**Global corporate sector**: Bryce Boothby highlights why senior management often doubts the value of digital supply chain initiatives due to past project failures, and how quantifying improvements in key supply metrics can demonstrate substantial financial benefits and support investment in digital transformations.
In the realm of corporate digital transformations, particularly within supply chain management, recurrent scepticism among senior management regarding the value and feasibility of substantial IT projects remains a prominent challenge. Bryce Boothby, writing for Supply Chain Game Changer, sheds light on the complexities and misconceptions that often accompany digital supply chain initiatives.
Boothby observes that many companies continue to regard such transformations as financial black holes. This perception is fuelled by high-profile failures like Hershey’s $100 million unsuccessful ERP implementation in 2015, as well as numerous lesser-known examples, including projects ballooning in cost and faltering after months of limited progress. According to Boothby’s experience, it is not uncommon to see projects that started with moderate budgets escalate alarmingly before reaching completion, sometimes leading to abandonment.
A key issue identified lies in the prioritisation—many large enterprises initially select enterprise systems primarily for their finance-related modules. These choices are often driven by the need to comply with regulations such as the Sarbanes-Oxley Act, which mandates stringent internal controls and accurate financial reporting. Supply chain functions, conversely, tend to be considered as secondary requirements during system selection. Boothby argues that this oversight is significant because supply chain complications often originate from complex, overlapping processes entrenched in multiple legacy systems that lack unified visibility.
Smaller companies are not immune to challenges. Popular Software as a Service (SaaS) ERP platforms, while more accessible, can present unforeseen costs linked to essential integrations—such as connectors for marketplaces including Amazon and Walmart—or tax calculation modules for multiple jurisdictions.
Boothby underlines that while software vendors often supply Return on Investment (ROI) calculators to justify the investment, these tools frequently fall short in conveying the true benefits. To provide a clearer financial context, he offers a quantitative analysis based on a hypothetical mid-sized company with $600 million in revenue. By improving the On-Time, In-Full (OTIF) order fill rate by just 5%, such an enterprise might realise an additional $30 million in revenue. Considering a contribution margin of 10.4%, this equates to a $3.1 million increase in Earnings Before Interest After Tax (EBIAT), representing a 36.9% improvement.
Further benefits outlined include reducing inventory write-offs—assuming a 25% reduction on a typical 0.6% revenue write-off rate—which could yield nearly $900,000 in EBIAT gains. Improvements in matching orders to actual demand could cut freight premium costs in half, generating an EBIAT benefit of $1.3 million. Increasing inventory turnover from seven to ten times annually could translate to freeing up $20.45 million in cash tied in inventory, reducing carrying costs by over $820,000.
Boothby encourages companies to apply their unique financial data to these scenarios to evaluate potential improvements tailored to their specific circumstances. He notes that understanding how accounting policies handle the amortisation of capitalised software investments is crucial for calculating true returns.
Highlighting the growing importance of end-to-end supply chain visibility—especially in an era marked by rising customer expectations and unpredictable global disruptions—Boothby emphasises that digital supply chain transformations are increasingly vital. Despite this, he acknowledges that hesitation arises when escalating costs obscure the investment’s merits without effective risk management strategies.
In conclusion, Boothby asserts that decision-makers must be equipped with rigorous, number-driven justifications to advocate for these transformations: “Numbers speak louder than words – do the math, present the ‘benefit’ figures, and show how they tip the scales in favour of your supply chain digital transformation,” he writes. His insights serve to clarify the tangible financial benefits these initiatives can deliver, providing stakeholders with concrete evidence to support strategic investment decisions in digital supply chain projects.
Source: Noah Wire Services
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