Technology Investments: Plan Ahead for the Payoff

By Bruce Tompkins, Executive Director, Supply Chain Consortium

With the constant murmurs about upgrades in the world of technology, it can be difficult to determine when to invest and take advantage of innovations in the IT industry. This excerpt from the Supply Chain Consortium’s recent Technology Report provides guidance on prioritizing and approving large technology investments. The report bases its conclusions on a survey of companies that are members of the Consortium.

System Priorities

Figure 1 illustrates the importance ratings for the value companies expect to receive when adding or enhancing supply chain technology. According to survey results, high emphasis is placed on Warehouse Management Systems (WMSs), while private fleet operation is placed at a much lower importance rating for most companies.

Figure 1. System Priorities Importance Rating (1=low importance / 5=high importance)

Investment Criteria

The survey also found that key factors to consider for investments in technology are (1) the approval criteria and (2) the criteria used to make the investment decision. Figure 2 shows the average importance rating for investment criteria. For these investments and implementations, the average return on investment (ROI) for survey participants is 19.6 %, and the payback period averages 25.5 months.

Figure 2. Technology Investment Criteria (1=low importance / 5=high importance)

Management Approval

The functions involved in the approval process for supply chain technology investments appear to vary greatly by company. The company management level that approves new supply chain-related technology investments and the level of investment that requires approval are shown in Figure 3. A majority of companies surveyed have similar patterns for technology investment approval, with smaller investment decisions made by supply chain management and larger investments requiring executive management and board approval.

Figure 3. Technology Investment Approval

Post-Implementation Audits

For supply chain technology projects, formal post-implementation audits that determine actual benefits are performed by more than three-quarters of companies queried by the Consortium.

Surprisingly, when comparing the actual results of technology projects against original project estimates, 21% of respondents find results that are worse than they originally projected (Figure 4).

Typically, the audit process is completed by financial management with the assistance of supply chain management. Some cases, however, require support from IT management as well.

Best-in-class companies are more likely to complete an audit for a supply chain technology project and involve supply chain resources in completing the audit than other companies in the survey.

Whether setting your priorities or determining an acceptable ROI for technology investments, it is crucial to be thorough and deliberate in your investigations. Technology investments require a lot of attention upfront, but the payoff in the end can be phenomenal. Take time to prioritize, set criteria and monitor your results to ensure that technology innovations pay off.

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The Supply Chain Consortium is the premier source for supply chain benchmarking and best practices knowledge. With 180 participating retail, manufacturing and wholesale/distribution companies, the Consortium sponsors a comprehensive repository of 17,000-plus benchmarks complemented by search capabilities, online analysis tools, topic forums and peer networking for supply chain executives and practitioners. The Consortium is led by the needs of its membership and an Advisory Board that includes executives from Campbell Soup, Hallmark Cards, Ingram Micro, Mervyn’s, Molson Coors Brewing Co., Target, The Pep Boys, and Coca-Cola Co. To learn more about how your company can become a member of the Supply Chain Consortium, contact John Foley, 919-855-5461 or visit www.supplychainconsortium.com.