Increasing Flexibility and Agility of Existing Applications
Enterprise-level supply-chain software is generally associated with large-scale,
complex packages that aim at reducing inefficiencies throughout product pipelines.
Other solutions — that are less far-reaching — include individual, best-of-breed,
point products. Like the larger suites, these products are integrated into existing
software infrastructures by vendor engineering professionals, consultants, and
IT staff. In both cases, the software is expensive to purchase and implement,
but it holds out the prospect of significant returns that should more than offset
the initial investments.
Many companies, however, have found that the levels of investment required by these packages are no longer palatable. Instead, customers have begun to recognize that a better value proposition derives from improving supply-chain efficiency by targeting discrete, high-ROI problems with tools that best leverage the company's unique competitive position.
Beyond these targeted responses, corporate management continues to demand responsiveness that matches supply and demand in near real time so as to decrease inventory costs and avoid the disruptions that result from inaccurate forecasting. The pressure for this kind of agility is no longer applied for purposes of maintaining a competitive advantage; rather, it is applied because the savings it generates is essential to corporate survival.
Responding to the need for large system-wide efficiencies within economic constraints that drive the narrow targeting of specific supply chain problems has given managers the perception they are caught in an impossible situation. However, both software needs can be addressed in tandem, and the apparent opposition between them presents an opportunity for strategic response.
Common Approaches and the Challenges They Present
A strategy that has garnered considerable attention for many years is the purchase of a single wide-ranging enterprise supply-chain suite. This package is generally installed by company representatives or consultants and then customized within hard limits to fit the customer. This approach enjoys several distinct advantages: one vendor is responsible for the software at all key points in the chain; the pieces integrate well with each other; and the vendor typically provides experienced, professional support. Unfortunately, the drawbacks to this approach have led to some spectacular failures. These include significant cost overruns on the implementation and integration of the software, an inability to deliver a supply chain properly tailored for the business, and deliverables that were inconsistent with customer expectations or vendor projections.
A challenging aspect of these suites is the limited extent to which customization can be performed as these packages tend to have narrowly defined areas. Sites that push beyond what can be changed jeopardize their ability to easily incorporate ongoing vendor enhancements, and they complicate the vendor's ability to provide support.
An alternative strategy is to purchase best-of-breed solutions and integrate them individually with existing software. Unlike the single-suite approach, this strategy puts tailored products at every point in the supply chain. However, its major failing is the amount of work it places on the shoulders of IT staff: integration with existing packages can be challenging, expensive, and error-prone; supporting and coordinating product releases across multiple vendors is frequently complicated; and vendor support is splintered across the products.
A third approach — homegrown software — is occasionally found at businesses whose supply chains have developed incrementally over time. These solutions are inherently customized as well as familiar to the IT staff, hence they tend to minimize disruption. However, they are widely recognized as being inflexible, difficult to modify, and frequently incapable of scaling well. They are also expensive to develop, even though the complete cost is frequently obscured by the developers' employee status.
Companies with very advanced SCM installations — firms such as Dell and Wal-Mart — often use all three app-roaches: these companies rely on large packages, best-of-breed point solutions, and extensive customization by highly skilled in-house IT staff, according to recent analysis from AMR. For most companies that do not have similar resources to put into their supply chain, however, the tendency is to focus on the first or second approach.
Enhancing Software Investments For Competitive Advantage
A more useful perspective is to view your SCM software as a dynamic collection of resources and solutions. That is, to consider the applications that make up your software suite as components of a larger application portfolio. Like any group of investments, these larger solutions should be viewed as dynamic entities, rather than a static collection of software. The individual software assets should be regularly reviewed in light of one central criterion: To what extent does each asset extend the company's unique competitive advantage?
This defining question permits major software components in the supply chain to be separated into two groups. Those that extend or leverage the company's proprietary competitive advantage — these are the ones that should be customized, in some cases highly customized; and those that do not leverage the competitive advantage — these components should be kept close to the off-the-shelf solution that most fits the company's needs. The ideal result of this review is to move as many non-differentiating tasks to generic software as possible, while segregating a carefully defined subset of tasks that enable the firm to wield its competitive advantage effectively. This subset of tasks should be the target of software customization.
Distinguishing these two groups and focusing customization efforts on the latter leads to effective management of software assets and, especially, to high ROI on software investments. This favorable ROI derives from:
- 1. Lower investment through focus on targeted opportunity areas. By
working on the portions of the supply chain that truly advance the company's
competitive position, manageable projects can realize a sequence of successes.
Done correctly, the ROI of one project becomes funding for the next. In this
way, growth and investment are incremental, strategic, and effective.
2. Higher returns by directly targeting what the company does uniquely well. This enables the company to extend its responsiveness in the areas where market leadership is expected, while minimizing the disruption to the existing business infrastructure. The end result is a system that has the value of a customized solution with a total cost of ownership approaching a single, off-the-shelf suite.
Implementation
This conceptually simple strategy masks complexities and subtleties that require a disciplined and methodical approach. The rest of this article discusses a recommended sequence of steps for implementing this solution effectively.
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1. Articulate your competitive advantage in terms of your supply chain. The
temptation is to believe the whole supply chain is part of the company's unique
added value because any disruption in the supply chain seriously affects the
entire company's ability to execute. While this may be true, this perspective
tends to blur what is important from what is uniquely competitive; every step
is important, but only certain specific activities are differentiating and competitive
for your firm. Identify these activities. In terms of your existing software,
they are often reflected in the modules that show the greatest variation from
standard software solutions.
2. Model how this competitive advantage appears in operations. You're looking to understand the role of your unique positioning in the market and how company-specific decisions about manufacturing strategy, suppliers, logistics, and order fulfillment affect your supply chain strategy. For example, how does the competitive positioning affect policies and procedures? What are the specific requirements and constraints imposed by the commitment to core competencies? Then — and this is crucial — model how the solution should work at project's end in terms of these same operations and procedures. You should be able to articulate the target scenario in terms of what the new requirements for the business operations will be.
3. Determine how the competitive position is captured in software. The normal cycle is that the company's position flows into procedures, which flow into business rules, which are then integrated into existing applications. Regardless of what form their expression finds in the company's operations, business rules are enforced through software. This expression needs to be understood. Likewise, you should be able to know what must change in the software infrastructure to deliver the new target model.
4. Leverage the business rules to automate business operations, policies, and procedures. Once business rules have been captured for the present business and for the target model, new possibilities open up. For example, the rules can be optimized using specialized optimization and scheduling tools that automate processes in the most economically efficient configuration.
Drilling down to the level of day-to-day operations, we find that automation of policies and procedures is particularly cost-efficient and effective for operations (especially customer fulfillment, supply-chain event management, order configuration and optimization, and data validation) and for resource optimization (particularly, material handling, sequencing and scheduling, scarce-resource allocation, transportation planning, and vehicle dispatch).
Notice that in all cases, these procedures are unique to the company's operations and integral to its defined competitive advantage. For example, consider scheduling. Recently, Nissan's auto assembly plant in Sunderland, England, decided to optimize its assembly lines with the goal of producing additional auto models. The plant had two assembly lines that produced two distinct auto models. Assembly-line scheduling in the auto industry is subject to numerous constraints: Because the cars must go through a paint stage, a single batch of cars must all be painted the same color. Within the batch, model variations must be scheduled carefully. Autos requiring out-of-the ordinary assembly (such as sunroofs) must be scheduled far enough apart that the delay they cause in the line can be made up over the next few units. Numerous additional rules relate to the assembly-line operation, crew scheduling, and parts inventory.
One of the Sunderland plant's key competitive advantages was well-known: Sunderland was competing to be the most efficient plant in Europe, based on the number of autos produced per line employee. Taking this market position, plant managers focused on codifying the scheduling constraints into business rules. The rules were then run each day through rules-optimization software to generate the ideal schedule that met all constraints. Based on the schedules generated by this process, plant managers modified the rules to find a way by which they could schedule the assembly of a third model by interleaving its production across both assembly lines. This maneuver led to the addition and further modification of numerous rules. Ultimately, the constraints were finalized and new optimized schedules were generated based on this three-model assembly process. As a result, Nissan's Sunderland plant is by far the most efficient in Europe and one of the few that can interleave different models across fixed assembly lines.
The ROI on this project was nearly immediate, because both vectors pointed in the right direction. The investment in rules and new scheduling software touched only the modules that leveraged the plant's unique competitive advantage, hence the investment was modest and relatively nondisruptive to the business. And because the results leveraged what the plant already did well, the returns were immediate and significant. This example illustrates the fundamental approach of focusing customization primarily on the areas that leverage a firm's competitive advantage.
Beyond Supply Chain
While I have primarily examined supply-chain software, it is clear that business rules are used throughout an enterprise in everything from management of regulatory compliance to customer profit optimization. The kinds of targeted improvement to existing software discussed here can be duplicated in areas other than supply chain. And indeed, the techniques for doing this are much the same as those presented previously. In all cases, though, the ability to model the competitive advantage's presence in procedures and constraints via business rules is fundamental. From there, the use of good tools to manage the business rules is crucial to project success.
Moving Forward
To make the strategy of selective optimization particularly effective, companies should leverage the expertise of ISVs that specialize in business rule management capabilities and offer a wide range of optimization technologies. It is important to rely on a partner with extensive experience in SCM and manufacturing, and one that has a seasoned services group to provide the instruction and support in the customization process.
Ideally, the partner's rules software includes high-performance decision engines (such as rules inference, pattern matching, constraint, scheduling, dispatching, and configuration) and a management system that is sufficiently intuitive that non-IT staff can view, understand, and modify the business rules. Expertise in applying this soft- ware to SCM issues is key. Make sure the partner can deliver what is most important to you today: high-ROI process improvement with a minimum of disruption.
