The payback challenge

Supply chain organizations regularly make major investments in software, hoping to see a significant increase in productivity or cost savings. Yet one out of every two supply chain software deployments is not delivering the expected return on the investment, according to the results of a survey of 215 readers of CSCMP's Supply Chain Quarterly and its sister publication DC Velocity. Conducted by Boston-based Nucleus Research, the study looked at which applications are most popular, what kind of payback they're providing, and the challenges users face in achieving a successful deployment.

The survey's insights are based on responses from a broad range of companies. Survey takers represented a variety of industries, with 29 percent coming from manufacturing, 21 percent from third-party logistics services, and 18 percent from wholesale distribution. Another 14 percent worked in retail, 6 percent in transportation, and the remaining 12 percent in "other" industries. Respondents also represented organizations of all sizes, with roughly a third of them working for companies with annual revenues of under US $100 million, a third for companies with revenues between $100 million and $1 billion, and a third for corporations with revenues over $1 billion.

Article Figures

[Figure 1] Which applications are readers using? Enlarge this image

[Figure 2] How are users applying business analytics software? Enlarge this image

WMS most commonly purchased
What kind of software are readers investing in? Warehouse management systems (WMS) topped the list, with 57 percent of respondents using this type of solution, followed by enterprise resource planning (ERP) software, transportation management software (TMS), and business analytics solutions. (For the full list, see Figure 1.) Nearly a quarter (23 percent) of survey takers said their company had purchased such software tools within the past year. WMS accounted for 21 percent of those purchases, TMS for another 10 percent, and business analytics represented 9 percent. The remaining 60 percent of purchases were split among a variety of other solutions.

The study found that different types of businesses favored different types of software. For example, manufacturers were the top users of WMS and warehouse control systems (WCS) as well as "control towers" (technology hubs that allow organizations to gather information and gain visibility for supply chain decision making) and solutions for demand planning, supply planning, and analytics. Companies in the wholesale distribution sector were the primary users of inventory optimization software, while third-party logistics service providers (3PLs) were the biggest users of TMS and yard management software. Labor management software usage was evenly split among manufacturers, retailers, and 3PLs, indicating that all three groups are seeking to optimize distribution center workforce performance. Finally—and surprisingly—slightly more manufacturers than retailers said they had deployed distributed order management systems (DOMs). DOMs, which are designed to help users determine the optimal location from which to fill a particular order (for instance, from store inventory versus distribution center stock), are generally regarded as a tool for retailers engaged in omnichannel commerce.

Company size also played a role in software use. For instance, 82 percent of respondents from companies with annual sales between US $1 billion and $5 billion were using a WMS, compared with only 47 percent of respondents from companies with less than $100 million in revenues. This may indicate that small companies still have a hard time justifying the software's expense.

What's holding analytics back?
The survey results for business analytics, also known as business intelligence software, are particularly interesting. These solutions help users gain insights into their operations and parlay them into process improvements. To find out how far readers had progressed in adopting these tools, our survey asked about their use of four types of analytics: descriptive (which detail what happened in the past and why), predictive (which foretell what might happen in a supply chain), prescriptive (which recommend courses of action), and "big data" analysis (which entails sifting through large quantities of information for operational insights).

Despite the current hype about business intelligence, only 41 percent of survey respondents said they were using them right now. Of the respondents in that subgroup, just over half (51 percent) are using descriptive analytics, 43 percent predictive analytics, and 17 percent prescriptive analytics. Thirty-three percent said they were engaging in big data analysis.

The majority of those analytics users—65 percent—are using the software for inventory management. Clearly, companies are struggling with the classic inventory challenge: determining how low they can go with respect to stock levels without sacrificing service. The second most common area was warehousing, cited by 56 percent. This likely reflects retailers' and manufacturers' desire to modify warehouse operations to meet the demands of omnichannel commerce. (See Figure 2 for the complete list.)

The flip side, of course, is that the majority of respondents—59 percent—are not using analytics at all. When asked why, 39 percent of the nonusers cited a lack of staff resources. Another 19 percent said they saw no value in it. Clearly the software vendors have to do more to convince potential clients that it's a worthwhile expenditure of time and money.

Given the issue of resources, it's not surprising that the biggest companies were the most likely to be using business analytics. Indeed top-tier companies—those with more than US $5 billion in annual revenues—had the highest adoption rate, at 65 percent. The next tier down—companies with revenues between $1 billion and $5 billion—had the second highest adoption rate, at 54 percent. Moreover, business intelligence often requires the help of outside experts to mine the data for operational insights. It would stand to reason that bigger, better-capitalized companies would be in a better position to take advantage of this technology.

Disappointing ROI
Since a software purchase can run into the thousands of dollars, it's hardly surprising that companies would be looking for a significant payback. However, many respondents expressed disappointment with their software implementations. Only 48 percent reported that they had realized the expected return on investment (ROI), while 18 percent said they had not. Another 34 percent were uncertain as to whether the software had met their company's expectations for ROI.

As for the reasons behind the disappointment, one common complaint was that the vendor had oversold the software's potential for improving performance. One reader wrote about a WMS deployment: "Support and maintenance continued to bleed cash as the products overpromised and underperformed." Another reader reported that a WMS deployment had resulted in "cost overruns, project delays, a large number of defects, and overall poor performance."

The survey also asked readers to name the biggest obstacle they faced in achieving a successful software deployment. First on the list was systems integration, cited by 31 percent. Next came lack of employee acceptance and support, cited by 21 percent. Rounding out the list were lack of information technology (IT) resources (19 percent), lack of good user training (10 percent), and absence of upper management support for software deployments (9 percent).

One option for companies looking to minimize software implementation costs and overcome some of these common obstacles is to take the cloud-based route—a model in which the application is hosted by the vendor (or a third party) on an off-site server and delivered via the Internet. Among other advantages, this allows the user to avoid a hefty capital outlay for software licenses as well as ongoing expenses for upgrades and maintenance. Plus, the user can configure the cloud application to its business needs instead of having to pay a programmer for custom coding.

And in fact, one-third of the survey respondents have done just that, opting to use cloud-based versions of at least some of their applications (TMS and business intelligence programs being the most popular cloud-based choices). When asked whether this had shortened the payback period, 53 percent of the cloud-based software users replied that it had.

All this suggests that when it comes to future software implementations, supply chain managers may want to consider going to the cloud. Not only are cloud-based applications likely to provide a quicker return on investment than traditional versions do, but they also tend to be easier to use. And more importantly, perhaps, they offer users a way around some of the most common hurdles to a successful software implementation, such as inadequate systems integration and lack of IT support.