OR/MS Today - June 2003|
Supply Chain Management
Despite persistent implementation problems, SCM remains a top priority for companies eager to optimize operations
By Yasemin Aksoy and Ana Derbez
This supply chain management (SCM) software survey has been prepared with operations research professionals in mind and includes software products for supply chain planning and execution excluding products that are solely for execution. Such products are expected to help reduce costs and inventories, cut cycle times, improve forecasting and increase flexibility and responsiveness in areas such as planning and execution, order fulfillment, procurement, production scheduling, logistics, transportation management and warehouse management. The survey questionnaire was designed by the Tulane Consortium for Supply Chain Management and administered by the OR/MS Today staff. The purpose of this article is not to provide guidelines for selection of SCM software or to evaluate which software is the best in class. Rather, it is to present a collection of supply chain planning software companies that are available along with the types of markets they serve and services they provide.
Given the complexity of the methodologies applied, the data requirements and the modeling challenges involved in SCM software, one would expect OR professionals to routinely be involved in a company's SCM selection. However, anecdotal evidence suggests that this is not the case. The decision typically belongs to the chief information officer, the senior vice president of supply chain management or an IT professional. These people generally have no background in operations research, yet virtually every SCM software product claims to "optimize" the supply chain.
One of the difficulties in designing the survey was the wide spectrum of business functions from auctions to warehouse management that are covered within SCM. Forty such functions are shown in Table 1 and in the survey data that begins on page 36. We asked the vendors not only to present which types of business functions they support, but also to identify the approaches they use (such as optimization, simulation, decision support, execution and data collection). Table 1 shows the cross-tabulation of the business functions and the approaches. The numbers in the cells correspond to the numbers assigned to each software product in the survey data.
We explicitly stated in our survey that we define optimization as in the OR literature, as opposed to its vague definition in the popular literature from the Web, TV ads, newly printed books and publications from the consulting industry. We don't know if a vendor chose one of its public relations, marketing or product design associates to fill in the survey, and we are not sure if some of the answers use the same definition used by OR professionals. While this may or may not make a difference in the survey data beginning on page 36, we suspect that it may in Table 1, which identifies different types of methodologies vendors use when solving different types of business problems.
Through an extensive Web search, we identified 160 software companies that provide SCM support. On a first glance to a vendor's Web site, it is rather difficult for a manager to get a clear understanding of the services provided and the underlying methodologies utilized. We employed three MBA students nearing graduation each with a strong SCM background to visit the Web sites of all 160 companies. Based on their observations, the students determined if a company provides planning support as opposed to only day-to-day execution support. As a result of this effort, about two-thirds of the companies were eliminated from the initial list and not included in the survey. Of the 52 we approached, 30 responded by the deadline.
As indicated in the survey data that follows on page 36, our survey asked questions whose answers address primary concerns that a company may have when deciding to purchase new software: how much will it cost, how long will installation take and how will it be integrated with existing software. Customers want to know whether SCM software is compatible with their existing legacy or ERP systems. We asked the vendors if they also sell ERP software. Some of the SCM software providers indeed sell ERP systems and accordingly provide a comprehensive IT package. Others do not have an ERP system, but are able to link their software with any legacy system or an ERP system that a company may have. Some SCM software vendors target only small companies, while others target medium or large companies. Narrowing the list down to a potential few is a process that may seem daunting for a potential buyer.
A few years ago we included application of a supply chain network design software in a second-year MBA elective course on SCM. This required a two-day training for the instructor on the company site before the installment of the software. The vendor was not willing to provide copies of the software for each student and instead allowed us to put the software on our server. However, the software was better suited to run as a stand-alone, and we spent an excessive amount of time reinstalling it after several rounds of crashing. Students could not go beyond data entry and initialization. The semester ended before they could run any scenarios and make decisions.
While our purpose was to train them in using such software, they ended up with an experience of implementing SCM software. When asked, students found the experience valuable and recommended that we include the software in the course the following year as well. However, the instructor cancelled its use after one more semester of trials because repeated failures to implement by students and downtime around the server yielded a very low return on investment (ROI).
Unfortunately, today we hear similar stories in the SCM software industry. A recent study by Capital Consulting and Management Services reveals the majority of investments in supply chain technology have not yet paid off in bottom-line improvements. According to the study, fewer than 20 percent of companies believe their supply chain software package has "definitely" shown a clear and favorable ROI. There have been numerous cases of companies turning off their new systems, reverting to their old practices and writing off multi-million dollar investments.
While the supply chain planning side of the industry seems to be hit more strongly than the supply chain execution software, a majority of the problems afflicting supply chain planning software are common in most other IT applications. Less than half of business software purchased in 2001 is up and running. Some of the problems relate to product complexity, inadequate management and technical support (internal and external), implementation lead times and flaws, poor project management, and unrealistic customer expectations that eventually result in customer dissatisfaction.
Despite all the bad news, supply chain management is still a priority for a majority of business executives who are currently operating under excessive cost containment pressures, extra capacity in their markets, and volatility of global markets affected by wars, terrorism and health threats. The scope of SCM keeps growing within a company and across enterprises, and the demand for effective planning and execution makes it extremely difficult to dismiss new technology and cling to traditional solutions over the long term. Operations research provides excellent procedures for planning at strategic, tactical and operational levels, and supply chain software companies contribute to further adoption of OR procedures. We need to understand and benefit from the lessons companies learned in the past five years and keep pushing for a successful collaboration of the fields of IT and OR and their joint contribution to supply chain management.
Go to the 2003 Supply Chain Management Software Survey
Yasemin Aksoy is an associate professor of operations management at the A. B. Freeman School of Business at Tulane University in New Orleans and the founding director of the Tulane Consortium for Supply Chain Management. Ana Derbez received her MBA from Tulane University in May and has been an active researcher in SCM over the past two years.
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