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3 Critical Considerations When Choosing Your SCM Solution

Written By: Phil Reney
Published On: July 19 2011

Supply chain management (SCM) software selection is certainly tricky and painful on the good days, even for those that have been down the road a few times. Why? Despite the number of vendors offering a plethora of solutions, of different qualities, there are just more business models that need to find a fit (or as close as it gets) than are available solutions that fit those models. In addition, decision makers need to invest significant time and resources in considering a surprisingly large number of alternatives. 

While it is easy to think strictly about current business processes when selecting SCM software, there are more important considerations, such as creating your business objectives or strategies, your business model, and finally your business roadmap. Going back much? Yes, and you need to, unless you don’t mind the extra costs of wrestling your day-to-day out of your system as opposed to focusing on your revenue-generating activities.

1. Developing and Understanding Your Business Objectives or Strategies

Most businesses reach a point when they contemplate a change in their SCM solution, or simply decide to adopt a solution, because either their current business processes can no longer be supported properly or their business direction is evolving, among other reasons. The ensuing disconnects are often due to the evolution of the various objectives the business and the means to achieve them. This area requires a serious first, second, and third look when you start compiling what your new SCM should be able to do for you.

As a decision maker or project manager you may be tasked with complete oversight of the software selection project, but getting upper management (board of directors, CEO, etc.) involved at all stages of the selection project is critical. This means more than a simple buy-in from upper management, which is often the case, but an active participation in laying out the foundation—i.e., establishing your needs at present (the easy one) and in the future (not so easy). And while there is no denying that each step is relevant, laying the foundation is by far the most critical, as everything else follows suit.

Understandably, many objectives with directional impact to the business are not always transmitted to the lower ranks for various reasons, such as the need to prevent possible leaks to competitors. Hence, if you are not privy to those decisions, you need to involve upper management to elaborate likely scenarios that not only touch upon your current reality, but also factor in the mid-to-long term perspective of your operations.

Here are some objectives and their subsequent impacts on your operations that will help you design your request for information (RFI) for your software selection:

  • Growing Revenue: Objectives to increase revenue are rather tricky, because they can lead to a large number of initiatives that may have little to do with how each is achieved. You can be looking at increasing revenue by either increasing your market share, increasing or diversifying your product line, expanding into a new international market, and the list goes on. Therefore, you may be looking at substantially increasing the number of vendors you are dealing with, which in turn may require additional logistics management, such as the addition of maritime to your regular mix of mainland carriers. Your solution would need to handle intermodal shipments and provide container traceability. When dealing with international vendors, you may be required to handle financials with letter of credits as opposed to the usual open account.    

  •  Reducing Costs: By reducing costs, I mean undertaking initiatives that go beyond the usual “squeeze the vendor juice.” For the past few years, this has meant reducing inventory, outsourcing noncore activities (essential, specific, but nonrevenue-generating expertise), and improving processes, such as using project-based management rather than material resource planning (MRP). If outsourcing is on the horizon for your company, the more complex your chain will become, and the more money you’ll likely leave on the table, as too much time will be spent reacting rather than validating. When dealing with SCM, you have to start figuring in terms of visibility and eliminating downtime. Additionally, if you are contemplating the concept of Just-In-Time (JIT), you are looking to make a significant change to how materials will travel to and within your plants, which will require a higher level of collaboration and integration with your suppliers and plants through electronic data interchange (EDI) and/or collaboration tools, such as an online common data repository or workflow.  

  • Increasing Market Share: Objectives of this nature often integrate elements of revenue-based objectives, as few businesses look to simply occupy a larger share of a market without expecting revenue increases down the line. Companies can increase their market share by acquiring a competitor or leveraging a new vertical that complements their current offering. A significant consideration in acquisitions is the scalability of your solution, as well as the migration of your new acquisition to your system at the right time.

Needless to say, there are other types of objectives that are more centric to certain verticals, like services with churn rate or construction with cost-variance control, which also have their own challenges, but the aforementioned objectives are common to all businesses. Stay away from simple wish lists without careful consideration of the implications. Once you have established your objectives and defined some means for their execution, you can start looking at how you can achieve them within your business model.

2. Aligning with Your Business Model

As you hash out various potential objectives and strategies with upper management, you have to put them into the context of the business model that sustains your activities. While the “How you do it” seems simple at face value, quite a few aspects of your business need to be taken into consideration. Here are some points you need to keep in mind:

  • Vision and Mission: These two concepts should drive all your business activities, and all new activities should be in line with your business goals. While vendors have the opportunity to familiarize themselves with multiple businesses in one vertical and consequently design their built-in best practices, these practices may not reflect your business reality or sense of direction.

  • Corporate Culture: As unlikely as it may be for some, corporate culture plays a significant role on the financial aspects of your business over the long term. Not convinced? If your company prides itself in leveraging flexibility in execution to provide the excellent service your customer recognizes you for, but your new system does not allow for configuring new processes, say as simple as a flexible discount structure, you may have to work outside your system to achieve the end result. The extra cost at this point will be to keep the workaround or place a request with the vendor for customization. Your business values play a major role in your success and should definitely be reflected in the way your new system supports your core activities. If not, then do accept the fact you may need to work on changing the mindset of your organization toward accepting a new way of conducting your activities. 

    Consequently, do not wait at the time of implementation of the solution to do both the training and the corporate restructuring—even businesses with an ingrained culture of change still face significant challenges in adapting to a new structure. It would be ideal to push for a gradual transition in how the business will be doing things by educating your employees and adapting some of your activities to the upcoming new structure. This will make adopting and embracing the new solution significantly simpler and faster than if you were introducing it overnight. 

  • Business Infrastructure: Whether you’re a small company renting an office suite or a multinational managing multiple subsidiaries, your business infrastructure plays a major role in the type of solution you need and how it can map to your current business structure. In the grand scheme of things, that is the easy part. What is less obvious is how your business handles its growth. Will it be an organic one, such as adding a new warehouse, or growth by absorbing a competitor through mergers and acquisitions (M&A)? Organic growth tends to be easier, as it is a natural extension of your current activities. M&A are far trickier, as they are very disruptive to the acquired entity and to a certain degree to the acquiring company, as the latter will have to integrate it, manage it, and ensure it generates profit. If your approach to integration is to standardize your processes across the board, then your main challenges will gravitate toward corporate culture friction and resistance, depending on the level of similarity between your business units. However, if your approach tends to be on the holistic side, then you should consider solutions that offer more flexibility in managing processes for different business units or divisions so as not to significantly affect the unique quality that led to the acquisition in the first place. This does not mean you can’t convert some of the activities to your own modus operandi—this would actually let you share, adapt, and integrate best practices.

    These aspects represent not only a more qualitative context on how to achieve your goals, but also, in my view, the most influential element to the success of any implementation. This is where you get to identify any potential disconnects between your intentions and means to carry them out, helping you mitigate the impact on your roadmap.

3. Thinking Up Your Business Roadmap

Most businesses have or should have a roadmap for their activities, the progress of their growth, and specific business milestones. If you don’t, make one, really. This roadmap will provide guidance in the choice of your SCM solution by defining the timeline for achieving your objectives, which can greatly influence how you make your software selection. You may be able to plan for a more progressive approach to managing initial costs if the solution is well established, modular, and scalable, as opposed to a more integrated do-it-all-but-use-some-later solution. However, this type of consideration, while dependent on the solution, is certainly more centric to the vendor and how the vendor will support it throughout the solution’s lifecycle at your business.

Understandably, down the road, you will notice that you haven’t hit the mark every time in matching your objectives or needs with your future solution. Your business roadmap will be affected by the volatility of the global economy, the trends in your industry, and your competition, just to name a few factors. Understanding the strength levels of these factors and the possible impact on your business will give you perspective in the areas where your solution needs to be flexible. If you are looking to make an investment for a solution you expect to last 7 to 10 years down the road (with hopefully only some minor upgrades besides the usual update releases), creating a roadmap is certainly a consideration that will play a major role in managing your total cost of ownership (TCO). This is not a perfection game but certainly a cost-savings one.


Conclusions
Unfortunately, these aforementioned considerations are often shunned by or are a mild afterthought of upper management, as they are associated with less tangible or quantifiable upfront ROI value. Companies want to see a quick return, but not if it means that they lose in the long term. Having been in the forefront of implementations, I can attest that these considerations has played a critical role in the failure of businesses to leverage the target ROI of their project.

Needless to say, vendors have indeed amassed significant expertise in certain industries, and they can offer your business valuable advice. After all, their best practices are inspired from conducting projects such as yours and selectively integrating those practices into their solutions. Though you should be aware of these practices, also be critical of embracing best practices presented to you prior to validating them through your objectives, business model, and roadmap. This will help identify the SCM solution that best meets your business needs—one that will immediately start working for you, rather than you investing much time and resources to make it work.

 

 
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