Historically, however, many organizations have found that their attempts to implement enterprise reporting and analytics using ERP and CRM packaged systems have resulted in less than anticipated return on investment (ROI). Since supply chain management systems share the same limitations as ERP and CRM systems in their ability to deliver enterprise reporting and analytics, especially across these multiple and often disparate systems, organizations that are implementing SCM should avoid repeating the same costly mistakes.
Only by defining their enterprise reporting and analytical needs in conjunction with the SCM system planning and implementation, and developing a set of key metrics based on the organization's strategy, can retail organizations expect to deliver an effective SCM solution.
ERP/CRM Lessons Learned
The hype surrounding both ERP and CRM systems have led many to believe that these systems would not only improve business processes and customer service, but also provide a comprehensive solution for delivering enterprise reporting and analytics. This has been the case, and although ERP and CRM have provided improved and effective operational systems, management now finds they are still lacking timely and accurate information about and across their organization.
Some of the major reasons why ERP and CRM systems have failed to deliver effective enterprise reporting and analytics are:
- The systems are not integrated across the enterprise information architecture - they are implemented as standalone turnkey systems built on top of their own data models,
- Business rules and definitions are not defined and enforced across the organization - they are defined for each individual system,
- During customization, poor database design leave data elements unrecognizable to the business user and the integrity of the data is often compromised, and
- Transactional (OLTP) systems are not designed to support efficient reporting and analytics.
Most implementations of supply chain systems are constrained by these same issues. It is, therefore, a logical conclusion that SCM systems will also not be capable of delivering the expected value to the organization.
Clearly, an enterprise business intelligence (BI) system needs to draw on information from all operational systems. Since the success of the BI system is dependent upon the ability of the operational systems to provide the required data, it is imperative that the requirements for the BI system be developed at the same time as the requirements for the SCM system. If not, significant rework will be required to retrofit the BI requirements into the SCM system.
Business Intelligence and Retail
In the retail world, traditional business intelligence has focused on providing managerial reporting such as financial, customer and product analysis, trend analysis and comparative analysis (actual versus budget). Although effective in these areas, these systems have two major drawbacks. First, most reports are biased towards financial data and second, key measures and metrics are backward looking - reporting for the previous week, month, quarter or year(s). These reports are effective at measuring historical business operations but give limited insight into measuring and improving the effectiveness of the organization's corporate strategy.
A more progressive approach to business intelligence measures corporate performance based on key objectives, supported by specific metrics that are directly linked to and drive the organization's strategy. These measures not only monitor current performance but also provide drivers that lead the company towards its chosen goal, focusing the company on its future direction, and providing direct feedback on the effectiveness of the organization's strategy.
Balanced Scorecard
One application of this progressive approach to business intelligence is the Balanced Scorecard (BSC) Methodology.
Developed by Robert Kaplan and David Norton, the Balanced Scorecard Methodology is a management process for developing a comprehensive suite of key objectives that are aligned with and support the organization's strategy. Expanding on the traditional financial perspective, the BSC includes objectives and supporting metrics covering the customer, internal business process and learning and development perspectives. Different businesses may also include other perspectives, such as community or vendor when these relationships are critical to the corporate strategy. The Balanced Scorecard forces the organization to answer key, but basic questions that lead to establishing objectives in each perspective. For example:
- How do we look to shareholders? (Financial perspective)
- How do customers see us? (Customer perspective)
- How do we contribute to the community? (Community perspective)
- How can our vendors improve their value to us? (Vendor perspective)
- What must we excel at? (Internal perspective)
- How can we continue to improve and create value? (Learning and Growth perspective)
Figure 1 shows an example Balanced Scorecard for a retail apparel company.
Figure 1 - Balanced Scorecard for Retail Apparel Company
In this example, the organization has determined strategic financial objectives of revenue growth and profitability and has selected key metrics such as "Comparable Sales Growth" and "Gross Margin %" to measure these objectives. The metrics can be weighted according to the influence each has on the objective they support. Consequently, each objective can also be weighted based on contribution to the respective perspective and the overall scorecard.
To support the strategic financial objectives, specific objectives and metrics were developed for the customer, internal process and learning and growth perspectives (community and vendor perspectives are not included in this example). In the customer perspective, a strategic objective is to improve brand awareness. This will be measured by the results of a customer survey. A key objective in the Internal perspective is to improve supply chain management that will be measured through the percentage of items out of stock, inventory turn and inventory levels. The objectives and metrics developed for the customer, internal and learning perspectives are linked to, and support, the financial perspective. For example, improving merchandise availability will improve the shopping experience, which will improve revenue.
