Buy, then build, supply chain experts urge Asian firms

Commercial supply chain management (SCM) solutions are a better bet than many in-house systems which may not be robust enough to cope with customer demands, SCM vendors say.

Commercial supply chain management (SCM) solutions are a better bet than many in-house systems which may not be robust enough to cope with customer demands, SCM vendors say.

SINGAPORE--Deploying a commercial supply chain management (SCM) solution may be costly, but the failure of an in-house system could cost companies even more--in terms of customers and reputation.

One case that attracted media attention this year was Asian online book retailer MPH Online, which claims to offer 2.5 million-odd titles of books, magazines, comics, music and video.

The locally-based e-tailer recently found itself facing irate customers when it failed to place orders with publishers in time to meet delivery deadlines.

Then, an MPH Online spokesperson blamed the problem on a proprietary SCM system that couldn't track variances in the supply and demand of its stock. (The situation was also made worse by the company's late response to customer complaints.)

While it cannot be ascertained as to how many Asian companies have fallen prey to similar supply chain problems, i2 Technologies Pte Ltd senior solutions consultant Gerald Tan attributed many of these cases to "a lack of education".

i2, Oracle Corp, SAP AG, Manugistics Group Inc, Intentia International AB and Adexa Inc are among the well-known SCM vendors worldwide.

Labeling most of these proprietary systems as "half-baked", Tan observed in an interview that "SCM solutions are new to many Asian companies. Some jumped (head first) into developing their own systems, hoping to process some orders from the Web".

Some in-house solutions are also "not robust enough" to cope with customer demands, especially during peak periods, he added. Commercial SCM software, on the other hand, has been "implemented in many companies over the years and should be mature enough to suit most businesses".

His bottom line: Commercial packages may not come cheap, but the cost of a failed in-house system could be much higher. Oracle's Asia Pacific senior director (Worldwide Marketing, Business-to-Business) Frank Prestipino used stronger words. He considers the use of a proprietary system an "insanity in the e-business world", particularly as most commercial software is now based on industry standards, allowing easy upgrades and integration.

"If you are a retailer, get out of the software business."

Prestipino believes that companies can cut 30 to 60 percent of their annual IT costs if they cut out the in-house system and instead receive technical support from a vendor.

Bear in mind, however, that the total costs of implementing a commercial SCM solution could range from under US$50,000 for a small and medium-sized distributor, to over US$20 million for a multinational manufacturer with multi-tiered partners, customers and suppliers, according to Gartner research director (Enterprise Resource Planning and SCM) Kristian Steenstrup.

More than meets the eye
That said, installing a commercial SCM solution in itself does not guarantee success, as illustrated by the recent spat between US-based i2 and Nike Inc.

In February, Nike attributed part of its profit shortfall to an i2 software implementation glitch, which caused the former excess inventory and order delays.

Analysts noted then that the incident was one of a growing number of publicly-aired technology implementation failures, especially at bigger companies where such projects are more complex and costly.

"We're talking about making fundamental changes in a company's business process," said Gartner analyst Karen Peterson, who expects 5 percent of major companies implementing new software to have some amount of failure by the second half of next year.

Even the world's largest online retailers suffer from holiday outages. US-based online grocer Webvan Group Inc, for example, ran out of goodies days before Thanksgiving last year due to the shopping crush. The torrent of shoppers also caused some longer-than-normal delays in accessing the site.

"Invasive solutions like SCM--particularly in a collaborative, multi-enterprise environment--require a focused team of people keeping track of both technology and business process changes," Gartner's Steenstrup said in an email interview.

"Most failures can be attributed to a lop-sided approach to the project (whether it's in implementing a commercial or proprietary SCM solution)," he explained. To increase the probability of success, Steenstrup recommends that customers compare their business requirements against the vendor's reference sites (or existing customers), and ensure that the project's systems integrator is not "learning on the job", he added.

He is also a proponent of purchasing a solution from a vendor, but warned that the decision "is predicated on the nature of the customer's business and company culture".

MPH Online's distribution business, for example, is seen as "mainstream" and, therefore, appropriate for an off-the-shelf product.

To develop a unique, competitive advantage, MPH Online could develop an in-house solution for the customer relationship and order process portions, suggested Steenstrup. Unfortunately for MPH Online, poor customer relationship and order process management were some of the contributing factors to its recent predicament.

A possible solution: Companies could buy first, then build on it, suggested Meta Group Asia Pacific program director (E-Business Strategy) John Brand.

He, too, believes that "companies should look to commercial software providers to give them some leverage in solving problems at a lower cost". However, he added that businesses can subsequently build on the system--either with the vendor or in-house--to customize the solution to a specific business or to add more functions.

"The most successful companies recognize the strengths and limitations of the commercial software and are clear about what needs to be customized, built on or simply handled through new/modified manual processes."

Brand did, however, advise against a complete proprietary solution, claiming that while this option might solve a company's problems in the short term, it could eventually hinder its growth.

"Many companies hold on to these solutions because of the (initial) investments in them. This often causes long-term 'cornering', where the business has nowhere to go with its legacy applications or increased support costs over time," he explained.