Same old, same old

Complexity in business today is such that companies are totally dependent on process automation and electronic records to transact the business, record the results and optimise performance. Such systems support customer and supplier orders combined with auditable transactions of inventory. In other words, the essence of every enterprise is its supply chain. And if companies can transact and optimize more effectively, it offers the potential for competitive advantage in terms of simultaneously improved customer service and reduced operating cost.

These goals are the heart of supply chain management: achieved through process and data integration, speed and visibility coupled with increasingly sophisticated support for resource optimisation.

That potential for improved business performance through supply chain excellence drives a market for supply chain systems that is measured globally in billions of pounds. It all builds expectations, against which levels of satisfaction inside companies with what exists consistently fall short. I recall sitting with one European supply chain director who remarked that his systems were like a Swiss army knife –“they do everything, but nothing very well”.

So what does the future hold for supply chain systems? The basis for most forecasts is to look back at what has gone before and then try to identify what the future promises in terms of change – either progressive development or step change. Doing that, we find four decades where the rate of change in computing support for business has been huge:

The 70s were characterised by monster batch-processing mainframes, manual data entry and primarily custom programming. These systems were driven by finance and generated huge piles of printout with little useful management information.
The 80s were the time when the minicomputer and the PC emerged, computing power become more accessible and the debate was between packaged software or customized solutions. Custom code was still the preferred route for many, but information rather than data was the emerging priority.
The 90s saw a huge ‘Windows-based’ expansion of computing power – with packages overtaking custom software as their functionality matured – and the emergence of ERP. The debate was about best of breed versus all-in-one integrated software.
The end of the 90s was focused on the Y2K question as companies replaced their solutions wherever the risk of corruption in old legacy systems was too high – ERP was again a big winner from this.
In the first decade of the new century, the internet has come of age as a transaction medium, with exponential growth in computing power and storage encouraging the introduction of more and more sophisticated supply chain solutions and management information.

During this journey, the biggest single trend has been the growth of ERP as a single integrated package solution for the core of the business and its supply chain. A fundamental principle of supply chain management is to secure end-to-end visibility and a single version of the truth – one number for forecasts, inventory, orders, billings and commitments; ERP, in principle, seeks to achieve that goal.

A second fundamental principle is that end-to-end visibility includes inventory and processes that extend beyond the focal firm and its ERP. The internet provides this capability in a way that was barely conceivable 10 years ago. There are three key points from the growth of ERP and the internet that form the basis for my prediction of the future of supply chain systems…

The first is that managing the extended supply chain, with a requirement to continually optimise, means integrated ERP versus best of breed is an irrelevant argument. Systems in the future will be more open and include core and extended supply chain integration and optimisation. ERP is less good at the smart stuff and the data structures are not organised to deal with the extended chain.

The second point is that most systems are not delivering business benefits to their full potential because supply chain business processes are not good enough and the systems are not set up right to handle good practice.

The third factor is that a surprising number of companies are still stranded with legacy systems that are so customised it is difficult to migrate to new more open architectures based on ‘best practice’ processes. These companies have to determine how they will reengineer their businesses and migrate their systems. At present they will not be able to access the smart optimisation and extended chain capabilities so easily.

The implication of these trends is that the long-term direction for companies will be extended open system architectures with an ERP core. Application and data interchange maturity exist, and the industry now talks widely about service oriented architecture (SOA). The real challenge now is process design and simplification and being able to represent that in supply chain systems.

So the future of supply chain systems will be about simply more of the same on the latest platforms, only this time better and more flexible. It will be up to management to provide better process clarity and execution, and work with the systems community to exploit the capabilities that exist. Anything new technically may be a bonus, but not if it distracts from the core concepts.

Professor Alan Braithwaite is chairman of LCP Consulting Ltd and a visiting professor at Cranfield School of Management. Tel: 01442 872298. Email: . Website: lcpconsulting.com

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