Part 1 – Finding the ROI for an Investment in an Analytical SCM Solution

Technologyevaluation.com published a piece of mine on this topic a few years ago, but the ideas are important, so I am recapitulating the them here.

Part 1 — Introduction

The competitive environment for every industry grows increasingly intense. Fast, reasonably accurate information about the impact of a software investment decision grows more critical.  Many decision-makers look for an exact forecast of return on investment (ROI) from the purchase of a supply chain management application.  At least four very real challenges make such perfect information elusive.  Too commonly, executives meet these challenges with responses that are not carefully considered. You have heard these challenges and their reactionary refrains before:

1. Limited time exists to perform analysis – “We need to know now!”

2. Business analysis skills are lacking – “We are looking for the vendor to tell us!”

3. The data to perform the analysis are almost always not available in the corporate databases – “We have tons of data, but it is not telling us what we need to know!”

4. It is always difficult to predict the future . . . as in forecasting, certain laws about a prediction of ROI will forever hold true . . .

  • the prediction will always be wrong
  • the prediction will always change for as long as the analysis continues
  • someone is going to be held accountable for the wrong, changing prediction

“Just give us the bottom line!”

After a quick look at these issues, one might question the effort to undertake the analysis to predict an ROI, as well as the validity of the outcome.  Perfect, or even complete, information may not be feasible, but if a few basic principles are followed, some analytical work can provide an understanding of the potential for bottom line impact.  It can also yield insight into the root causes of undesirable symptoms from which your business may be suffering.

The reactions of some decision-makers to each of the four challenges that are listed above provide a convenient outline for exploring a more thoughtful and strategic approach to evaluating a potential investment in supply chain management software.  I’ll explore each of these in successive, upcoming posts as follows:

Part 1 – “We need to know now!”

Part 2 – “We are looking for the vendor to tell us!”

Part 3 — “We have tons of data, but we it is not telling us what we need to know!”

Part 4 – “Just give us the bottom line!”

Part 5 — Where to start

Thanks for stopping by Supply Chain Action.  I leave you with a few words from Benjamin Franklin, “Be at war with your vices, at peace with your neighbors, and let every new year find you a better man [person].”

 

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About Arnold Mark Wells
Industry, software, and consulting background. I help companies do the things about which I write. If you think it might make sense to explore one of these topics for your organization, I would be delighted to hear from you. I am employed by Opalytics.

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