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October 24, 2001

Chasing Windmills

The paradox of efficiency and agility in supply chain management technology

By Ram Reddy

Continued from Page 1

SELECTING THE SCM TECHNOLOGIES

Having the processes granulated and decoupled sets the stage for selecting the appropriate mix of SCM technologies to give the company its desired mix of efficiency and agility. I can almost hear the collective protest from my colleagues across corporate America, "Right! And there is a tooth fairy, too." Unfortunately, without process drill-down and the decoupling exercise, the probability of the SCM technology delivering on the proposed business benefits is remote. Best-of-breed SCM technologies that support the mix of efficiency and agility a company seeks will come with integration difficulties and also a high price tag. If that price tag makes sense from a financial and competitive perspective, then it is clearly the right decision. Frequently, the IT professional champions an integrated SCM technology solution figuring that it will reduce the total cost of ownership (among other business benefits) in the long run. However, an integrated solution, in some instances, can severely hamper the agility of a company by creating technology lock-in.

SUPPLY CHAIN TECHNOLOGY LOCK-IN

SCM technologies support and enable processes across multiple companies. Physical plant, processes, and personnel are organized to use and support a particular SCM technology, such as order entry and shipment notification. Over time, the SCM technology impedes change by institutionalizing processes across multiple companies. The tighter the integration of processes across companies, the harder it is to change. The SCM technology also creates a lock-in between the supply chain partners. Extricating a company and its suppliers from such technology-enabled processes takes time. Although integrating processes across companies in the supply chain may result in significant operating efficiencies, it comes with reduced agility in certain functions, such as the ability to replace the supplier. The ability to create a technology-enabled lock-in has to be part of the technology selection process and driven by the business executives. It may be desirable to create the lock-in with certain key suppliers, which is a business decision, not a technology decision, even though execution of this decision falls in the IT arena.

HAVE YOUR CAKE AND EAT IT, TOO - SORT OF

Using the process decomposition and decoupling approach gives the company the right mix of efficiency and agility. The point to note here is that, typically, different SCM technologies provide efficiency and agility. An integrated suite has its benefits if your company's focus is operational efficiencies alone. Driven by business objectives and the competitive environment, a company may need to tackle the integration challenges of different SCM technologies to realize the benefits of efficiency and agility. This integration will give the illusion of having both efficiency and agility at a macro level. Process decomposition and decoupling create this illusion from the bottom up. Integrating technologies to support business processes this way is not an easy task. Intelligent enterprises will form unique combinations of SCM technologies that offer them a mix of efficiency and agility as well as competitive advantage.

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Ram Reddy [ramreddy@tacticagroup.com] is the author of From Supply Chains to Virtual Integration (McGraw-Hill, 2001). He is the president of Tactica Consulting Group (www.tacticagroup.com), a technology and business strategy consulting company.