Is IT strategic spending aligned with Corporate strategy ?

The SCRC team recently conducted a benchmarking study focused on IT spending in the manufacturing sector. In our opinion, the current roadmap for IT in many companies is NOT aligned well with the competitive capabilities that are being required to grow. Specifically, there is a need for IT to build competitive capabilities that will ensure customer priorities are met, specifically in terms of emerging technologies, supply chain strategic cost management, product designs that include cost targets, and flexibility to manage customer orders with quick response for after-market service parts.

One of the key areas identified in our research is the ability to deal with what is an increasingly complex supply chain environment. Many heavy manufacturing companies have been very focused on lean concepts, and have also been very “internally” focused when it comes to capability development. But there is an increasing need for companies to look outside their walls, and begin to apply the SCOR (Supply Chain Operating Reference) model to their entire supply chains to configure them and use lean principles to create a cadence to calibrate and collaborate with key supply chain participants. For example, as supplier lead-times increase to 39 weeks or more in some segments, focusing on leaning out inventory internally may not be the optimal strategy.

From this perspective, the question may boil down to spending another IT dollar to improve advance planning versus spending it to improve the ability to respond to changes in the upstream and downstream supply chain. There is an increasing movement towards “rapid planning” capabilities within MRP. For example, companies are seeking capabilities that allow “real-time” changes in scheduling, and to enable advance planning and exception management to rapidly changing events as they occur.

In an interview with Bob Parker from IDC, Bob noted that “our hypothesis is that if you are on competitive parity with the ability to do supply planning and accuracy of supply forecasting, you probably won’t see competitive advantage by increasing that. It is better to put your effort into response management. However, if you are terrible on supply planning, you need to get that right before you invest in rapid response.”

OK, so are companies at the right level of IT corporate burden relative to competitors? That is, are they at least at parity?

The answer in this case, is “it depends”.
One of the “hygiene factors” that was missing in some of our interviews is that the infrastructure levels for basic computing hardware is sorely lagging in some companies. In particular, executives should be concerned about the rising focus of Chinese competitors who, although they lag in spending, are working to create cloud computing and mobile computing solutions that are lower cost and focus on creating new capabilities. Companies should explore some of these technologies that can provide competitive benefit that are independent from corporate decisions.

The Key lies in Analytics….

Our results suggest that companies should also begin establishing the architectural baseline for development of a supply chain analytics function . For too long, companies have operated without a direct line of sight into critical supply chain metrics. Some of the questions that need to be addressed in developing an analytics model include a focus on application development for web reporting on non-supply chain issues, mining of current databases on operational performance for internal improvement efforts, and supply chain visibility and collaboration with suppliers and dealer networks.

IT should begin to establish the relevant data warehouse architectures that will leverage current systems and ensure that metrics are provided in the right form, at the right time, and can be viewed by multiple parties in the supply chain to drive decision-making, control and ownership of processes that generate these metrics.

Analytics is everywhere! Almost all of the challenges expressed by supply chain managers have their root cause in a lack of ability to generate reports, metrics, and respond to system outputs. It is also one of the most single most flourishing areas we discovered in our research. One of the reasons it is big is that firms are now recognizing that they need to deal with the fundamental issue of data management.

Given the complexity of operations and the physical fragmentation of operational and transactional data in different sites in the supply chain, a single system cannot deal with this complexity. However, by putting this data into a data warehouse cloud it allows a method to create visibility of what is happening. Once that happens, analytics are a great way to aggregate the data to allow managers to see what is happening in physical processes, and also to witness how fragmented the processes are. But there are challenges to creating the master data file. Even for purchasing applications, there are not many systems that have a good, reliable supplier master file that does everything managers need to do to get information around the supplier and to drive analytics. There is also a broader desire to get visibility over all the data that is fragmented across the enterprise and link it to specific functional data that allows relationships to be observed.