Supply chain investments disappoint

Supply chain investments disappoint

Businesses globally invest more than $US19 billion annually on technology to improve their supply chain yet half of these companies are disappointed with the results, according to a Booz Allen Hamilton study.

Calling for greater CEO involvement in designing a supply chain strategy, the study said most efforts fail because they do not challenge the fundamental structure of the supply chain, instead attempts are made to improve performance within existing limitations, often by installing expensive new technology.

Of 200 companies surveyed with assets or annual sales of more than $US1 billion, 20 were from Australia and the level of dissatisfaction with IT system investments stood at 45 per cent.

The most common reason for expectations not being met was an inability to forecast effectively (56 per cent) followed by implementation issues and delays (48 per cent) and unrealistic expectations about the impact of technology (44 per cent).

Despite major advances in technology, South East Asia managing partner at Booz Allen Hamilton, Tim Jackson said supply chains still cost more than they should and tie up more inventory.

He said the underlying reasons haven't changed in 20 years, which proves companies looking for improvements "must break the mould, not just polish the mould".

Companies that made considerable gains opted to relocate factories or outsource non-core functions rather than simply install a new IT system.

Enterprise resource planning (ERP) software was the most popular investment choice (71 per cent) followed by systems for inventory and warehouse management (54 per cent) and order management (40 per cent).

The most frequently cited benefits companies expected from IT systems solutions are not lower costs, but lower inventory levels (80 per cent), increased customer satisfaction (71 per cent) and better delivery reliability (69 per cent).

Jackson said the study found CEO participation critical; successful companies had the CEO personally engage in setting the supply chain agenda.

"This is a CEO-level item and should be a wake-up call for CEOs to go back to basics and pay closer attention to operations; supply chain efficiency improves when CEOs roll up their sleeves and get involved," he said.

Typically companies that made the biggest financial commitment received the best return on their investment. For example, 21 per cent of companies spending $US25 million or more on supply chain improvements said results exceeded expectations, compared to only 5 per cent of companies that spent $1 million or less.

The Logistics Association of Australia (LAA) warns new technology alone is not the answer because an effective supply chain strategy is about people and processes.

A LAA paper prepared by Mark Collyer states investments in technology should be made where they can directly impact key business imperatives.

"Organisations must have a clear idea of what they want to achieve beyond the supply-chain. The initial focus should be on strategic imperatives for the business as a whole as the technology can then be fitted around these."

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