Supply Chain Best Practices Consortium Technology Investment
Executive Seminar – Supply Chain Leadership Forum Track C, Session 3 September 11, 2007 1
Session Scope This session covers best practices in the decision making process needed for investment in supply chain technology.
Setting Investment Criteria: Return on Investment (ROI) is only part of the equation when it comes to deciding where to make technology investments. Setting Priorities: Identifying where to make the investment. Post-Implementation Audits: Getting more value from your investment by reviewing a project after its completion.
What is the Investment? Supply Chain Capital Budget Average planned capital expenditure budgeted for supply chain technology
$10,955,600
Planned capital expenditure budget for supply chain technology as a % of revenue (Highest)
1.15%
Planned capital expenditure budget for supply chain technology as a % of revenue (Average)
0.13%
Technology investments, year on year, are likely to be highly variable and cyclical in nature. Technology investment budget amounts tend to directly reflect an organization’s position in the system life cycle.
Why Do You Make the Investment? Data from our benchmarking respondents suggests a shift in priorities. Priorities For Adding or Enhancing Supply Chain Technology Percentage of Respondents Event Management Performance Monitoring Status Reporting Warehouse Management System Transportation Management System Auto-ID Barcoding Freight Audit EDI software Vehicle Location and Messaging Fleet Management Software Asset Tracking Auto-ID RFID Security EDI XML Upgrade 0%
What Drives the Investment Decision? ROI, company growth and providing better customer service were cited as the driving factors for supply chain investment/upgrade. Criteria for Making a Supply Chain Investment Percentage of Respondents Past Investments Risk Management Capital Availability Competitive Response Competitive Advantage Customer Service Supporting Company Growth Based Upon ROI
Post-Implementation Audits Post-implementation audits are needed to quantify project benefits and improve future project planning and execution. Companies Who do Post-Implementation Audits No 37%
Yes 63%
Who Completes the Post Implementation Audits Financial Management
Post-Implementation Audits Of the respondents who did post-implementation audits, their ROI was clearly better than expected. Quantifying the Results Expected Vs. Actual ROI Worse 20%
Post-Implementation Audits Reported ROI - IRR Transportation Management System Over 50%
Warehouse Management System
30% to 50% Status Reporting
10% to 30% Up to 10%
Performance Monitoring
Negative
Event Management 0%
10%
20%
30%
40%
50%
60%
70%
It is clear that TMS has the greatest variability, from negative ROI to over 50%. What drives that variability? Is it the type of system, the scope of the implementation, or the execution of the implementation? WMS is clearly the best technology to implement from an ROI perspective.
Potential Group Discussion Points Who first defines the need for a technology investment to be made and who initiates the process? Once the need has been identified, how do companies determine which specific solution set can best address it? How do you best ensure that ROI goals/targets are met? How financial return-oriented is your company with respect to technology? What other benefits do you and company leaders expect from technology investments? What process do you have for deciding if an upgrade or a new system and new technology is the right investment/solution?
Benchmarking & Best Practices References Information on technical investments can be found in the following references: Online Interview Section/Topic Profile Finance Supply Chain Technology Technology Investments Inbound Orders Vendor Collaboration
Reports and Analysis Analytical Reports Supplier Collaboration Retail Supply Chain Best Practices Review - Supply Chain Technology
