Supply Chains investments – in technologies or people?

Roger OakdenGlobal Logistics, Logistics Management, Procurement, Supply Chains & Supply Networks4 Comments

Recognition and award

Technologies and their applications.

The three main functions of an organisation’s Supply Chains are Procurement, Operations Planning and Logistics. To improve the performance and productivity of supply chains, technology investments are made and typically justified within a capital expenditure (Capex). The requirement is for the investment to exceed the organisation’s return on investment (ROI) ‘hurdle’ rate.

The justification process places technology investment into two groups. The first group I call ‘Doing’; their ROI can be measured on the basis of saving labour, reducing the operating cost of a process or improving quality. Examples are ‘smart’ forklift trucks, automated storage and retrieval systems (AS/RS) and parcel sortation systems.

The second group I call ‘Decision’ and their ROI is justified on the basis of an organisation improving its decision making capabilities and (hopefully) improving profitability. Technologies in the ‘decision’ group include ERP systems and IT applications for planning and scheduling. These specialist Supply Network Analysis and Planning (SNAP) applications interface with the corporate ERP system. Planners access the SNAP applications to analyse data taken from the core ERP data collection and storage; the revised plans and schedules then update the ERP application modules.

snap-applications-examples

Future SNAP applications will involve Artificial Intelligence (AI) and Cognitive Computing (self-learning systems). This is to improve the access and interrogation of data from market and distribution channels and sensors, applying analytics to understand large data sets. Already, the term digital supply chains is being used to incorporate AI and Cognitive Computing. However, the use of this term appears to assume that the managements’ desire for improved financial returns will change their focus for supply chains  – from minimising internal costs and pushing supply chain costs onto suppliers, to effective collaboration within an organisation and with external parties (suppliers and  customers).

Can technologies provide collaboration?

Is ‘effective collaboration’ and improved financial returns through implementing new technologies happening or is likely to happen? Recent research by the US based firm Supply Chain Insights had the objective to understand the impact of supply chain process and technology choices on balance sheet performance. The firm analysed financial data between 2004 and 2016, from over 750 American corporations, identified within their peer group (e.g. food manufacturers, automotive parts suppliers or chemical producers), with a follow-up questionnaire for more than 1,000 people working in the supply chains.

The result from the research is that “…there is no correlation between supply chain technology choices and balance sheet results”. The firm states that “across industry, we find that companies think they are managing costs and inventory better through technology investments like supply chain planning, but have a false sense of accomplishment”. The research could not identify a single instance where implementing Enterprise Resource Planning (ERP) resulted in improved results.

An underlying reason for this is that management generally have not recognised that ‘the supply chain’ is really a number of supply chains for each organisation. These chains are not individual entities, but a complex web or Supply Network. Each network has its own dynamics, by which the nodes within the network adapt and respond to actions of other nodes and external events – all without a ‘network controller’ managing, controlling or optimising the actions and events. It is the supply chain people at each node who must understand and respond to supply chain uncertainty, which includes complexity, variability and constraints.

Technologies have only just begun to address uncertainty – with unknown outcomes, costs and time-frames. So, if applying technologies in supply chains does not provide a competitive advantage, it must be the people in each supply chain organisation. Yet cutting headcount still attracts as the way to glory for too many organisations.

Building the supply chain team

Instead of organisations looking to technology solutions as the ‘magic bullet’, the Supply Chain Insights research identified that superior management of your supply chain (and other) staff is a preferable course of action. The firm identified six characteristics of companies that managed their supply chain talent better than their peer group:

  1. belief in the company/organisation/enterprise
  2. admiration for the leadership
  3. appreciation of the work performed
  4. being part of a talented team
  5. training and professional development
  6. flexible work schedules

Have you experienced an organisation like this? If you know a person who works within an organisation with these characteristics, they will readily speak about it:

  1. The organisations does not have to be famous, with known brands. Staff members admire the organisation for being ethical and fair in its dealings with customers, suppliers and staff. They believe in the products and services offered, which provide ‘value for money’ for customers
  2. The leadership group of the organisation is admired for ‘walking the talk’ from Point 1. They practice ‘management by walking around’ (MBWA) and expect all managers to do the same
  3. Management provides immediate and periodic appreciation of performance by groups and individuals, through saying ‘thank you’ and hosting recognition and award ceremonies
  4. People appreciate working within teams that have talent. People are recruited with the aim of improving the supply chain group’s performance
  5. Development and training is an integral part of a supply chain person’s job (and future roles) and is not a ‘nice to have’ when times are good
  6. The objective is achievements, not hours. Effective managers are those that leave the workplace on time and do not expect staff to work overtime for no pay. Offices are open at all hours for people to work when they can be effective. To save on commuting time and office costs, some organisations are funding the fitting out of employee’s home office (which can be anywhere near a domestic airport) or establishing small satellite offices as work spaces.

Employees in the supply chain group that feel empowered to achieve their best and are recognised for what they do will propose, select and implement the technologies that can help to improve decisions and performance. But, management recognises it is their people that make the organisation’s supply chains successful.

Over the next three weeks, I will be in Asia. In that time, three blogs will be re-issued that discuss aspects of risk in supply chains. Recent hurricanes, floods, earthquakes and volcanoes plus political tensions show that risks are never far away from a supply chain professional’s work space!


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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More…

4 Comments on “Supply Chains investments – in technologies or people?”

  1. Great article. I couldn’t agree more that when it comes to investing in supply chains, people come first before tech.

    1. Hello Phil,
      Thank you for the comment. Intelligent people and simple systems is an approach I learnt years ago and I still find applicable. Successful technology selection and implementation requires people that not only understand the ‘what’, but have the confidence to ask ‘why’. Technology companies must sell you what they have. It is the buyer, through analysis and testing, who identifies whether the items being sold meet the need.
      Roger Oakden

  2. i have read your blog which was very useful for me since i am a student who is studying logistics and supply chain management course. More and more reading i am getting into more and more facts in logistics field.

    1. Hello Manu,
      Thank you for reading the blog. I trust that you will recommend my blogs to your classmates; then use the blogs as the basis for group discussions

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