Should Firms be Focused on IT or Business Process Portfolio, or Both?
There is a stream of conversation circulating across the blogosphere raising questions as to whether firms should be rethinking their enterprise applications strategies in light of the fundamental importance that supply chain management processes have become in today's manufacturing and distribution firms. This notion of a re-think seems to have been spurred by Gartner/AMR Research industry analysts, and was expressed in a recent blog commentary authored by analyst Dennis Gaughan. Gartner is apparently re-thinking its enterprise applications approach in light of certain business and supply chain realities. On the business side, the overall cost of IT, especially applications infrastructure and ERP system annual maintenance is a senior management concern. Many ERP systems were originally designed and acquired when the bulk of business control and management processes were internally focused and spanned internal functions. Since that time, the endless pursuit of reduced costs have driven many supply chain processes to external sources, and today, the bulk of supply and innovation can often lie within relationships with external design and production partners. The entire spectrum of sourcing, procurement and contract management has also turned towards a primarily externally focused business and collaboration-based process. It's no wonder that best-of-breed and cloud-based applications have thus filled the void, even in order fulfillment.
Because of these realities, Gartner is test-driving new applications framework methodology, with categorization defined as follows:
1. System of Record- equates to the foundational system for transactional finance and running the business. This system is core to all aspects of financial reporting and compliance. Obviously core ERP systems fall into this category.
2. System of differentiation- equating to helping drive differentiation for a particular firm, and often involve supply chain management processes. Gartner argues that these systems are more collaborative, leverage data feeds from the system of record, and have life spans from 3-10 years.
3. Systems of transformation- equating to supporting innovation, supporting ad-hoc processes tied to specific business initiatives. I suppose that for supply chain, a transformative system would be one that supports a new cost reduction initiative, business venture or new product introduction and management process that extends from (1) and (2). The notion is also that transformative systems have shorter life cycles and are well suited for cloud deployments.
The other rather important Gartner observation is that the specification, control and budgeting of (2) and (3) often lie outside of IT, which in my view, is the more important concept for consideration, and an obvious statement of reality.
Among the Infosys community, Gopi Krishnan recently penned a posting on this blog commenting on this Gartner positioning, based on his engagement with multitudes of firms. Gopi states that this Gartner categorization is a good way to categorize the overall applications portfolio, and that SCM applications tend to often be found in categories (2) and (3). I also tend to agree with that observation.
The commentary however can tend to get more muddled. Laura Cecere recently penned a posting on her blog stating that very few supply chains are truly integrated, and those firms that have, built such excellence outside of their ERP system. I suppose that Laura's statements indirectly reinforce the Gartner revised framework, but I tend to take exception to some of Laura's approach. First, supply chain capability does not stem solely from the supporting IT portfolio. Rather, the required business metrics and consequent supply chain process capabilities need to drive the application requirements. Laura does point this out, but her arguments, in my view, are too systems-centric. Further, many of my fellow industry analysts tend to want to ignore the notion of size of company, and often generalize their observations to Fortune 100 types of companies. My perception is that there are more than just a handful of companies who have indeed integrated their supply chain processes if you context small, mid-size as well as global firms. They have done so because they were not burdened by multitudes of functional organization, complex or consensus weighted decision-making processes or large IT groups with vested agendas. When you remove functional alignment burdens, the perspective quickly turns towards what needs to get done to support supply chain related process, including an outside-in perspective.
A smaller scope also equates to a faster implementation with less cost. Do we really need real-time updates to everything that is occurring, or will a few updates per day really suffice for a particular supply chain process, for instance optimizing inventories or updating next week's customer replenishment plans? In fact for certain planning and business intelligence applications, too many real-time feeds can amplify a false trend or create unneeded 'noise'.
Another important reality is that firms are not going to cast-off their existing applications investments, including ERP, without a fundamental business case or financial imperative. Many prior supply chain or other business intelligence initiatives have failed to gain traction or management sponsorship because of prior history of non-alignment to specific business process need or costly investment and ongoing maintenance costs. While BI technology has really matured, older perceptions remain. Again, was the end-goal the application or the process?
A final consideration reflects on the changing umbrella of overall supply chain process responsibility. More and more, the supply chain management process has expanded to include integration to new product introduction, product management, sales, operations and financial planning, logistics, distribution, services management or reverse logistics. Many of these processes can involve an external supplier or contract manufacturer. The fundamental question for firms to decipher is whether any system-of-record can reasonably support such a broad scope of control.
I propose a somewhat different stream of commentary. Rather than debate and context solely the enterprise applications portfolio, firms should also be focused on their supply chain business process and customer fulfillment portfolio. I have always been of the belief that business architecture should drive system architecture, and that desired business metrics trump organizational barriers and turf. Firms should instead be articulating business architecture akin to the Supply Chain Operations Model (SCOR), and firms should be evaluating investments in process, as well as IT context.
Bob Ferrari
Bob Ferrari is the Executive Editor of the Supply Chain Matters blog, and a guest blogger on the Infosys Supply Chain Management blog.
