Bridging the ROI Gap

Survey reveals disappointment with return on supply chain investments, but change management failures take blame

Alexandria, VA — March 31, 2003 — The majority of investments in supply chain technology have not yet yielded anticipated bottom line improvements, and change management failures may be to blame for much of the disparity between the approximately $15 billion spent on new systems during the past three years and the measurable results achieved, a supply chain consulting firm claimed today.

Capital Consulting & Management Inc. (CCMI), a supply chain-focused consulting firm, said a recent survey by the firm revealed that companies that had purchased supply chain technology expected the technology to help reduce costs and inventories, cut cycle times, improve forecasting and increase flexibility and responsiveness in areas such as planning and execution, procurement, production scheduling, transportation management and order fulfillment.

But the survey, which polled supply chain executives across a range of industries, including manufacturing and retail, showed that fewer than 20 percent of those companies believe their investments have "definitely" shown a clear and favorable return on investment (ROI).

The CCMI survey indicated that ROI was a factor in the decision-making process for more than 90 percent of companies, which expected either strategic or operational benefits — or both — from their supply chain technology investments.

Among those who achieved clear ROI from their technology investments, nearly 60 percent indicated that their ROI has been below the level they expected.

The respondents also indicated that senior management involvement in achieving the benefits has been very limited, with more than 80 percent of supply chain managers indicating "cursory" or "no" significant levels of attention, a result that CCMI termed "especially surprising" in light of the cost and visibility of these investments.

Other factors that were cited as contributing to the shortfall in value attainment included organizational challenges, long implementation times and inadequate support in driving adoption of supply chain technology.

To Scott Elliff, president of CCMI, the survey results indicate that companies need to work to step up adoption of the new systems within their supply chains. "The 'go-go days' of major supply chain software and hardware investment are largely over," said Elliff. "Companies now need to turn their attention to improving usage of these new systems within the everyday execution of supply chain activities so that they get the bottom-line benefits these systems were designed to provide."

"Companies need to take a new approach to value attainment in the supply chain arena," said Charles Maynard, president of Cojent Consulting and co-author of the study. "First, you have to have a rigorous methodology that measures and tracks value over the entire lifecycle of the technology, not just during the up-front decision period. Secondly, you have to create the organizational environment that supports and encourages the adoption of new technology so that the value of these solutions can truly be realized."

CCMI recommends a two-pronged approach to increasing the value of current and future supply chain technology investments, involving what it calls lifecycle management and "Cultural Evolution."

Lifecycle management involves determining which IT valuation model is most appropriate to a company's unique situation and developing a roadmap for using the selected model.

Second, a "Cultural Evolution" program is designed to increase the adoption rate of supply chain systems. This type of program could include implementing communications that emphasize the rationale and expectations for new technologies, aligning incentives and performance standards to better ensure active participation and support for change, creating an environment that encourages innovation and risk tolerance, and identifying and filling the gaps in internal capabilities so that new technology can be fully utilized.

"This two part program of lifecycle measurement and 'Cultural Evolution' can help companies achieve the benefits that new supply chain technologies can provide, and that have so often been lacking to date, as the CCMI survey results so clearly show," Elliff concluded.