The parlous state of the EU’s economy has led many businesses to cut back on supply chain investment. But as Derek du Preez reports, such cost-saving measures are storing up trouble for the future
A recent IDC study, entitled In Pursuit of Operational Excellence, highlighted that supply chain management (SCM) is a growing concern for manufacturing enterprises, with nearly 50 per cent of more than 350 respondents indicating that its complexity is expected to grow over the next three years.
SCM is the coordination of materials, information and finances as they flow from supplier, to manufacturer, to retailer, to consumer. Applications can be used, through ERP systems and other large-scale software integrations, to monitor these flows, with the aim of reducing inventory and ensuring products and information are at the right place, at the right time, at the lowest possible cost.
However, with the European economy still in the doldrums, with GDP expected to grow only 0.6 per cent in 2012 compared with forecast US growth of 1.9 per cent, do companies still have the resources to address supply chain complexity? And if they don’t, what will the long-term implications be?
The consensus among industry experts is that enterprises in Europe are no longer implementing costly software to tackle their supply chain challenges, because the return on investment is too long and savings will only be seen over a number of years.
Intermec, a company that specialises in supply chain hardware and software offerings, held its annual partner summit in Greece in the New Year, where its CEO, Pat Byrne, highlighted that enterprises in Europe are only investing in supply chain projects that see returns within one year of investment.
“Our customers are only willing to invest now if the return is short term, because they need to cut costs and create efficiency now. They are not willing to invest if the return is three years from now. However, if they can make the return in six to 12 months, then they will look at it,” said Byrne at the event.
“These short-term returns tend to be seen where a company is replacing paper processes within their supply chain for electronic ones. This allows them to quickly get rid of a whole set of people and processes, saving costs quickly,” he added.
Mike Darby, a supply chain expert at consultancy firm Deloitte, shares Byrne’s view, arguing that “the days of throwing £10m at an SAP implementation and hoping the benefits will increase sometime down the line has very much gone”.
He says that in his experience, most companies are looking to get more out of their current systems, rather than invest in new software deployments.
“I don’t see many companies embarking on big ERP enterprise solutions. However, companies that have already implemented an SAP or Oracle system in the past, but haven’t necessarily taken full advantage of all the modules and functions available to them, may decide a smaller investment to improve upon what they have already got is feasible,” he says.
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