[From iSource Business, April/May 2003] So far this year the economy has offered most companies no more cause for cheer than it did last year or in 2000 or 2001: profits have been weak, markets have been down, consumer confidence has been wavering. Yet for some enterprises, the past few years have been a time not for dwelling on the present but for planning for the future and implementing the supply chain technologies and process changes necessary to gain a competitive edge when business picks up again. For these companies, 2003 marks the beginning of a new phase, a time to execute on those new technologies and processes. A time, in short, to prove it.
Expectations for IT in 2003
The consultancies that track trends in information technology spending have produced various estimates for growth rates in IT budgets for 2003. Gartner, for instance, predicted late last year, on the basis of a survey of IT users and business executives, that budgets would essentially be flat for the year ahead, and AMR Research confirmed this outlook when it reported in March that a survey of more than 100 decision-makers at Fortune 500 companies were calling for an anemic 0.22 percent growth in spending this year. In a February/March survey of iSource Business readers, 25 percent of respondents predicted that their IT budgets would increase this year, versus 58 percent that saw no increase and 17 percent that predicted smaller budgets compared to last year. Aberdeen Group and Forrester Research have forecast slim increases of 1.3 percent and 1.9 percent, respectively. On the outside, Morgan Stanley's December CIO survey found chief information officers expecting a 5 percent increase in IT spending in 2003 over the previous year, although many of the IT chiefs believed that their budgets could see reductions as the year progressed, depending on the economy.
Whatever the case, it is surely true that, as Aberdeen notes in its report "World IT Spending 20032006: Measuring the Incremental Recovery," released in December, "The factors contributing to excessive growth [in IT spending] in the late 1990s are not repeatable." As examples of those factors, the research group cites corporate spending to deal with the Y2K issue and the burst of spending on Internet and e-commerce technologies, including investment by so-called "brick-and-mortar" enterprises fearful of dot-com upstarts.
But Aberdeen also reported, in a January 2 research note titled "Will the SCM Technology Market Ever Rebound?", that the downward trend in spending on supply chain management (SCM) technologies appeared to have bottomed out toward the end of 2002. Interviews that the consultancy conducted with supply chain executives revealed that 86 percent of enterprises expected their 2003 budgets for SCM technologies to be flat or increased compared to 2002. That's not surprising, considering that a subsequent survey by Aberdeen for its 2003 "SCM Technology Buying Intentions Report" showed that 88 percent of the SCM executives polled expected their companies to seek supply chain cost reductions equal to, or even greater than, the average goal of 13 percent cuts that companies set for 2002. The executives also named "controlling costs" as the top reason to invest in SCM technologies.
Jennifer Chew, an analyst with Forrester, agrees that the economy has forced companies to be more cost-focused, and she adds that the tight IT budgets of the past few years have motivated supply chain executives to look for "quick hit" investments that can generate rapid ROI rather than planning major initiatives along the lines of enterprise resource planning (ERP) projects. "We are seeing people take on a series of $500,000 or $1 million projects that would roll up into a larger initiative, as opposed to taking on the Big Bang,' $20 million or $30 million projects," Chew says.
Consequently, over the past couple of years companies found themselves working to implement "bite-sized" projects, with executives spending more time solving concrete business problems than planning major transformations of their supply chain. "It's getting to be a fairly practical exercise for them to improve their supply chain, as opposed to them embracing any big, new ideas," says Chew. "It's getting down to how they can execute on all these great ideas that have been happening around the supply chain for the last five years, ideas like dynamic collaboration and CPFR [collaborative planning, forecasting and replenishment]."
One Company's Objectives
For Mary Young, director of worldwide logistics at Minneapolis, Minn.-based storage networking solutions CNT, the "big new idea" of the past two years has been to use technologies and processes to streamline the service and support side of the company's business.
Founded in 1983, CNT sells its storage networking products and services directly to end users, system integrators and original equipment manufacturers (OEMs) in North America and in some European and Asian countries, and also through distributors around the world. The company serves customers in the manufacturing, financial services and other sectors, and CNT had sales of $187 million in 2001, its most recent full fiscal year.
Until recently, CNT was using primarily homegrown systems to run its customer call centers and its field service operations. But with the company's rapid growth in the last several years (its sales rose by almost 50 percent from 1999 to 2001), these systems, which were not integrated, made it problematic to maintain the company's high level of service for its customers. For example, call center staff did not have real-time access to information on service parts inventories, the company's employees frequently had to enter customer- and service-related data into multiple systems, and CNT had to maintain high service parts inventory levels at its 350-plus stocking locations worldwide to ensure its 99 percent first-time fill rate on service parts.
With its customer base growing beyond the capabilities of its legacy systems, CNT opted to take a two-pronged approach to upgrading its service and support technology. First, the company elected to deploy call center and field service solutions from
San Mateo, Calif.-based Siebel Systems that would allow its call center and support staff to share information more easily. CNT's goals for this implementation included streamlining its customer service processes by creating a "closed loop" support process that could ensure rapid response to customers while improving productivity among the call center and field service staff. In addition, by adopting Siebel's Sales solution as well as the provider's Call Center and Field Service applications, CNT aimed to give its sales staff insight into current service issues at existing customers.
Second, CNT chose to implement a service parts planning solution from Servigistics, of Atlanta, to help the company optimally manage its $17 million in service parts inventory. The company's objectives here included creating a uniform, corporate-wide standard for forecasting inventory; establishing a fully automated, consistent process to track, plan and report on their management of service parts; and allowing Young and her staff to better forecast parts inventory levels, with the goal of optimizing inventory without affecting the company's near-perfect first-time fill rates.
CNT also was looking to the Servigistics solution to help automate processes for dealing with the highly complex parts relationships for the company's equipment deployed at customers' sites. With some 2,300 parts having some type of revision or interchangeability relationship with another part, the manual processes that CNT's support staffers were using to track all those relationships were both cumbersome on a day-to-day basis and an impediment to optimal planning. In addition to automating those processes, Young says the move to the Servigistics solution would help CNT, for the first time, to institutionalize knowledge that previously had resided, for the most part, in the heads of the company's planners. "There are a couple of people in our department who have worked with the parts for so long that they have a knack for them," Young explained. "But that's not a good thing, because people can chose to leave, or, as one of my bosses said, Don't get hit by a bus.'"
CNT worked on implementing the foundation for its "closed-loop" service and support process through 2001, when it completed the implementation of the Siebel applications, and 2002, finishing the Servigistics implementation late last year. While the implementations are still young, the results to date have been impressive, including a reported $1.7 million in savings from productivity improvements alone. Improvements in customer satisfaction may be more difficult to gauge, but CNT has reported that it doubled, to 60 percent, the number of service queries resolved on the first call. And, Aberdeen Group, citing CNT in a report titled "What Works: Ten Significant Implementations in Service Management," noted that the new systems have allowed CNT to increase its service parts inventory in the field by $3 million to support new product releases without having to add personnel to handle the increased volume of parts.
For her part, Young points to the Servigistics solution's ability to do risk assessments on service parts inventory levels without affecting customers. "A lot of times at companies, you come up with a theory for how you think you can reduce inventory investment without affecting customers, but you really don't know the outcome until you've tried it," she explains. Now CNT's staff can do "what-if" analyses without having to actually adjust inventory levels in the field, implementing only those changes that make sense.
Perhaps most important, all the work over the past two years has positioned CNT to meet the challenges of 2003 and beyond by putting efficient service-side processes in place, helping to prepare the company for further expansion in its business while keeping costs in check. "This is the icing on the cake now, because for the last couple years we have been working toward this ultimate goal," says Young. Now, she adds, the challenge will be to execute on the company's business plan and put those new technologies and processes into practice. "It's like anything," Young concludes, "you have to prove it."