Supply Chain Software Spending To Increase. But Where?

Supply Chain Network  comments on this article in Industry Week.  

There’s at least one market that looks like it’ll be enjoying a healthy 2008: supply chain technology. Based on a recent study conducted by analyst firm AMR Research, spending on supply chain technology is expected to grow by 12% this year, split pretty evenly between those manufactures who are replacing legacy applications and those who are acquiring new technologies.

This in itself is exciting news. But dig a little deeper into the article and the picture is less clear.

[T]hree-quarters of the companies studied will be replacing or upgrading their order management systems. Two-thirds indicate that their current warehouse management systems are obsolete, while 60% say they plan to replace their transportation management systems which are no longer capable of meeting customer service demands. 

But there is a graphic below this text which places Order Management systems applications upgrades at the bottom of the list with the smallest %ages attached (23% of process manufacturers and 14% of discrete manufacturers).

Anyone care to enlighten as to what the real story is?

 That link again: http://www.industryweek.com/ReadArticle.aspx?ArticleID=15925

The best supply chain wins the war

 Always good to hear a non-biased observer extolling the virtues of supply chain management. From Niall Ferguson in “The War Of The World”, the following quotes are from his discussion of World War II:

‘The first essential condition for an army to be able to stand the strain of battle,’ wrote Rommel, ‘is an adequate stock of weapons, petrol and ammunition. In fact, the battle is fought and decided by the quartermasters before the shooting begins. The bravest men can do nothing without guns, the guns without plenty of ammunition; and neither guns nor ammunition are of much use in mobile warfare unless there are vehicles with sufficient petrol to haul them around.’

and

By the final year of the war, an active US army division was consuming around 650 tons of supplies a day. Because a single army truck could carry just five tons, this posed a formidable logistical challenge. Indeed, as supply lines were stretched from 200 to 400 miles in the months after D-Day, deliveries to the advancing armies slumped from 19,000 tons a day to 7,000 – hence the slackening of the pace of the Allied advance in the second half of 1944 and one defect of Montgomery’s grab for Arnhem. The last phase of the war revealed the importance (consitently underrated by both the Germans and Japanese) of assigning ample numbers of men to the task of supply rather than combat. The ratio of combatants to non-combatants in the German army was two to one; but the equivalent American ratio in the European theatre was one to two. In the Pactific, the Japanese ratio was one to one; the Americans had eighteen non-combatants for every man at the front.

Freight costs on the rise

Reports The Economist, Nov 24th. 

All because of the price of oil? Apparently not. Part of the cause is “an ‘oceanic imbalance’ between the Atlantic and Pacific. Supply is spread across both oceans, even as demand is concentrated in Asia.”

As in so many of these stories, China takes centre stage. One illustration: Unable to satisfy its demand for iron ore from its traditional suppliers – India and Australia – China now imports significant quantities from Brazil. “It takes 3 times as long to move cargo from Brazil to China as from Australia … The cost of shipping iron ore from Brazil to China is now more than the cost of digging up the ore itself.” More of the world’s shipping is tied up bringing iron ore to China’s steel industry than ever before.

Similarly, the report describes how China has moved from being a net exporter of coal in 2001 to now being well on the way to being a net importer.

The takeaway for buyers: Expect freight prices to continue to rise until 2009 “when a huge number of ships are due to be launched” and downward price pressure will, hopefully, kick in.

Oil at $150 a barrel?

According to this report on the World Energy Congress from Purchasing.com: http://www.purchasing.com/article/CA6501890.html?nid=4017

Kuwait-based consultant Usameh Jamali told attendees at the conference oil prices could go as high at $150/barrel. As the Guardian reports, Jamali said, “People in the market believe that $100 is sustainable and there is continued upward pressure…we should be expecting some downward pressure in a couple of years [only].”

HMRC attempts to enforce penalties on a supplier

HM Revenue & Customs (HMRC) is preparing  to sue a supplier, EDS, for failure to pay agreed penalties in respect of a botched computer system. The trouble is … EDS has not breached the terms of their penalty payment agreement, according to Computer Weekly 16 October (print edition). Check http://www.techworld.com/news/index.cfm?RSS&NewsID=10359 for more details.

According to Techworld:

Problems with a computer system provided to implement tax credits at HMRC led to millions of pounds of overpayments. HMRC signed the £71.25 million ($146 million) compensation deal with the firm in November 2005, with more than £25 million of the settlement dependent on the contractor winning future government work – a provision strongly criticised by the Public Accounts Committee.

According to Computer Weekly: “By the end of 2006 EDS had paid less than £250,000 of the [contingent part of the settlement] – at that rate it would take about 100 years to pay off the full amount”.

Computer Weekly quote HMRC chairman Paul Gray as saying that “It is quite clear that over the past two years EDS has been less successful in winning contracts for provision of public sector IT support in the UK than it was expecting”. He goes on to say, “I am determined to ensure that we obtain the full amount of the settlement, even if the flow of new business to EDS is not enough to generate the full payment to us.”

It is great to see the government standing up to bad suppliers (so much of the time the stories are about the government meekly handing over more taxpayers cash to pay for delays and errors).

But given that the penalties were imposed because of poor performance, it seems that linking the penalty payments to EDS’s ability to generate more revenue from the government was a bit of a daft move on the part of HMRC: “You’ve screwed up royally and we’ll make you pay for your mistakes, but only from any profits you make from future screw-ups work you do for us.”

Looks like HMRC are going to have their work cut out to get EDS to cough up.

Alibaba – procurement’s killer app?

I’ve blogged recently about the missing killer app for procurement.

And here is news of Alibaba’s IPO on the Hong Kong Stock Exchange, raising $1.5bn (apparently the 2nd biggest internet IPO after Google).

Is this it? Or will it be?

Browing Alibaba’s message boards today, the hot topics are pretty basic ones: “how do I know this is a legitimate supplier?”, “how do I know this is a serious buyer?”. Given that the basic point of the site is to put buyers in touch with (Chinese) suppliers, the fact that these questions are such hot topics seems to somewhat undermine the whole point of the site. And having worked with people who have used Alibaba the word is that you get a lot of quantity there, but the quality is more debatable.  

Still, with an extra $1.5bn sloshing around, who can say what will happen next.

Very worth watching.

(p.s. following on from my last post, Alibaba.com’s Alexa ranking is 164 which rains all over even Salesforce.com’s parade)

Keeping up with supply chain technologies and trends

This is a section title in Are You the Weakest Link in Your Company’s Supply Chain? (subscription required), an article in HBR Sept 07. The article attempts to raise the profile of Supply Chain Management amongst CEOs by arguing that, when done right, SCM is a source of competitive advantage.

They give a range of pointers on how to do Supply Chain Management right, for example:

• Ensuring that supply chain leadership has real supply chain expertise,
• Adding supply chain insight into business planning,
• Balancing short term and long term views,
• Taking advantage of modern technology.

On the subject of technology the authors argue that whilst good implementations of technology can make a positive contribution to supply chain management, many companies make unwise investments in technology. Therefore:

A CEO who understands new technologies can play the important devil’s advocate role by challenging the business case for technology adoption. Most firms that have bought leading-edge supply chain systems acknowledge that they use only a fraction of the software’s functionality and an even smaller fraction of the promised capability. An attentive CEO can lend authority to the change-management process, helping to foster user buy-in and making certain that proper vendor support, adequate training, and other resources are in place.

Moreover, CEOs who fully appreciate the challenges of deploying complex and costly systems can help their companies avoid classic missteps. The CEO of an industrial equipment manufacturer admitted that her company into one such classic trap: “we spent $18 million getting an ERP package up and running in our company, and all we did was bring more modern technology to bear on supply chain processes that are 40 years out of date. I expected this technology to bring supply chain costs down dramatically, and nothing has changed. My mistake was expecting technology to solve a process challenge.”

I love this quote and couldn’t agree more with the sentiment. But I suspect that readers might go away underestimating the significance of change management issues when implementing new software. Users are very likely to resist the imposition of new supply chain technologies. Encouraging buy in and user adoption takes a lot of attention from the top. A lot. For your software implementation to succeed, at least with the kinds of software package around today, you will need plenty of leadership attention and energy to overcome user resistance.