OR/MS Today - June 2003 Cyberspace The Problem with Supply Chain Software By ManMohan S. Sodhi A recent article by Eric Hellweg titled "Is supply-chain software the next CRM?" sees parallels between problems afflicting the customer relationship management (CRM) software industry and those afflicting the supply chain management software (SCM) industry [1]. Both have had their share of vendor-, implementer- and customer-related reasons for eventual customer dissatisfaction. I had written in the April 2002 issue of OR/MS Today [2] about parallels as well. In particular, I listed supply chain software evolution as (Phase 1) point solutions for different domains, (Phase 2) integration of supply chain information using enterprise resource planning (ERP) software from SAP and others, and (Phase 3) ways to extract value out of the integrated information, in particular, to improve planning. Likewise, for CRM, first came point solutions like database marketing and data mining techniques. Then came the integration phase for providing "one face" of the customer to companies by integrating all customer-specific data. This is also the phase with failed implementations and low or non-existent return on investment. The third phase is the use of advanced algorithms for extracting value out of the integrated information. But evolution does not mean that problems in one phase have been solved before the next phase has started, thus we have problems with both kinds of software. The major SCM software vendors are in financial trouble. Hellweg [1] quotes from a study released by Capital Consulting and Management Services that "fewer than 20 percent of companies believe that their supply chain software package has 'definitely' shown a favorable ROI." Besides overhyped software, there are also problems at the customer end. According to Scott Elliff, president of Capital Consulting, "When you get down to the factory-floor level, the managers still don't know how to use the supply chain software." AMR Research strikes a more positive note in its survey of 132 implementations of supply chain planning software from i2 Technologies, Logility and Manugistics [3]. They report that "75 percent of users feel that their software vendor either met or exceeded expectations during the implementation process." According to their report, the length of implementation and overall consulting acumen of the vendor were the areas of least implementation satisfaction, with 25 percent of users saying the software vendor fell below expectations. Integration scored the lowest level of implementation satisfaction. Regarding the systems integrator, 24 percent stated that their integrator exceeded expectations, countered by 24 percent whose expectations were not met. The vendor's ability to model and configure the software had the least complaints with only 18 percent of respondents stating that it fell below expectations. While the AMR report is more positive, it does not contradict the Capital Consulting report, which is about users' experience of getting a return on investment from already implemented software. So the Capital Consulting report is particularly damning. A letter to the editor in a recent issue of the Economist says that the only thing we have learned from the recent invasion of Iraq is that the Tigris flows through Baghdad and hubris flows through Washington. Certainly, hubris flowed through many an executive office during the 1990s when supply chain software and the Internet provided a heady cocktail. Nemesis was not far behind and took the form of the dot-com bust along with its toll on the brick-and-mortar mainstream companies. Possible causes for the SCM software doldrums are: Dangerous liaisons with the Internet. Even though the software itself was being bought by the brick-and-mortar companies, supply chain software companies labeled themselves as Internet companies as with i2's tradeMatrix.com and Manugistics' bStreamz.com initiatives. Customers falling for vendor hype. Customers overestimated vendors' technological capability to deliver on capability to hook up with their enterprise systems and other execution systems. Neither understanding integration. Customers did not fully understand integration other than simply "hooking up" one database to another. They did not appreciate the process context of integration. And vendors were even less knowledgeable about processes than their customers despite the "best practice" line. Customers' lack of understanding of models and modeling. In my experience, modeling and abstraction are not obvious to people without OR training. The effect of poor understanding of modeling is a poor understanding of the software, and since most projects run out of money before users can be trained, it is quite likely that users are at sea as reflected in the comment by Capital's Elliff above. With or without software, companies still need to set their own supply chains in order. They can start by doing two things. First, they can check if they even have well-defined processes. After all, supply chain management is all about repeatable processes, rather than ad hoc procedures. Second, they can identify problem areas and then find solutions that fit the problems. In short, they need to redevelop basics. But, hubris was so much more fun while it lasted. References Hellweg, E., "Is supply-chain software the next CRM?" Business 2.0, April 7, 2003, (http://www.business2.com/articles/web/0,1653,48566,00.html), accessed April 28, 2003. Sodhi, M., "CRM: Picking up the Crums," OR/MS Today, April 2002. Lapide, L., O'Brien, D., and Davis, W., "SCP: Better Than You Have Been Led To Believe," AMR Report, April 23, 2003. Man Mohan Sodhi (M.Sodhi@city.ac.uk) is a member of the operations management faculty at Cass Business School in London. Table of Contents OR/MS Today Home Page OR/MS Today copyright © 2003 by the Institute for Operations Research and the Management Sciences. All rights reserved. Lionheart Publishing, Inc. 506 Roswell Rd., Suite 220, Marietta, GA 30060 USA Phone: 770-431-0867 | Fax: 770-432-6969 E-mail: lpi@lionhrtpub.com URL: http://www.lionhrtpub.com Web Site © Copyright 2003 by Lionheart Publishing, Inc. All rights reserved.