“I’ve discovered that our customers want holes, not drills.”
– CEO of tools manufacturer, addressing his employees.
It turns out that the above quote is actually a myth. Well, it doesn’t matter – because I happen to really like it. It is a great quote because in so many ways it captures the conflicts and challenges ailing the enterprise SCM applications business.
For this issue of Parallax View, I interviewed the new CEOs of i2 and Manugistics. Part of the reason was to acknowledge these companies’ contribution and role in the technology-enabled supply chain journey that began a decade and half ago. It would be remiss not to give credit to these 2 companies for their pioneering work in evangelizing the Advanced Planning Systems (APS) space and highlighting the opportunities for value creation through SCM – which has taken its rightful place on the CEO agenda today.
These two companies still have great products which are supporting critical functions at many of the world’s leading supply chains. But supply chain is also a very dynamic space, and the other reason was to find out how these two companies are adapting to the structural changes underway, as we move to the next chapter in this journey.
One of those changes that epitomize that next chapter is the above quote. Over the past decade, we’ve moved beyond our infatuation with the technology (via some painful lessons) and taken stock of everything else that’s required to make the transformation. From a user perspective, we are older and wiser, and more aware of the non-technology gaps that need to be addressed. As for vendors, those who can see past their technology-induced myopia, there is a real opportunity to reinvent themselves as true solutions providers, and create new market opportunities.
Recognizing change: The first step
When I interviewed Joe Cowan, CEO of Manugistics, at their annual user conference in Atlanta last month, he made a statement that was both surprising – and unsurprising. His statement was, “Manugistics is not a software company.” Sure enough, it sounds like Cowan actually listened to what his customers were saying when he took the helm at the company last year.
What was surprising (and refreshing) was that finally someone acknowledged the “elephant in the room.” From a Total Cost of Ownership (TCO) perspective, software license fees often represent less than a third of the total cost over the lifecycle of the implementation. Hmmm…turns out that supply chains aren’t static entities, and few of us ever get “done” with a supply chain implementation (Disagree? Read on.)
Services – specifically, supply chain domain expertise in the customer’s industry – has always been critical to the success of the business transformation. Yet, vendor success was defined around “selling drills” regardless of the customers’ success in being able to “drill the holes they wanted,” And in this sense, there is nothing surprising about customers wanting results – the thing that really matters to them.
But there is a ways to go beyond the current practice of paying lip service to delivering “solutions.” Michael McGrath, the new CEO of i2, fully recognized this when he talked about the need to move beyond selling application software. And McGrath did not pull any punches. He clearly understood that vendors needed to do much more before they are ready to walk the talk of delivering results.
In that sense, it was good to hear the leaders of i2 and Manugistics acknowledge the tough realities of any supply chain transformation. In business, we have many masters to answer to, but the one that matters most is the customer – and we should stand up and applaud when a CEO publicly says something sane in this bizarre world of technology bubbles and bumps.
Supply Chain is growing up
When we reflect back on the SCM journey, we realize that the first decade and a half was more about the emergence of Advanced Planning Systems (APS) – i.e., technology point solutions that were implemented within the functional silos of the supply chain. Sure we talked SCM, but mostly we implemented APS. You could apply the 80/20 rule here: Much of the software sold to date have been implemented as point solutions. And to say that 20% of companies have actually been able to connect all these point solutions together into a real-time, closed-loop process is a pretty generous statistic, especially considering the fact that critical technologies like Supply Chain Event Management and RFID are just making their debut.
Now, we are at a stage in the journey where we’ve outgrown the term “supply chain.” It’s more than just about supply. And it’s really a network as opposed to a chain. But people GET that. So let’s focus on what matters most – instead of wasting energy on determining the right 3-letter acronym that will be the successor to SCM. (Leave that to the IBMs and SAPs who have the huge marketing budgets required to do this.)
And what matters most – the core of the SCM challenge – was captured in Peter Senge’s book, The Fifth Discipline (1990), when he pointed out the following:
“From a very early age, we are taught to break apart problems, to fragment the world. This apparently makes complex tasks and subjects more manageable, but we pay a hidden, enormous price. We can no longer see the consequences of our actions; we lose our intrinsic sense of connection to a larger whole. When we then try to “see the big picture,” we try to reassemble the fragments in our minds, to list and organize all the pieces. But, as physicist David Bohm says, the task is futile – similar to trying to reassemble the fragments of a broken mirror to see a true reflection. Thus, after a while we give up trying to see the whole altogether.”
APS technology played an instrumental role in enabling users to model disparate pieces of data, i.e., the “broken pieces of the mirror” – again, mostly within the functional silos to date. In the early to mid-90s, factory optimization made its debut by showing how material and capacity decisions “fit together.” Transportation optimization did the same for modes, carriers, rates, and routes. And forecast optimization did it for products, geographies, and channels. In the late 90s, the same APS technology was applied at the next higher level of fragmentation and modeled suppliers, factories, distribution networks, and sales channels. But we are far from being able to say that we have put together ALL the pieces of what appears to be a VERY big mirror – and more importantly, APS technology CANNOT do all of it.
Truth is, implementing APS technology does not ensure SCM success. From ChainLink’s perspective, APS technology represents only the ENABLER in the “SCM mirror.” To view the whole picture, you need the rest of the 3Pe perspective – which are PROCESS, POLICY, and PERFORMANCE. So, to make my earlier point, you can be done with an APS implementation, but you are never quite done with an SCM implementation, because the “3P”s are constantly evolving as business changes.
Prologue of the next chapter
The structural changes that are underway in both business and technology give us reason to celebrate the “re-birth” of SCM. And with rebirth comes new opportunities to reinvent ourselves and refresh our thinking. Those who are unable to learn from the past are likely to repeat the same mistakes and suffer through the same disillusionment that are typical of every hype cycle.
So what can we expect? In the absence of a crystal ball, we have to take our cues by “reading the tea leaves” which tell us:
Some things have not changed:
The fundamental “physics” of managing flow are the same – and that’s what SCM is about. Whether you are looking to improve a functional silo or the end-to-end supply chain, mastery over the “laws” or core principles such as constraint management, the bullwhip effect, synchronization, etc., will ultimately determine the winners.
“If you take care of the customer, the other things often take care of themselves.” Your primary customer is Main Street – not Wall Street. Only Main Street can give you long-term success.
Some have changed, are changing fast, or must change in order to survive:
The supply chain is the organizing principle – not the enterprise. Focusing on core competencies and outsourcing what’s not is forcing companies to pay attention to what’s happening outside the four walls of the enterprise.
Focus on business outcomes– not technology. Too often, we have a disconnect between what customers think they are buying and what vendors think they are selling. Ask yourself, “What does success look like?” and see if the outcomes are mutual. You will find new ways to reinvent yourself and develop new competencies – instead of outsourcing yourself out of the value equation.
The network is the application. Today, technology is “Small-Smart-Fast-Everywhere.” The internet is doing to business what the internal combustion engine did to transportation. How we think of SCM today has yet to fully exploit the technology that is emerging.
Contrary to popular belief, the SCM opportunity is bigger than ever. In that context, it is ChainLink’s belief that the impending demise of pioneers like i2 and Manugistics are exaggerated. Granted, they have a lot of work ahead of themselves, and the competition is stiffer – but truly understanding these “tectonic shifts” opens up opportunities for innovation and reinvention. And that’s always great for customers.