Saturday, March 02, 2013

Supply Chain Management Delivers Positive ROI Despite Challenges

Over at Computer Economics, I've just published a new report in our technology adoption series. The report, entitled Supply Chain Management Adoption Trends and Customer Experience, finds that the total cost of ownership for SCM systems often exceeds budget.

Nevertheless, the payback on SCM systems is so good that most companies achieve a return on their investment within two years, despite the challenges in managing costs.

As shown in Figure 1, the full report compares the adoption, investment, ROI and TCO rates of supply chain management systems against the rates for 13 other technologies from an annual Computer Economics survey on technology trends.

Based on survey responses, SCM and the 13 other technologies are given numerical ratings on the levels of adoption, investment, ROI and TCO. Then, SCM technology is categorized as having low, moderate, or high rates relative to other technologies in the survey.
  • Adoption Rate: SCM adoption is moderate compared to other technologies in the study. That means the percentage of organizations that have SCM solutions in place is within the middle third of the range, defined by the technologies with the highest and lowest adoption rates in the study. It does not include organizations that have plans to implement the technology for the first time but have not yet done so. The moderate-to-low adoption rate for SCM is due in part to the fact that this technology does not have widespread application in some industry sectors, such as financial services or information services.  

  • Investment Rate: The percentage of organizations investing in SCM technology falls just shy of moderate and earns a low rating. Investors include organizations that plan new implementations or enhancements to existing systems within the next 18 months. Once again, the relatively low investment rate is because the technology does not have relevance in some industry sectors.
  • ROI Success Rate: Among organizations that have adopted SCM, the experience is positive. The survey shows that, compared to the other technologies in the survey, SCM has a moderate ROI success rate, bordering on the high side. The percentage of organizations at least breaking even on their investments within a two-year period is at the high end of the middle range when compared to other technologies surveyed.
  • TCO Success Rate: However, compared to the other technologies covered in the survey, the TCO success rate for SCM is on the low side. As with many enterprise applications, there is a danger of underestimating total cost of ownership. We define TCO success as actual costs coming in at or under budget.
Interestingly, the ROI success rate is more positive than the TCO success rate. This indicates that the business case for SCM systems is strong: Some adopters must be achieving positive or breakeven ROI in spite of exceeding their budgets for SCM projects.

Competitive pressures, globalization and increasingly complex offshore manufacturing relationships are spurring organizations to expand their supply chain management (SCM) systems, which encompass a wide variety of technologies and capabilities.

The full study quantifies the current adoption and investment trends for SCM systems as well as the benefits that are driving companies to expand their SCM implementations. We assess these trends by organization size, sector and geography. In terms of economics, we look at the ROI and TCO experience of those that have adopted SCM along with current investment per SCM user. The report concludes with practical advice for those considering investment in SCM technology.

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