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October 24, 2001

Chasing Windmills

The paradox of efficiency and agility in supply chain management technology

Ram Reddy

Most IT professionals have faced the following scenario at one time or another in their careers: The business sees application software as something that can be changed rather easily to create operating efficiencies and also allow unbounded agility. Unfortunately, this expectation is especially difficult to dispel for supply chain management (SCM) technologies. Explaining the intricacies of SCM technologies to nontechnical audiences has been a major challenge. Yet, this nontechnical executive audience frequently makes decisions that adversely affect the realization of business benefits from SCM technologies. Not understanding the limitations of agility provided by SCM technologies contributes to unrealistic expectations of the application software. But by using a drill-down and decoupling approach to SCM functionality, companies can understand its agility and efficiency limitations and effectively use their SCM technologies.

A MANUFACTURING WORLD ANALOGY

But first, what do I mean by agility in the SCM technology context? And how does the IT professional's view of agility differ from management's? During the industrial era, on one manufacturer's assembly line, the typical factory could make one or two products with minor variations. Although this method was the most efficient way to make products, the consumer demanded variety, choice, and constant upgrades in the finished product. This need led to the advent of flexible manufacturing systems (FMSs), which let the factory change a production line without major retooling to make different products. Depending on the market demand, an FMS automotive line may have two-door sedans, four-door sedans, and hatchbacks coming off the same assembly line. Even though the FMS provides versatility, there is an upper limit. Clearly an FMS that can produce battle tanks and fighter aircraft may be theoretically feasible, but the costs of constructing such a flexible system make it economically infeasible.

Using this analogy to explain agility in SCM technologies helps close the loop between the business executives and IT professionals. SCM technologies that focus primarily on efficiency offer agility - but this agility is limited to that particular supply chain process. The efficiency focused SCM technology is agile in communicating manufacturing changes rapidly across all firms participating in a supply chain. The nontechnical audience views the agility of an efficiency-focused SCM technology as the ability to change suppliers rapidly and frequently. In some instances, they may even believe that the efficiency-focused SCM technology will let them manufacture products unrelated to their current offerings. This is equivalent to being able to build tanks and aircraft on the same assembly line. These unrealistic expectations frequently doom a SCM initiative even before it starts. The IT department is sent chasing windmills when trying to get efficiency and agility from the same set of SCM technologies. Granted, because SCM technologies are software rather than machinery, companies have a little more flexibility - enough flexibility to let a company have efficiency and agility within certain limits.

Even though SCM technologies' agility is limited, business needs may dictate that a company have superior efficiencies for a particular function, yet also have agility in sourcing raw material. How do you go about supporting these apparently divergent requirements? The answer is by understanding all processes across the supply chain by dissecting and decoupling at the appropriate linkage points.

BUSINESS PROCESS DECOUPLING

SCM technologies are further categorized into supply chain planning, supply chain execution, and supply chain transaction systems. These specific areas can be further granulated along functions such as demand forecasting, order fulfillment, factory scheduling, and so on. The way to obtain the mix of efficiency and agility that makes sense for your company's business strategy is to start with the high-level supply chain business processes. Get the business functions to identify which processes fall primarily into the efficiency or agility category. For a mixed process, drill down further and decouple it into constituent parts until you have achieved a level of granularity where the subprocesses fall into either the efficiency or agility category. This task clearly requires executive-level sponsorship within the company and across the supply chain. It is not a theoretical proposition either - firms such as Solectron Corp. have achieved the balance between operational efficiencies in manufacturing while maintaining superior agility in certain customer- and supplier-oriented functions.