Top- and Bottom-line Results
Pretty grim statistics, and yet companies continue to spend upward of $19 billion annually on technology to improve their supply chains, according to International Data Corp. figures. That's not surprising, given the current economic downturn, says Christa Degnan, research director at Aberdeen. "We're really seeing companies deploy technologies to contain costs because it's very difficult to grow top-line revenue in today's economic climate," Degnan says.
These technologies appear to be having a measurable impact, too. For instance, Aberdeen has reported that early adopters of e-procurement solutions have achieved lower unit prices (by 5 to 10 percent, thanks to improved contract compliance), reduced order requisition costs (from $114 to $31, on average) and decreased inventory costs for indirect goods (by 25 to 50 percent). And Degnan's own research has shown that enterprises implementing travel and expense management solutions are paying as much as 10 percent less for goods and services due to increased contract compliance. The top line has also seen some impact from technology, as well. In a recent study, Aberdeen found that despite a widely held perception that customer relationship management applications were not delivering ROI, CRM users responding to a survey reported, on average, 14 percent increases in customer satisfaction and 10 percent increases in customer retention, helping to drive a median increase in revenues of 10 percent.
And some companies have seen both bottom- and top-line results from e-business implementations. Case in point: Aviall, an independent distributor of aviation parts. In their study of Aviall's implementation of an order management system, Kosin Huang and Jon Derome of technology research firm Yankee Group report that the company was able to reduce its inventory management costs by $2.1 million a year and cut order processing costs from $6.22 per manually handled order to $0.32 for orders processed online. Moreover, as a result of the implementation, Huang and Derome write, "Aviall was able to win exclusive distribution contracts specifically because it was able to offer value-added inventory management services. Aviall closed a $300 million deal and a $60 million deal largely because of its improved supply chain performance."
At this point a skeptic would point out that any or all of the results cited above might be attributable not to the technologies that enterprises have implemented but to other factors influencing companies' performance, including everything from industry dynamics and the political environment to management decisions and the weather. "Companies are definitely creatures of their environments and have to play within the confines of their ecosystems, and technology is one piece of that environment," concedes Yankee's Derome, who is program manager for the consultancy's Business Applications and Commerce group. Derome notes that attempts have been made to separate out the impact of those different factors, but he says that he has yet to see a study that asserts a direct correlation between technology and a company's performance.
Still, Derome argues that the absence of hard proof of a technology-performance correlation does not prove the absence of such a correlation. "You can definitely see a relationship," he says. "There are certain investments that a company makes that seem to deliver quantifiable return. Granted, that return might be influenced by other factors, but companies do seem to have the ability to use technology to advance the business."
Which leads to the next question: If everyone has access to the same technologies to advance their businesses, can those technologies really lend a competitive advantage? Isn't it really more like a standoff between equally well-armed foes? Well, actually, yes, according to Tom Velema, senior manager in the supply chain and collaborative commerce practice with Deloitte Consulting. "Once you create competitive advantage and you become the benchmark, the competition will look at you and figure out what they can do to either get on a par with you or beat you," he says. "That's always the game that you're in." The point, Velema continues, is not that investing in e-business technologies will necessarily result in a lasting competitive advantage, but that not investing in these technologies would eventually result in lasting harm.