New ROI for a New Economy

This isn't your father's ROI anymore. Nor is it the ROI of last month, for that matter. Your company can no longer expect to measure its return on Web investments by traditional click-and-mortar standards.


In many ways, the arguments are not that hard to make -- depending on the application, Ekoniak says. "Project management software, procurement applications, and customer self-service and retention applications clearly help companies operate more productively," he says. The latter category -- customer relationship management software (CRM) -- has actually become something of a sleeper application for companies.


"We are seeing a concrete value in the integration between CRM and supply chain management, in a number of areas," says Bob Trine, member of the leadership team of the CRM practice at Cap Gemini Ernst & Young. But unless there is a sudden return to the heady days of 1998 and 1999, it's clear that supply chain applications will be put through a more rigorous vetting process. The question is what and who will define that process?


Measuring Value


Not too long ago, companies that wanted to implement a new supply chain application or service or strategy had some well-defined measurements to rely upon to make sure the investment would be sound.


The Supply Chain Council's Plan, Source, Make and Deliver model, otherwise known as SCOR, is widely touted by companies wishing to develop world-class supply chain operations. Surveys conducted in conjunction with such consultancies as PRTM's Performance Measurement Group have pinpointed optimal levels of efficiencies for certain supply chain activities, like delivery performance, order fulfillment, production flexibility and cash-to-cash cycle time.


Cash-to-cash cycle time, for example, is the number of days between paying for raw materials and getting paid for the finished product. In a recent survey, PRTM found that "best-in-class" companies' cycle time for this metric is less than 30 days. For companies that fall in the median, it can be up to 100 days.


Unfortunately, standard measurements, like cash-to-cash cycle time, are designed for traditional click-and-mortar operations and have become increasingly difficult to capture in an online environment. "Dell Computer has turned the cash-to-cash cycle metric upside down," says Bill Petersen, director of McHugh Software International's logistics operation analysis program. Indeed, Dell has structured its supply chain so it receives payment before it builds a computer.


Yet what exactly can be used to replace or complement traditional supply chain metrics or measures has yet to gain any real consensus among industry experts.


Calling himself "an old guy from operations with an MBA," Jeff Kavanaugh, practice area director for supply chain fulfillment at Inforte Corp., a consultancy that focuses on the application of advanced technologies to supply chain and demand planning activities, says, "[I've] been scratching my head for the last few years, looking for something to put my feet on in this area. One of the challenges is how to measure collaborative supply chain relationships or applications, knowing they might change in six months."


Then there is the fact that, compared with traditional business strategies and systems, many of these newer supply chain applications are still in their opening credits. CRM, for example, is a relatively new discipline, and because of that "companies are not tracking these investments as they should," Trine says. "Few have any real sense of ROI for CRM investments." But "benefit calculations are definitely available."


Enter e-Metrics, as defined by Gartner Group; and eValuation, as defined by KPMG. Or PRTM's eClass and Gensym Corp.'s e-SCOR.


Whatever the nomenclature, they are the newest generation of supply chain metrics.


Big Business


This is not to say the old, traditional metrics have been summarily dismissed. Rather, their importance, in some cases, has subtly shifted. "One of the effects of the Internet is that it has broadened the scope of supply chain metrics," says McHugh's Petersen.


Karl Wilhelm, chief technology officer and co-founder of SBI, an e-business services company based in Salt Lake City, Utah, gives the example of an airplane manufacturer that uses supply chain collaboration to improve its relationship with a key supplier and, hence, is able to cut the time to implement an engineering change from 45 days to 3 days. "In the past, this value or cost-savings wouldn't have been included, now it's an important part of calculating total return on investment in the supply chain," he says.

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