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SMB Technology Options in a Difficult Economy

A proven way to keep your supply chain IT expenditures down and boost business
efficiencies is to rely on the IT systems of partners like third-party logistics providers and use the investments of these supply chain partners.

Chris Norek, Ph.D., Senior Partner, Chain Connectors, Inc.
Jeff Russell, Chief Information Officer, Majestic Steel USA

As small and medium-sized companies (SMBs or mid-market firms) tighten their belts in 2009 due to difficult economic times, how will this tightening impact their spend on supply chain technology?  There is a “chicken and egg” scenario here—you need money to invest in technology and money is definitely tight right now; however, if investments can result in return “multiples” to increase profits in down times, will the investments be made? This all depends; the ROI on this type of technology investment should supply the answer. The keys to this will include cost, resource requirements and how quickly you can make the return happen.

Will the current economic environment compel more supply chain managers to cut costs by dedicating more resources to supply chain management software and expertise?  Or will companies totally retrench and shut down spending regardless of potential payback and savings?  In down times, investments can provide even bigger returns. 

One way to keep supply chain IT spending down is to rely more heavily on the IT systems of partners like third party logistics providers—use the investments of your supply chain partners rather than making your own.  The issue with this is that surveys show that 3PLs aren’t seen as leaders in providing technology solutions.  However, you might want to check to see what 3PL system functionality you might be able to leverage with little or no investment, particularly if you don’t currently have the money to invest in your own company’s systems.

Another way to reduce supply chain IT spending is through the use of Software as a Service (SaaS) solutions which allow payment on a usage basis rather than a full license purchase.  The advantages of SAAS solutions are the ability to implement quickly with lower or no implementation costs depending on the type and complexity of the solution. These solutions also allow for SMB to take advantage of technology capabilities that have been too costly previously. The key is to find a system that you can have up and running quickly with clear visible benefits and value that meet your company’s requirements. If you are not sure what these systems can provide, one way to get educated quickly is to set up online demonstrations.  It is better if a software provider can populate their demos with data from your company.  In addition, try to get the providers to let you or someone else from your company “drive” the demonstration.  This way, you can try different data input areas to see if they are all in working order.  In some solutions that aren’t fully developed, the software company can hide a lack of developed functionality by only using the on-screen entry fields that are currently enabled.  Overall, demonstrations are a great way to view the features and capabilities of these all types of supply chain software solutions.

It would seem today's economy may highlight the value of the supply chain as an area to improve efficiencies and dedicate more resources to I.T. to enable greater efficiencies.  To best leverage any investment, several steps should be followed.

Steps to follow in Deciding on a Software Investment

  • Determine capital availability (if no capital is available, Software as a Service (SAAS) is the only software purchase option)
  • Understand potential benefit provided by the implementation of a software solution—create a range of savings (e.g. 5-10% of transportation cost for a TMS solution)
  • Estimate implementation costs
  • Determine the time and resource investment needed to get the system up and running.
  • Understand what is required to train the users to maximize the capabilities of the system.
  • Don’t under estimate the need for your people to make the change to the new technology (get them involved early).

Summary
In this type of economy, investments can usually be justified in terms of expected benefits.  It is a mindset issue where management has to understand that investments in down markets show higher payback than those in better economies.  Now is a great time to negotiate better rates/costs for potential software and services, make sure you ask the vendors to sharpen their pencils when they come to the table.

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