Top 10 Challenges When Investing in Supply Chain Management

November 27, 2018

Written by Supply Chain Executive Mike Mortson. This guest post first appeared on Mike’s industry blog, Supply Chain Game Changer.

Everywhere you turn there is talk of a lot of very exciting technologies.  The Internet of Things (IoT), Augmented Reality (AR), Drones and Autonomous Vehicles, Robotics, Virtual Reality (VR), Artificial Intelligence (AI) and Intelligent Analytics are front and centre.

And all of these technologies have applicability for the Supply Chain in every business and in every industry around the world.   The Digital Supply Chain vision is within our line of sight.

But most companies are still working with the same, manual, non-automated Supply Chains that they have had for at least the last decade.  And they will continue to do so in the foreseeable future.  They are faced with challenges which are going to impede technology investments to advance their Supply Chains going forward.

What are these challenges?

I had joined a company that had recently had a large investment in increasing the capacity and technological capability, including a Warehouse Management System (WMS) in their Distribution Centre.  It was absolutely necessary as without this investment the company would have stalled in its ability to support revenue growth, increased service level expectations and productivity.

But they didn’t invest anything in their E-Commerce Distribution Centre.  When I later proposed an investment plan to support this fastest growing channel the response I got from the CEO was “We’ve already invested too much in the Supply Chain.”

I was shocked and I had a challenge on my hands.

The Challenges!

Whatever your situation is you likely have one or more challenges that you need to overcome in order to advance your Supply Chain improvement agenda.  All of these challenges are real in some sense though some are more tangible than others.

1. It’s Overwhelming!

There is so much talk in the media about these technologies that it can be overwhelming to the point that you don’t know where to begin.  Especially if you have the most basic warehousing or Supply Chain operation the whole prospect of “technology” seems completely daunting.  It can be intimidating just thinking about the possibilities given your starting point.  Be confident and courageous and you can work through theses nerves.

2. No Supply Chain Strategy

If your Supply Chain operation is managed very tactically without a long term vision then you have no strategy. And without a strategy you will not be able to articulate what you want to implement, to what purpose and for what benefit. The result will be that you don’t make any investment and you continue to do run your Supply Chain the way it has always been run. You don’t need to do everything at once but you should have a roadmap.

3. Cash Limitations

This is certainly a very real challenge. If you company has little to no cash then you are competing for this cash with other interests such as paying employees, paying suppliers and keeping the business afloat. Whenever you do look to create an investment business case you should include a cash flow analysis. Depending on the payback period your investment can actually lower existing costs and generate more cash for your company in either the short, or long, run.

4. Executive Buy-In

The importance of Supply Chain, and investment therein, as viewed by your Executive team can either help or hinder your plans. If your CEO sees understands the importance of Supply Chain and the great impact that investment can have then you have a head start. If however the CEO doesn’t appreciate Supply Chain, for whatever reason, then you may get push back or a lack of support for your strategy.

5. Return on Investment (ROI/ROIC)

There are investments which are absolutely required just to run a business and then there are investments which are more optional. For the latter a business case is most often required.  And that business case results in a return on investment (ROI) or return on invested capital (ROIC). Depending on your business situation your company may expect an ROI of 1 year, 2 years or more. The shorter the ROI expectation the more difficult it can be to make a significant technology investment as the benefits take a longer time to recover the initial capital outlay.

6. Non-Financial Benefits

Some investments are necessary but they don’t have a financial benefit per se. You may need to make investments to add capacity, improve customer satisfaction, improve delivery performance, or just establish some basic capabilities or infrastructure. Your Finance organization is still most likely going to be look for tangible financial returns. As such espousing the less tangible benefits and the necessity of your investment plan can be a challenge.

7. Supply Chain is not a Core Competency

The Supply Chain is an integral and important part of most every company in most every industry. But even as such Supply Chain may not be viewed as an area where the company wants to make investments. If your company is primarily focused on Product Development or Research for instance there could be an inclination to view Supply Chain as a support service. As such there may be a desire to outsource Supply Chain requirements to third parties as opposed to building that competency in house.

8. Resources

The challenge with resources is threefold. The first challenge is whether there are sufficient resources. Investment projects often involve people from I/T, Finance and other areas not just in the Supply Chain. The second challenge is priority. There are often many different projects going on in a company at the same time and it is common to want the same, best people, on all of these projects. And the third challenge is knowledge. Especially when it comes to new and emerging technologies you want people who have some level of knowledge about the subject matter. Still you should lean heavily on your vendors for their expertise.

9. Technology Maturity

As with anything the state of technology is constantly evolving. Ten years ago artificial intelligence, chat bots, and advanced robotics were the stuff of science fiction movies and books, not technologies to be used in your Supply Chain. But here we are. And looking forward the advancement of technology will further permeate the Supply Chain.  There is no question that future capabilities will be better and more mature than today’s capabilities. So should you just wait before investing? If you do wait you will fall further and further behind. At some point you do have to jump in.

10. Shoot for the Moon, Not the Stars

You don’t have to invest in the most advanced technology. Most companies are small to medium sized anyways so seeing all of the investments being made by the largest, most cash rich, companies can seem out of your reach. But regardless of your company size or wealth you can make investments. It may be as simple as introducing EDI, RF guns or barcoding for instance. Choose the technology path that fits within your means and consistent with the current state of your operation.

Conclusion:

It is an incredibly exciting time to be a part of the Supply Chain. The technological possibilities are endless. But there are walls, barriers, challenges and hurdles to be overcome in order to bring those technological advancements to your company.

By recognizing these challenges you can develop your plans to overcome them. Supply Chain is at the core of the operating and strategic success of most companies so your leadership in this regard is crucial.  No matter how big or small the investments you make are you are moving your business and your Supply Chain forward and that is progress!


A big thank you to Mike Mortson for contributing this guest post! We encourage everyone to check out his blog Supply Chain Game Changer for more insights on the field. 

 

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