SCM Investment Yields Return Despite Challenges

February, 2013

Organizations that adopted supply chain management systems generally achieve a return on their investment within two years, but a Computer Economics study indicates it can be difficult to keep implementation and support costs within budget.

Figure 1 from our study, Supply Chain Management Adoption and Customer Experience, compares the adoption, investment, ROI and TCO rates of supply chain management systems against the rates for 13 other technologies commonly used in business.

SCMAdoption Fig1 - SCM Investment Yields Return Despite Challenges

There were 244 organizations worldwide surveyed from July to September 2012. The average revenue of the organizations was $2.1 billion a year and the median was $287 million. The other technologies surveyed were customer relationship management (CRM), data warehouse/business intelligence, ERP, human resource management systems (HRMS), legacy system renewal, mobile applications, social business and collaboration systems, desktop virtualization, infrastructure as a service, software as a service, platform as a service, tablet computers and unified communications.

Based on survey responses, SCM and the 13 other technologies are given numerical ratings on the levels of adoption, investment, ROI and TCO. Then, SCM technology is categorized as having low, moderate, or high rates relative to other technologies in the survey.

  • Adoption Rate: SCM adoption is moderate compared to other technologies in the study. That means the percentage of organizations that have SCM solutions in place is within the middle third of the range, defined by the technologies with the highest and lowest adoption rates in the study. It does not include organizations that have plans to implement the technology for the first time but have not yet done so. The moderate-to-low adoption rate for SCM is due in part to the fact that this technology does not have widespread application in some industry sectors, such as financial services or information services.
  • Investment Rate: The percentage of organizations investing in SCM technology falls just shy of moderate and earns a low rating. Investors include organizations that plan new implementations or enhancements to existing systems within the next 18 months. Once again, the relatively low investment rate is because the technology does not have relevance in some industry sectors.
  • ROI Success Rate: Among organizations that have adopted SCM, the experience is positive. The survey shows that, compared to the other technologies in the survey, SCM has a moderate ROI success rate, bordering on the high side. The percentage of organizations at least breaking even on their investments within a two-year period is at the high end of the middle range when compared to other technologies surveyed.
  • TCO Success Rate: However, compared to the other technologies covered in the survey, the TCO success rate for SCM is on the low side. As with many enterprise applications, there is a danger of underestimating total cost of ownership. We define TCO success as actual costs coming in at or under budget.

Interestingly, the ROI success rate is more positive than the TCO success rate. This indicates that the business case for SCM systems is strong: Some adopters must be achieving positive or breakeven ROI in spite of exceeding their budgets for SCM projects.

Competitive pressures, globalization and increasingly complex offshore manufacturing relationships are spurring organizations to expand their supply chain management (SCM) systems, which encompass a wide variety of technologies and capabilities.

The full study quantifies the current adoption and investment trends for SCM systems as well as the benefits that are driving companies to expand their SCM implementations. We assess these trends by organization size, sector and geography. In terms of economics, we look at the ROI and TCO experience of those that have adopted SCM along with current investment per SCM user. We conclude with practical advice for those considering investment in SCM technology.

This Research Byte is a brief overview of our report on this subject, Supply Chain Management Adoption and Customer Experience. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website (click for pricing).