What specific challenges does a supply chain planner face in midsize businesses?
The midsize company, particularly in manufacturing, faces enormous pressure to deliver acceptable sales growth and profitability in markets that are more competitive than ever before and less tolerant of subpar performance. It is an oft-perpetuated myth that midsize businesses are somehow forced to be less capable than their larger peers. These companies are required to do more with less, but their customers invariably hold them to the same levels of capability and performance. In the past, the entry cost of business software has left many midsize (aka mid-market) companies scrambling to manage their supply chain either manually or with spreadsheets not purpose built for the task, thereby exposing the business to supply chain failures. The functions that sit within supply chain planning (demand forecasting, supply management, and sales and operations planning) are particularly problematic in the world of general purpose spreadsheets given the current level of sophistication in purpose-built planning tools.
At midsize companies, employees who have responsibility for supply chain planning (either dedicated or as part of a broader set of functions) on the demand and supply sides are typically caught between the need to generate better forecasts and develop consensus planning and the limited tools at their disposal. The need to deliver a positive and timely customer experience, with previously un-imagined levels of product and services customization, puts enormous pressure on the supply chain planner to be more efficient and more effective. In today’s inherently complex supply chain planning environment, this is hard to do competitively without a purpose-built planning engine.
What role has modern technology played in opening new opportunities?
In the early days of cloud computing, it was assumed that the most material beneficiaries would be midsize businesses that had been largely left out of the on-premises applications game due to high license and support costs. While the adoption of cloud by large enterprise companies has exceeded early expectations, the assumption that cloud would open opportunities for the midsize business has proven to be prescient. Indeed, cloud has enabled easier access to other forms of modern technology,such as advanced analytics and artificial intelligence (AI), that have been a real boon for the midsize business. This is particularly true in supply chain planning where cloud application vendors have made even their most sophisticated planning engines (e.g., advanced analytics, AI) available at costs that all comers can afford. The benefits of cloud are not just the obvious, initial elements of cost such as licenses and maintenance versus subscriptions; they also include the ability to consume upgrades and functionality enhancements seamlessly. Historically, upgrades have been an issue for companies of all sizes, but they are particularly challenging forsmaller companies where both monetary and people resources are stretched much more thinly. Supply chain planning application sets have also opened opportunities for midsize businessesto massively improve their overall planning environment,whether the ability to forecast better or to eliminate unnecessary latency across a mix of homegrown and commercial planning tools.
What are some use cases for midsize companies in supply chain planning?
In a recent IDC supply chain survey, demand and supply planning was identified as the supply chain capability most correlated to business success for midsize companies. These businesses also cited it as an important focusig their efforts to improve supply chain visibility and collaboration with suppliers and customers. In the mid-market, the need for supply chain and supply chain planning use cases is frequently tied to the industry in which the business operates and how quickly that industry is innovating. Not surprisingly,manufacturing is one of the industries where supply chain planning and overall enterprise resource planning (ERP) adoption rates among mid-market companies are the highest. It’s also one of the industries where midsize businesses are most enthusiastically embracing supply chain digitization. A key use case is accelerating the order-to-cash process. This can be a win-win for businesses and customers because it improves cash flow predictability for the business while improving the customer experience. Enterprise players are setting a standard of delivering accurate and up-to-date real-time inventory information to customers, no matter which sales channel they ultimately purchase from. Midsize companies that want to compete against larger players need to meet that standard, particularly in direct-to-consumer businesses, or those consumers may opt for speed of order fulfillment from a competitor.
What prevents midsize companies from investing in modern digital technology and supply chain planning sooner in their growth phase? Midsize companies have historically been slower adopters of technology that has frequently been beyond their financial reach, particularly when factoring in the IT resources needed to support implementation and ongoing system management. It is also commonly the case that employees within a midsize company supply chain have multiple roles and their bandwidth for application assessment is limited. In the previously cited IDC supply chain survey, 63% of midsize companies self-reported as being either at or behind the median in terms of their supply chain transformation efforts, suggesting that acceleration of these programs is a strategic imperative. The reality is that the way in which midsize companies have “made do” is no longer enough, and although the specter of disruption exists for businesses of all sizes, it’s particularly immediate for midsize companies. Indeed, the availability of “function as a service”means that barriers to entry have never been lower.Anybody with a compelling product idea can access outsourced supply chain, sales, and even marketing capabilities to support commercialization efforts. Midsize companies compete with not only traditional players but also emerging companies that are potentially leveraging much more modern supply chain facilities from external providers. Ironically, technology is largely responsible for the lowering of these barriers, so the imperative to employ technology to even the playing field is high. Fully 75% of midsize companies expect to be disrupted by either an existing competitor adopting digital supply chain technologies or a new, digitally native market entrant. In addition, the data shows that midsize businesses that are successfully digitizing are nearly twice as likely to see double-digit revenue growth as those continuing to make do with their existing processes. Yet, the data supports the contention that midsize companies are moving to adopt modern technology within the supply chain. The percentage of midsize companies either in pilot or in production with supply chain cloud applications exceeds the percentage of large enterprise by over 10 percentage points. These companies are adopting multi-enterprise supply chain networks more aggressively as well.
What have been some early benefits of cloud-based digital planning capabilities?
The need for a customer-centric approach to supply chain planning is driving both interest and investment in cloud-based planning tools with integrated AI, machine learning, and analytics. A customer-centric approach is also why midsize companies are increasingly investing in 3rd Platform technology —cloud, mobile, big data/analytics, and social. Midsize manufacturers aspire to the same capabilities as their larger competitors: open innovation, better meeting of customer needs, rapid customization and configuration, and the ability to monetize product and asset performance. Early benefits of supply planning tools have been the ability to generate a better demand forecast and then link that forecast with supply agility and flexibility. If we accept that customer service and experience delivery are the central purpose for the supply chain, then the ability to calibrate to an improved demand forecast means better performance against service metrics. Modern supply chain planning tools have also improved profitability performance through inventory optimization and network safety stock reduction, have enabled faster and better decision making with data insights and what-if scenarios, and have improved supply chain process transparency through access to real-time data and analytics reporting. Cutting-edge artificial intelligence and machine learning supply chain planning capabilities are even beginning to automate traditional and often rote planning tasks, freeing up planners to focus on more strategic activities. Given the multiple hats that midsize business supply chain planners typically wear, relieving them of even one task can be liberating. Business growth was the top supply chain priority in IDC’s most recent supply chain survey, and the ability to achieve growth is linked inexorably with better planning. If the supply chain is critical to a company’s digital transformation efforts, planning transformation is at the heart of supply chain transformation
IDC ANALYST CONNECTION Sponsored by: SAP
Questions posed by: SAP Answers by: Simon Ellis, Program Vice President, Supply Chain Strategies, and Shari Lava, Research Director, small and medium business