ROSEMONT, ILL. (04/19/2000) - Installing supply-chain management software can be a big challenge. But for many users, it's turning out to be just the tip of the iceberg of what they have to do to upgrade their supply-chain operations.
Just as in enterprise resource planning projects, often the deeper task is overhauling the way work gets done throughout a company. That's a big job -- a very big job -- that can take three years or more and cost hundreds of millions of dollars.
"I don't think we've ever tried to do anything this complex, and I don't think we've stepped up to how complex it is," said Brian Beursmeyer, a materials planning and logistics manager at Ford Motor Co. in Dearborn, Mich.
Ford wants to revamp its manufacturing plants so it can build customized cars for consumers in just two weeks. But that means big changes for Ford's employees, dealers and suppliers alike. "This is going to ripple through our whole company and the supply chain," Beursmeyer said.
Beursmeyer was one of a half-dozen users who spoke about the complexity of retooling supply chains at a conference here last week that was sponsored by the Supply Chain Council, a Pittsburgh-based group of users, technology vendors and consulting firms.
For the users at the conference, installing new systems is just a piece of what they're doing, albeit an important one.
For example, London-based BP Amoco PLC's petrochemicals division installed SAP AG's R/3 ERP applications and is putting in supply-chain planning software.
But the $9.4 billion division is also re-engineering numerous business processes in areas such as order processing and customer service at all 20 of its business units, said Ken Evans, who was part of a team that evaluated the division's supply-chain performance before the work began.
Combined, the technology and business changes are expected to take three to five years and cost "hundreds of millions of dollars," Evans added.
Six months ago, General Motors Corp. in Detroit launched a supply-chain project with similar goals as those for the project under way at Ford. The work is expected to take three years to complete and cost an amount similar to what BP Amoco Chemicals has budgeted, said Curtis Songer, general director of GM's supply-chain management team.
"It's a huge endeavor," Songer said. "It really requires the re-engineering of almost all of our business processes relative to supply-chain management, plus a big investment in new technologies."
It's not just massive companies like Ford and GM that have to make those kinds of internal changes to get their supply-chain houses in order.
Gold'n Plump Poultry Inc., a $200 million chicken processor in St. Cloud, Minn., installed new manufacturing and production planning software last fall as part of an effort to improve things such as its ability to forecast demand and fill orders correctly.
But Tim Wensman, an executive vice president at the company, said Gold'n Plump also made a series of organizational changes. For example, the sales department was given new responsibility for demand planning, and the company's plants began processing to a demand-based schedule instead of making whatever they could each day.
And only the planning side of the business has been addressed so far. Now, Wensman said, Gold'n Plump wants to redesign its product-distribution arm.
Finishing the entire project could take another two to four years, he added.
For many companies, supply-chain projects are "an awesome task" to pull off, said Sandy Boyson, co-director of a supply-chain management institute at the University of Maryland in College Park, Md.
"The management challenges are enormous," Boyson said. And installing new applications is rarely the answer by itself, he added. "There's a lot more pain involved than that," he said.
But users said they expect big paybacks for all their troubles. Dow Corning Corp. is targeting annual savings of $150 million starting next year, said Timothy Troup, a supply-chain specialist at the Midland, Mich., chemical maker.
BP Amoco Chemicals hopes to reduce annual costs by up to $460 million, said Evans, who's now managing the company's SAP system.
And senior executives there felt they didn't have any choice other than to bite the bullet, Evans said. Benchmarks showed that the petrochemicals unit wasn't keeping up with industry averages on metrics such as order cycle times. "We weren't going to survive if we stayed that way," he said.