprises must take control of their own destinies. Relying solely on lessons learned from similar implementations at other enterprises or assuming that the merits of the selected application will generate project success is not enough. Instead, enterprises should define project management and implementation strategies tailored to the enterprise s unique circumstances, and address the people aspects of the implementation, as well as the project execution strategies. Inattention to those fundamentals causes project failure, so the basic strategies are critical, and enterprises must insist on a top-level commitment to adherence throughout the project.

9 Written by Edward Younker, Research Products Analytical sources: Brian Zrimsek, Karen Peterson and Pat Phelan, Gartner Research For related Inside Gartner articles, see: At Random, i2 Technologies Must Revive Its Application Sales, 14 August 2002