At a recent industry conference event, frenemy vendors of Supply Chain solutions lamented how the ongoing battle against the Giants (usually SAP) is real. Many of these vendors started their ventures based on first-hand frustrations. They repeatedly watched multi-million-dollar IT projects fail to deliver, following years of implementation, only to witness companies decide to do another project with that same "tech giant" again. But why?
CEO Beware: IT Can Be a Blocker to Driving Shareholder Value
Part of the reason that companies stay with the Goliaths of Supply Chain technology is the clout that IT holds within organizations, and rightly so. With IT under pressure for increased threats of security and corporate espionage, this group is critical to maintaining the security of the entire company! One mistake by them, and they could be facing millions of dollars in lawsuits. If they know from past experience that a certain tech giant can be trusted, and they know that x, y and z integrations can (hypothetically) work, can they really be blamed for not wanting any other vendors on board? Well...not really...but that doesn't mean it's not still a problem for the business.
IT is a sort of gateway guardian — they can't really be blamed for their territorial protection. However, is IT linked to the business value that's gained from many of these solutions? Are they directly responsible when, for example, SAP fails to deliver the $5M in cost-savings in year one? NO. The business functions are responsible — the heads of supply chain, marketing, operations, sales, etc. But, ultimately, the CEO is responsible.
CEO Beware: Business Silos Can Be a Blocker to Driving Shareholder Value
There's another problem that exists, though. Similar to IT being the gateway guardian during any vendor selection process, siloed thinking, planning, and technology selection on the business function side has left CEOs in the dark about areas that could drastically boost shareholder value. Each business function is oftentimes responsible for very different goals/KPIs. A simple example is Sales and Supply Chain: Supply chain typically cares about fulfilling the most demand possible at the lowest possible cost. Sales cares about hitting revenue targets in a given timeframe. And what does the CEO care about? Shareholder value!
For this reason, CEOs are not made aware of deeper cost savings or profit-driving opportunities that are brought to light by adopting truly transformational technologies. In addition, it's typically the less known vendors that are delivering this type of value-driving technology, because they're so much more agile than the tech giants. This brings up yet another hurdle to deploying value-driving technology: getting past IT. Without the backing of the CEO or a high-level Executive, these vendors would never be able to deliver on that shareholder value — even when they prove it in a POC/POV — because they'll never be given the chance.
Vendors attempting to introduce these next-gen technologies meet severe internal resistance at the expense of corporate goals...and all without the CEO ever knowing.
C-levels and other high-level executives should be demanding more insight into the purchasing decisions of the company, especially when it comes to technology that is meant to drive value for the business. Below, we're going to share with you some examples of how business functions knowingly turn their head on potential savings. These are real-world scenarios that we, and our Consulting partners, have seen in just the last several months.
Real-World Examples of Rejected Shareholder Value
Rejected: The Opportunity for $18 Million in Additional Monthly Revenues
One vendor who met with a corporate business unit was introduced to its office floor of analysts — hundreds of employees crunching spreadsheets to analyze organizational impact from previous periods to gain future insights. When the company finally relented to giving the vendor access to data that would model possible opportunities, the vendor was able to validate revenue potential that equated to $18 million in additional profits per month. The response from the corporate business lead:
“What am I going to do with all these people?”
It was much easier for the executive to believe that the vendor’s claims were impossible to achieve, despite the validation, than to disrupt the existing structure and reallocate resources. And, no one within the company would ever know, including the CEO.
Rejected: $500K in Monthly Cost Savings
Another incident involved a Consulting Partner informing a customer that they would likely see around $500K in monthly savings due to optimizing their transportation and logistics with end-to-end optimization. This was met with skepticism by the customer management team — they told the Partner:
“We don’t believe this number – we have been trying to optimize this process for several years, that cannot be accurate or possible.”
But the fundamental reason why the Consulting Partner saw this huge potential for savings was not because they tried to do the same thing that everyone else did — the same thing that the customer had been trying to do for years. It was because of what they were telling the customer to do differently; or, rather, what the optimization technology was telling them to do differently. Because the Consulting Partner was using River Logic, they were able to perform global constraint-based optimization of transportation and logistics processes. By taking into account yards, plants, distribution centers, procurement, and markets, the end-to-end optimization found a better way to run their business that was worth $500k in savings per month.
Are CEO’s Blind to the Numbers?
Nari Viswanathan, supply chain industry expert and VP of Product Management at River Logic, explains that while a management team may have goals to decrease costs and increase revenues, companies still optimize at the functional level. For example, the Supply Chain focus is on reducing costs while meeting service levels, while the Sales and Marketing focus is on maximizing revenue.
The most advantageous benefit of River Logic, a multi-dimensional, multi-period advanced analytics platform, is found when costs and revenues are simultaneously optimized for profits. This is the kind of capability that P&L Owners, General Managers and CEO’s crave and don’t get with traditional software.
Transformational technology creates open-box thinking; thinking that usually exists at the highest level and one that is still roadblocked by the traditional processes of evaluation and implementation. Although transformational technologies that exist today can be implemented in shorter timeframes and even validated to show financial impact before the project begins, reticence stands in the way. A change in the way the business operates is viewed as a threat, giving way to the comfort of what is known. Good supply chain executives understand this potential, and they often are the ones that transform their organization. A classic example is Apple’s Tim Cook who was their supply chain head before moving up to replace Steve Jobs as the CEO.
C-Levels and Executives alike should be asking themselves this: Are you blind to your numbers…?