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Building a Business Case for a Supply Chain Optimization Project

By Glenn Wegryn  January 15, 2016

Supply chain optimization can enable businesses to keep up with the pace of change and sustain a competitive advantage by significantly improving in the areas of cost, service and risk. You may recognize possible benefits and savings for your organization, but getting there can be a challenge. Executives are short on time and resistant to commit resources unless they can clearly see resulting value. And without those resources, your project will never leave the ground. Executive leadership will look for the specific business needs your project will address, and want to know that you’ve spent time carefully considering the basis for the project.

But before you can get buy-in from the C-suite, you need to build a business case. Here’s how:

Building Your Business Case

You will be building a business plan to justify the costs and resources required to execute and implement a supply chain optimization project. Be sure you know who will be making the final decision on your business case and consider what information that person or group would like to see and how they’d like to receive it. Then consider including these primary components in your case:

The one-sentence summary—Give the stakeholders the bottom line up front—don’t make them read the entire plan to figure out what exactly you’re proposing. An example might be, “This plan proposes a network optimization project to be initiated in the coming year by the supply chain design team, with an estimated opportunity of $10 million in savings and a project cost of $100,000.” After you’ve laid out your main point, then you dive into the supporting details.

Link to business strategy—To secure the investment, it’s imperative to link your potential project to the overall organizational strategy and goals. Depending on the nature of the project, it may also be appropriate to associate it with a particular business unit’s strategy, as well as the supply chain functional area strategies. For example, you could word this section as, “Our cost-to-serve measures are not competitive and don’t align with our key strategy of winning with top customers.  There is a strong belief that a comprehensive analysis of the network would yield significant savings…”
KPIs vs. Targets—If your business initiatives adhere to a set of key performance indicators (KPIs), explain how this project will help the company meet them. If those are part of the goal, explain the structural issue or operational basis for the project.
Business Need and Urgency —You’ve already explained, based on a linkage to business strategy and goals, why the project needs to be done. But why is now the right time to do it?
Estimate Impact—What’s your best estimate, based on available data, of the potential results? Impact can be measured in four different ways, and you should consider each of these when estimating the results of your project:

  1. Cost
  2. Service
  3. Overall cash flow
  4. Capital investment

 

Whether you’re planning a network, transportation, inventory or capacity-related project, you can find data and benchmarks to help estimate the benefit that could be achieved for each of the four main areas above. A few ideas to consider:

  • For network optimization studies, you can normally estimate between 5-15 percent cost savings if the network hasn’t been analyzed in the last 3-5 years
  • Technology vendors like LLamasoft can provide anecdotal benchmarks based on a wide view of similar projects and ROI surveys
  • Investigate supply chain organizations such as CSCMP (Council of Supply Chain Management Professionals) for survey benchmarks
  • There are numerous supply chain consultancies that can pull benchmark benefit data together based on competitive analyses, transportation indices and trends, industry research and other sources

 

What Will It Take to Get There? Include in your business case your educated estimate of how long the project will take and what resources will be required, including money, staffing and other impacts to the business. This sets realistic expectations well before the project kicks off.

 

Get the Right People Involved

Now that you have the key components to your case together, you need to find the right people and teams to help gather the information needed to build out the key assumptions and drivers for your case. Some teams you may that may be considered to pull together the necessary data points include:

  • Finance—Make the finance team your best friends as you build your case. They will provide much of the data to help justify the need, as well as provide an objective view of your rationale.
  • Sales—Depending on the project type, you may need the sales team involved to understand service requirements as well as who is buying transportation and third-party logistics services.
  • Planning and Manufacturing—This team can help you understand current and planned changes to production plans or changes to materials sourcing and co-manufacturing services that are being procured.
  • Engineering and R&D—This group may be needed for information on capital investments and the product roadmap.

 

You Got Approval! Now What?

Leadership agrees it’s a good idea. Congratulations on building a compelling case! But now what?  Be prepared to provide immediate next steps with a sense of urgency.  Come back with more detail on:

  • What resources do you need to succeed?
  • A communication plan to stakeholders.
  • What do you expect from leadership in support?
  • Timing: Kick-off, funding cycle, overall project milestones

To learn more key tips, examples and other consideration when building your design project business case, check out our bulletin: Tips for Developing a Business Case for a Supply Chain Optimization Project.

About Glenn Wegryn

Glenn currently serves as the Executive Director of the Center for Business Analytics at the University of Cincinnati, joining UC’s academic programs to the business community.  During an analytic career spanning over 30 years, he has driven advanced analytic applications in supply chain, planning, sourcing, inventory, revenue, consumer and trade analytics.   Glenn retired as an executive from Procter & Gamble after 28 years and founded Analytic Impact, an independent consultancy and is a regular invited speaker at major conferences. He holds a BS in Quantitative Analysis from Indiana University Kelley School of Business and is a Certified Analytic Professional by The Institute for Operations Research and Management Science (INFORMS).