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May 13, 2003

Supply Chain Intelligence

Know what to expect and how best to achieve it

by Ram Reddy

Continued from Page 1

Instead, the starting point for any SCI effort should be "the business question to be answered," not data integration, the enabling technology, or technology selection process. Having a clear understanding of the business question to be answered puts boundaries on the subsequent data integration and cleansing efforts during the SCI technology selection and implementation phase.

Using the term "the business question to be answered" is a deliberate attempt to show the difference between an SCI application and the typical transaction processing application. Transaction processing applications support anywhere from hundreds to millions of transactions per day and require near-100 percent data accuracy. SCI technologies provide answers to questions such as, "Do we need to add more distribution centers to reduce our total shipping costs for next year's projected sales by $15 million?" So, SCI applications may be run only once or a few times a year, in contrast to transaction systems, which are used all the time.

It's more important to get an answer to SCI questions in a reasonable time frame than to ensure accurate data integration. For example, the answer to the SCI question asked in the preceding section won't change if accurate data of 1,245,761 boxes for Chicago distribution is used instead of the approximate number 1.25 million. However, the amount of time and effort required to get that level of data may delay knowing the answer to the question by two weeks. Subject matter experts within a corporation from areas such as finance, accounting, and strategic planning are best equipped to help corporate IT departments determine what level of data approximation is good enough to answer an SCI question.

Asking The Right Questions

SCI technologies are gaining traction in the modern enterprise. While SCI technologies do a credible job of integrating data from SCM, ERP, CRM, and other transactional systems, obtaining business value and strategic insight from SCI is all about asking the right question. The technology itself is secondary and more an enabler that reduces the time it takes to answer a question.

Answers to SCI questions profoundly affect the structure of an enterprise. Questions an enterprise seeks to answer with help from SCI systems — such as, where are we adding value to the product? what makes our customers buy our products and services? and what alternative sourcing and manufacturing options can we use to reduce our total cost of goods sold? — can have far-reaching consequences for the enterprise.

To illustrate this nature of SCI questions and answers, consider the following example. A firm that I worked with manufactured widgets. They undertook an SCI effort to accurately pinpoint the value added from the design, sourcing, manufacturing, and distribution activities across the supply chain. They found that product design and innovation activities added the most value to their client. However, the firm's existing investments in property, plant, and equipment inhibited their ability to service the client requirements cost-effectively and efficiently. They made a one-time decision to divest their manufacturing facilities and focused on tightly integrating with the product life cycle management initiatives of their customers. The divestiture of production facilities gave the widget manufacturer enormous flexibility in getting the product manufactured by producers who could meet the design and cost criteria.

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Questions Come First

Realizing the promise of SCI technologies boils down to whether you're asking the right business questions before technology selection. As in the past with BI technologies, firms have invested significant resources in SCI technologies, hoping that they will lead them to ask the right questions! The promise of SCI technologies in reshaping the modern enterprise is significant — as illustrated by the widget manufacturer example. We have only just begun to ask the right kinds of questions about how to extract value and make our supply chains strategic.

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