Making IT work

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Magazine Article, Source : The Manufacturer
Zone : IT in manufacturing
Published : June 2004

The investment has been made, the software is in, but the hard work is just beginning. How do you ensure new IT performs, asks Malcolm Wheatley

You’ve done your research, and spent a small fortune buying the latest and greatest in supply chain software. The plan: very soon, you’ll be managing suppliers and collaborating across continents as never before. Inventories, component costs and time-to-market will all tumble. The boost to the bottom line will be enormous, and the software return-on-investment impressive. And with the new software about to go live, it’s finally time to sit back and watch the rewards roll in.

Dream on: the most difficult part of the implementation, in fact, has yet to happen. Buying and implementing software is one thing, and making it earn its keep quite another. And the more a new software system reaches outside an organisation, and extends into the businesses of suppliers and customers, the greater the probability of failure.

That’s right: failure. The figures are frightening. Three years ago, analysts META Group found that the average ERP implementation takes 23 months, has a total cost of ownership of $15 million, and rewards the business with a negative net present value of $1.5 million. And thanks to their links outside the business, supply chain implementations, despite being typically smaller and more manageable projects, can wind up offering just as nebulous a return.

So what can manufacturers do to make sure that their supply chain collaboration project delivers the goods and maximises the potential return-on-investment?

The first thing to recognise, says Spencer Marlowe of London-based supply chain software specialists Sterling Commerce, is that the role of the software is to automate business processes. Consequently, understanding, improving and

refining those processes first is vital, or all the new system will do is set in stone existing inefficiencies.

The amount of change needn’t be huge, but it’s an important first step, says Derek Payne, Leica’s technology fulfilment manager. Leica, he explains, used Sterling’s Integrator solution to tie together its 12 global manufacturing facilities, its branches and subsidiaries in 19 countries, customers in 100 countries and a supplier base that stretched around the world.

“When orders don’t arrive via fax or through the post but somehow just magically ‘appear’ in the system, then you need to initiate changes in operational procedures to reflect that,” says Payne. “Basic business functions such as identifying and scheduling the number of orders that came in yesterday need to be done in a different way.” The trick, he warns, lies in making sure that exceptional events, such as exceptionally large or

complicated orders, are identified early enough and processed intelligently. “A sort of 80 to 20 rule exists,” he says. “Eighty per cent of orders can be fully automated, but 20 per cent need some form of human interaction.”

At rental workwear provider Johnson Service Group of Bootle, large customers such as Northern Foods and United Biscuits with several factories across the UK are trialling a new supply chain extranet from Maidenhead-based Business Objects. Instead of telephoning Johnson’s with their workwear requirements, which often fluctuate rapidly at times of peak demand such as in the run-up

to Christmas, customers can go onto the extranet and in effect manage their own requirements, explains Johnson sales director Mark Cosh. Even though partially implemented, he explains, the system has saved £160,000 and significantly boosted customer satisfaction.

But vital to the project’s success, he adds, has been the advice contained within the Business Objects’ implementation methodology which can be loosely summarised as ‘don’t do a big bang’, explains Kirsten Jeffries, product marketing manager at Business Objects. Instead, she advises, sit down with two or three key supply chain partners first, and talk to them about what they want from a system, and how they see it operating, and benefiting them. “Do they want print-outs? Or do they want it available online? Or do they actually want extra information that you weren’t planning to provide?” she says.

It’s sage advice, confirms Cosh: “When we first talked to customers, we wrote computer reports to give them what they said they wanted, but it quickly became redundant, because what they really wanted was action taking place, not reports that called for action. Now, when workwear inventory reaches pre-set levels, email alerts are triggered. It’s much better.”

Just as important is managing the supply chain at the right points in the supply chain, which might not be the points that are presently managed, says Steve Wilson, an associate partner with Accenture. Retailers that import directly from the Far East, for example, can see an increase of between four and eight percentage points in the profit margins on imported goods by gaining inventory visibility not at the landed warehouse in the UK, but at their Far Eastern supplier or logistics consolidator, he explains. “And as more and more manufacturers source from low-cost economies such as eastern Europe, Turkey and the Far East, the same principle applies,” he adds.

But that means involving these suppliers in the roll-out, which means talking to them. And it’s here, says Ken Adcock, vice-president of alliances and marketing at supply chain specialists i2 Technologies, that supply chain initiatives are at risk of foundering. “On its own, software delivers very little of the required return,” he warns. Instead, he says, it’s an enabler. “Many of the benefits, although not all of them, come about through change management, which in effect means through people,” he says. “So the ‘softer’ issues in an implementation are really important.”

And getting these right, he adds, isn’t rocket science. Educating users, communicating changes, selling the benefits to them: this is basic stuff. What makes it challenging in the supply chain context, of course, is that many of the employees that a company has to reach are actually employed by suppliers, customers and partners. “In these environments there is likely to be significant organisational resistance to change, as people see the new systems as a threat to their autonomy and jobs,” cautions Tony Evans, managing director of implementation consultants Tony Evans Associates.

Nevertheless, it’s a nettle that must be grasped. “You can do the best system implementation in the world, but if it isn’t accepted by the users, then it isn’t going to deliver the benefits,” stresses Stephen Bennie, senior director of manufacturing at Sun Microsystems of Linlithgow, Scotland, which implemented an i2 system two years ago. “It’s vital to win the hearts and minds of key stakeholders.”

Just as important, adds John Burn, principal consultant with PA Consulting, is to make sure that the change process embraces more than just talk: quite often, if a supply chain is being re-engineered to take account of new software capabilities, then it’s necessary to in parallel make adjustments to things such as incentive schemes and performance management systems, otherwise, he warns, conflicts can shackle the new system from the start. And don’t under-estimate the challenge, he stresses: “Typically, this involves not only the

supply chain function, but also manufacturing, finance, and sales and marketing.”

And just as typically, these discussions are likely to result in users protesting that the new system doesn’t work in a way that users find comfortable. ‘Why can’t it work this way, instead of that way?’, they ask. Often, it’s part of the

implementation process to slap down such requests: the very nature of the improvement that is being sought for involves people changing the way that people work. And, shrug many managers, if that involves people occasionally working outside their comfort zone, then so be it.

But sometimes, the seductive call of the enhancement is heard. Instead of taking the standard system, users say, can we have it tweaked a little? Or perhaps have an additional software program created, that interacts with the standard system to provide additional functionality? The trouble is, through unconstrained use of enhancements, what starts out as a standard system can soon develop into a bespoke solution fully understood by just a few, and which then becomes costly and difficult to maintain.

At white goods manufacturer Electrolux, for example, firm procedures have evolved to deal with such requests, says Electrolux Laundry Systems IT manager Jan Bisgaard, who is located in the electrical giant’s factory in Odense, Denmark. The procedures, he explains, have their roots in a decision to opt for PRMS from SSA Global Technologies, after concluding that no single system on the marketplace met Electrolux’s stringent requirements.

“We couldn’t find the best purchasing functionality, the best sales order processing, and the best aftersales service functionality combined in a single system, but PRMS offered reasonably good functionality, so we went for that,” he says. The plan: start from as good a basis as possible, and then implement a series of user-driven enhancements to develop exactly the right functionality for the business.

But the rules surrounding any enhancements are strict, he notes. For a start, any enhancement must be universally-applicable for every country in which Electrolux operates. And each proposed enhancement must pass a series of stringent tests, he adds. “Is it a good idea? Do colleagues back it up? Does it already exist within the system but users don’t know about it? Is there a proper

specification for the enhancement? And does the request impact on other functions, such as sales, or production?”

In other words, by remaining firmly focused on its original task rather than succumbing to diffuse ‘mission creep’, supply chain solutions stand their best chance of doing what they were supposed to do: yield a return on the investment.

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