Modernizing supply chain IT is crucial due to global distribution issues and complex supply chains. Before the COVID-19 pandemic, it was clear that companies needed to update their forecasting and planning tools. The pandemic highlighted the inefficiencies of manual systems and outdated software, such as widely-used applications soon to be unsupported.
Innovators are adopting next-generation systems that use AI, machine learning, and data analytics. According to a survey by McKinsey, 90% of supply chain executives plan to overhaul their planning IT within the next five years, with four out of five already using or planning to use AI and machine learning. These technologies are seen as essential for improving decision-making and enabling autonomous planning.
Modernizing supply chains can improve resilience and efficiency, but it’s a significant investment with uncertain outcomes. The survey indicates that 60% of IT implementations exceed budget, time estimates, or fail to meet expectations. Challenges include clinging to outdated systems and the complexities of new technology integration – issues that Supply Chain leaders are finding hard to tackle.
Challenges of updating Supply-Chain-Planning IT
Despite the benefits of modern IT systems, many enterprises still rely on outdated methods. Spreadsheets and SAP Advanced Planning and Optimization (APO), introduced in 1998 and soon unsupported, are commonly used. In some industries, APO usage is as high as 80%.
Supply chain leaders recognize the need for change, with 90% planning to implement new solutions in the next five years. AI and machine learning are increasingly used in demand planning, sales and operations planning, and control towers. However, upgrading is complex and costly, with implementation times averaging 2.8 years and costs ranging from €15 million to €125 million, depending on industry complexity.
However, several barriers stand in the way of successful upgrades. The transition to new systems is hindered by the significant time and cost required. Industries with complex supply chains, like pharmaceuticals, face longer and costlier upgrades compared to those with simpler supply chains, like consumer goods.
Selecting vendors involves evaluating multiple options based on functional requirements, integration capabilities, and costs. Challenges also include reaching consensus on technical requirements, managing expectations, and justifying the business case for a new system.
Key Elements for Success in Implementing Supply-Chain-Planning IT
To enhance the chances of successful IT implementation, companies should focus on three key elements: a well-defined planning process, thorough vendor selection, and a detailed implementation road map.
- Well-Articulated Planning Process:
Creating a robust planning process involves defining objectives, mapping out necessary activities, and determining which processes to automate. This includes identifying pain points, ideal system features, and performance indicators.
- Vendor Selection:
A structured vendor-selection process includes outlining business requirements, setting clear evaluation criteria, and testing vendors against real-world scenarios. Involving frontline users in the evaluation can provide valuable insights.
- Implementation Road Map:
A phased implementation approach helps manage the transition effectively. Starting with essential features, using agile sprints for development, and running the new system in parallel with the old one can ensure a smoother transition. Engaging users early and preparing staff for the new system are critical for success.
Bonus: Additional Considerations for Successful Transformation
- Customer-Centric Approach:
Transformations should focus on improving customer experience by setting clear objectives and evaluating how changes affect customers.
- Building In-House Capabilities:
Training staff on new systems and processes helps reduce dependency on external vendors and ensures smoother transitions.
- Leveraging Learning Methods:
Using both in-person and online training, experiential learning, and creating safe learning spaces can help ensure that new ways of working are adopted effectively.
Upgrading supply chain planning systems is challenging but achievable with the right strategy and leadership. The benefits include improved planning processes, better system alignment with company needs, and a more efficient and resilient supply chain.
Click to read more: https://www.mckinsey.com/capabilities/operations/our-insights/to-improve-your-supply-chain-modernize-your-supply-chain-it
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