Getting the go-ahead for a project can be harder than expected. This can be challenging – you’ve undertaken a lot of work and come up with an innovative idea to improve your supply chain performance, only for your idea to fail to get the support required. To get your idea over the line and an implementation project endorsed, it is vital your idea is positioned appropriately. This is the role of the business case – it is your opportunity to make the argument for your initiative, and as such, needs to communicate the appropriate information so that the decision to proceed can be made.
Supply chain projects can be particularly difficult to get up and running, as there is often significant levels of complexity (e.g. multiple systems, internal and external stakeholders), risk (e.g. customer impacts, operational risks) and capital costs (e.g. changes to manufacturing / distribution footprints, new technology) involved. In addition, there are people and culture considerations – does the proposed change align with organisational culture and does the right capability exist to support it?
While these and many more factors are important to the success of a project, the focus here is on the business case as it offers an opportunity to broach these areas and put forward an appropriate solution. To help navigate this complexity and ensure your idea is assessed fairly, we will share some learnings and experiences for building a business case for supply chain change - including what to consider and potential approaches for quantifying benefits. This is not intended to be a universal template for success, as adaption based on specific circumstances and experience of what works in your business will always be required. Rather, the intent is to provide some considerations for ensuring your idea is fairly represented and judged accordingly. Done well, an appropriate and well-constructed business case is more than just the approval for implementation – it’s the cornerstone of a successful project.
Why use a business case?
Why is it often difficult to get a project across the line? Implementation projects require both resources and change, and change is disruptive. To commit to your project, management needs to be convinced that it is worthwhile. Quite simply – is there a return on this disruption and use of resources? Secondly, as all supply chain professionals are well aware, change is difficult. Psychologists even have a name for this – the “status quo bias”. Avoidance or resistance to change is a reality.
While they may feel like a hinderance, it is crucial to acknowledge these concerns. A business case provides an opportunity to do this and to ensure your organisation is behind your idea – setting any project up for success. In fact, by articulating the reason for the making the change up front, you can kick start the change management required to deliver the project.
Still, the primary goal of a business case remains to get backing for your initiative. It is your opportunity to convey the value of your idea and get it implemented. The focus should therefore be on providing the appropriate information to get your idea across the line. Providing unnecessary information to decision makers is expending effort, time and resources that could be saved for implementation. The reality is many projects stagnate at this stage, often because either the information provided is not what was required to make a decision, or expectations have not been managed. This results in rework or extra analysis and has the additional consequence of missing opportunities.
Consider a network optimisation analysis tasked with finding opportunities to improve the configuration of a distribution network. Typically, these projects start with developing a baseline model which is used to quantify the impact of subsequent scenarios. To avoid unnecessary rework, it is vital that key stakeholders agree upfront on an acceptable margin of error for this baseline model. Without this alignment, significant time and effort could be expended without generating any insight, causing early momentum to evaporate.
Business case components
To convince your business that your idea is robust and worth pursuing, a business case should provide an overview of the rationale for your initiative, consideration of alternative options for achieving the outcome, costs, benefits and timelines.
Bearing in mind any particular requirements of your organisation, typically the following would be expected in one form or another in a business case:
· Executive summary. A succinct argument for your idea, including a summary of the purpose or problem you’re trying to solve, findings from any analysis, time and costs, key risks and recommendations for proceeding.
· Opportunity assessment (as-is vs. to-be). The story behind the project: why is change required, what is the driver or strategic imperative behind the initiative, what are the areas of opportunity and what are the expected changes?
· Options. Alternatives for achieving the outcome or delivering the capability, including any risks and dependencies the business should be aware of.
· Costs, benefits and ROI/NPV. The backbone of the financial rationale, including payback period or equivalent measure preferred by your finance team, detailing how your idea will deliver value.
· Implementation approach. What a project to deliver would look like, including timelines and resourcing requirements.
· Recommendation. Your recommendation for proceeding.
· Next steps. What are the immediate actions required to bring this to life.
Assessing and providing this information will give your business case credibility by demonstrating you have conducted the appropriate due diligence. In particular, being transparent with risks and issues will allow decision makers to assess your proposal with confidence that the message has not been sugar coated for approval.
Having provided this information, should concerns remain, consider addressing these via the implementation approach – i.e. pilot in one division or category – to keep moving ahead. This was successful at an organisation we worked with recently who were eager to implement an S&OP process but lacked buy-in from all business units to launch into a business wide project. Instead, the process was designed and piloted within one division. When this achieved significant results within 6 months, the process was extended. Not only did this build momentum and credibility for process, it allowed the project team to take learnings to the subsequent expansion.
Either way, by providing the appropriate information and acknowledging any concerns, you can move to delivery as soon as possible.
Identifying and determining benefits
You can expect that the potential benefits of your initiative will receive particular focus and interrogation. If the purpose of a business case is to get backing for implementation, then effectively communicating the expected outcomes will go a long way to selling your idea to decision makers. At the same time, benefits can also be difficult to determine – if not speculatively, at least with some degree of confidence. Careful consideration of what benefits to include and how to go about calculating them is required.
Firstly, focus on benefits that align to strategic direction. If you can show how your initiative will advance or support business strategy, then you’ll be able to cut through and put your initiative ahead of others competing for attention and resources. For example, a proposal to save logistics costs by utilising more economical freight lanes is more likely to be successful in an organisation with a focus on low cost products than one with an emphasis on responsive customer service.
Secondly, emphasise the quantifiable outcomes of your project over other less tangible benefits. Quantifiable outcomes related to supply chain include inventory reductions, cost savings, improved service levels or increased sales. These types of benefits will increase the robustness of your argument. They are easier to articulate and measure, will be more widely understood and will hold greater appeal to decision makers.
To illustrate this, contrast using forecast accuracy versus inventory reductions as the possible benefits of a demand planning improvement. While improved forecast accuracy may be the process improvement lever that drives a reduction in inventory, on its own it is not a business outcome. A discussion on the subject could easily descend into an explanation of forecast accuracy versus forecast bias, inventory calculations or the nature of the link between forecasts and inventory outcomes rather than the merits of the idea itself. Inventory reductions will hold much more sway.
This does not mean other benefits such as forecast bias or reduced data issues (quantifiable but not an outcome), improved workload or greater supplier engagement (difficult to quantify) are not noteworthy. Instead, these should provide additional benefits to enhance the perception of the project rather than the benefits that will make or break success.
If you can demonstrate that your project will deliver on both these points, then you will maximise the chance of your business backing your idea.
Approaches for determining benefits
There is no one right way to estimate the benefits of an idea, ranging from broad brush judgements to resource intensive and detailed data analysis. Once again it pays to understand the requirements and culture of your organisation. What is the level of detail & preciseness required by your organisation? Typically, does a high level, gut feel approach suffice or is a bottom-up, comprehensive analysis expected? How does this requirement vary based on the size of the investment required? Starting out with this awareness will balance the need to provide sufficient detail without being unnecessarily inhibitive.
From least to most effort, below are three options for determining potential benefits:
A common approach for calculating and justifying the impacts of an initiative is to utilise benchmarks. Benchmarking can help identify what is below, equal to or above average performance for a typical organisation. Benchmarks can often get good traction with management, and provided the information gathering process is not too intensive, they are worth considering. Assess whether the benchmarks you plan to utilise are appropriate and comparable, both to your organisation and industry – that is, is “typical” a fair comparison? For example, on face value supply chain costs might be a fair comparison, however these are going to be highly influenced by an organisation’s supply chain design (i.e. centralised versus regional network) and will differ based on product characteristics, pricing model and customer offer. Likewise, if comparing customer service levels to industry benchmarks, ensure you are using the same calculation method and understand any assumptions around inclusions / exclusions for situations such as customer orders placed for deleted products.
B. Top-down assessments
Another possible approach is to apply the improvement expected of your initiative to current performance based on assumptions and top down adjustments. This type of assessment involves inferring the expected benefits your project will drive, as opposed to varying inputs to see how outputs change. Typically, the source of these conclusions originate from expertise, gut feel or short and sharp analyses. For example, the implementation of a new WMS will improve warehouse productivity by 5% based on observations and a review of warehouse activity; or a new S&OP reporting solution will result in a 10% reduction of excess inventory across the business from increased focus on slow moving items.
As noted, this approach typically requires assumptions. These could include the assumption that the findings of a review of one part of the business can be applied to the whole business, or taking what has been successful in other organisations is applicable to relevant parts of your business.
This is a good option if a directionally correct, rather than highly specific, business case is required, and can often be enough to get a project moving without requiring a meticulous research process. On the other hand, the margin of error can be higher than with more detailed approaches, and can vary across different facets of the business. It also requires your audience to take your assessment of the link between inputs and outputs in good faith. To assist with this, ensure you are transparent with any assumptions and provide a realistic range of expected outcomes (e.g. high/low) rather than a specific number or value.
C. Data modelling
A further approach is to conduct a detailed data analysis. This typically involves baselining the current business and then applying a series of scenarios to measure the impact of changing inputs, potentially using specialist software or independent experts. Assumptions are still required but as they need to be more specific and can be more thoroughly tested, this type of analysis has a greater level of precision. This means conclusions drawn from this approach are typically harder to refute, at the cost of a greater level of effort than the other options discussed here.
This upfront effort and investment are the key downside to this approach. In conducting this analysis, it also pays to be cognisant of the elapsed time in performing the analysis – spending too much time perfecting the model may result in the opportunity passing or the underlying operating environment shifting.
However, the upsides can make this approach worthwhile, particularly for larger projects or implementations that require significant budgets. Firstly, data modelling is more objective and organisation-specific than a benchmarking or top down assessment. Secondly, this level of detail can be used to identify hotspots or areas of opportunity within the business – that is, segments (e.g. geographic areas, sites or product categories) where there is greater upside that would not be identified via high level assessments. If taking a phased implementation approach, this analysis could be used to identify the best place to pilot the deployment, building momentum and justifying a broader rollout. Thirdly, as this approach involves varying inputs to determining the impact on outputs, it is easier to determine the sensitivity of these outputs to changing inputs. As with all approaches, it is prudent to communicate the range of expected benefits based on this sensitivity analysis as well as any assumptions made.
As with many facets of business, the idea of “best practice” can be a misnomer, and there is no universal right way to build a business case. Instead, organisational awareness and judgement is required to build a business case appropriate to both your idea and your business. Reflecting on the following points will help focus your efforts and convince your stakeholders to get behind your initiative:
To ensure you give your idea the best chance of success, understand the decision-making process and risk profile of your business. Tailor your business case accordingly.
The goal is to get approval to deliver. Balance the trade-off between preciseness and timeliness to avoid over-investing in the business case.
To give your business case credibility, lay out all the facts. An objective, well-constructed business case will speak for itself.