This chapter is from the book
This chapter is from the book
This chapter is from the book
How Big an Opportunity Is It?
A variety of studies (and my own experience) shows that anywhere from 50% to 95% of Lean programs fail. While a huge reason is the lack of an ingrained Lean culture, it can also be that the technology a company has, doesn’t have, or eventually selects isn’t a good match for its current or future processes. This can result in wasted time, money, and effort.
Many studies have shown that Lean can potentially result in significant (over 50%) improvements in areas such as cycle time, inventory, capacity, and quality. While Lean thinking can certainly create these types of improvements, modern technology enables these improved processes, serving as a kind of “lubricant” for the entire supply chain—not only institutionalizing the improvements but in many cases taking them further than first thought possible.
When businesses think of spending money on technology, which can range from 1% to 7% of total revenue (with manufacturing and retail at the lower end and financial and health care services at the higher end), it’s usually to benefit them in terms of the ability to:
Reach more potential customers and better service new and existing customers
Develop a tighter relationship with existing or potential customers, suppliers, and other key partners
Improve or streamline operations, resulting in reduced costs and wastes, improved efficiency, and greater profits
At least partially as a result of these types of perceived benefits, spending on information processing equipment and software increased from 18.2% of all business investments in 1987 to a peak of 46.7% at the end of 2000 [Pisello, 2001]. This has continued to increase, and a TD Bank survey of chief financial officers (CFOs) in 2015 found technology to be 58% of total capital spending by companies in 2016, followed by existing facilities (44%) and data security (41%) [www.tdbank.com, 2015].
It should come as no surprise then that worldwide information technology (IT) spending—including includes hardware, software, IT services, and telecom markets—totaled $3.8 trillion in 2015. Of this total, $335 billion was spent on enterprise software, $732 billion on devices (including personal or mobile computers, mobile phones, tablets, and printers), $143 billion on data center systems (servers and storage and network equipment), $981 billion on IT services, and $1,638 billion on telecom services [Gartner, 2015].
The Extended and Often Global Supply Chain and Technology
As the number of partners and length of shipment times increase, so do the degree of complex, multi-enterprise interactions and the need for seamless integrated visibility and responsiveness across multiple enterprises. A lack of automation and visibility handcuffs companies with longer lead times, bigger inventory buffers, budget overruns, and continued demand–supply imbalances. Three-quarters of respondents in an Aberdeen Global Benchmark survey reported that they don’t have enterprise-wide automation for global supply chain processes. On average, large companies said that their global supply chains are only 50% as automated as their domestic supply chains. Furthermore, 79% of large companies said that the lack of supply chain process visibility was their top concern, while 90% of all enterprises reported that their global supply chain technology was inadequate to provide the corporate finance organization with the timely information it requires for budget and cash flow planning and management. To address this, companies are moving away from building in-house applications and moving toward using packaged applications [Aberdeen Group, 2006].
A more recent Aberdeen Group survey found that “best practice” organizations have taken control of their own supply chains as they tend to be situated in the middle of dozens of supply chain partners, where they share data and adopt universal standards for bar coding, track and trace, and data exchange. That control may generate more information but also requires more collaborative technology.
Gaining visibility at all levels of product and shipment details and to all trade and financial costs and transactions can expose problems and opportunities. However, when they enable adaptive and collaborative (Lean) processes, leading organizations have superior cost, service, and competitive advantage. Still, there is plenty of room for improvement, as 63% of respondents felt that supply chain visibility was a high priority for improvement [Aberdeen Group, 2013].
Information Systems (IS) Versus Information Technology (IT)
The terms information systems (IS) and information technology (IT) are often used interchangeably. Traditionally, IS refers to manual and/or computerized systems that are designed to create, modify, store, and distribute information and that consist of people, processes, machines, and information technology, while IT usually deals with the technology part of any information system, such as hardware, servers, operating systems, software, and so on. It’s not surprising then that both IS and IT can help support and enable Lean thinking in an organization.
Risks and Rewards
While selecting and implementing systems and technology in an organization can be justified for a variety of reasons, such as improved productivity, inventory turns, and customer service levels, as discussed throughout this book, many risks need to be considered as well. For example, a survey on the success of ERP systems implementations by Panorama Consulting Systems [www.zdnet.com, 2013] showed that most ERP projects run over budget, and buyers do not fully receive expected benefits. Some respondents felt that the ERP projects were failures. Specifically, the survey showed that the following:
More than 50% of projects experienced cost overruns.
More than 60% of projects experienced schedule overruns.
60% of respondents received less than half of the expected benefit from their ERP implementation.
So both separately and together, Lean thinking with IS and IT can have a huge impact on an organization; they can also be risky propositions that suck up vast resources and yield less-than-anticipated returns. My belief is that technology can enable a good process. So it’s only natural that a continuous improvement tool like Lean as part of a supply chain strategy can, and should, go hand in hand with technology—but only if done in the right way so that the investment of scarce resources (capital and human) are spent wisely. Therefore, one of the main purposes of this book is to help link the two together—to show the synergies between them and describe methodologies for determining which tools and technologies have the greatest impact in an organization.