Attack Processes First, Then Consider Software

Compiled ByDavid Drickhamer When supply-chain management (SCM) software works, it can help match supply and demand, drastically improve on-time delivery and slash inventory, but it's no panacea for broken processes, says a report in the latest edition of "The McKinsey Quarterly." To track the impact of SCM installations, researchers analyzed the inventory turns of 63 high-tech companies -- manufacturers of hardware, networking equipment, semiconductors and electronics -- that they characterized as early adopters of such technology. Those that invested in supply-chain software -- either from ERP vendors or supply-chain specialists -- turned their inventory faster than those that did not. On average, inventory turns among the top third exceeded those in the bottom third by 100%. The greatest improvements, however, came when companies revamped their processes in addition to installing new software. When the software was the focus, "weaknesses in the process tended to be magnified, because when bad information is flowing, software only helps it flow faster," states the report. The McKinsey consultants offer "four guiding principles" for avoiding common mistakes that companies make when automating their supply-chain management:

Fix the most critical broken processes. Focus on the processes with the most immediate economic impact: demand forecasting, setting optimum inventory levels, avoiding stock outs and meeting delivery requirements.

Promise only what can be delivered. "Giving everyone everything they want usually proves too expensive and difficult while slowing down improvements in high-priority areas. The remedy is to go back and simplify the effort."

Improve training. Automating transactions is important, but the greatest value from installing SCM software comes from improved decision-making. All users need to be taught how to analyze results and check recommendations.

Hold people accountable. "Top-performing companies make their vendors, IT departments, and users jointly accountable while linking improved supply chain processes closely to their budget cycles and compensation packages," the report states.