Risk-and-cost analysis of developing and implementing a SCCT

Published by Ngoc Tran on 24 June 202224 June 2022

Risk management is extremely important since today’s world has become volatile, uncertain, complex and ambiguous where many disruption risks are even “unknown unknowns”. Projects like development & implementation of a SCCT are also not an exception: it creates a major change within your organization, and you must know how to mange it while striving for achieving the benefits from it at the same time.

So, what could be the possible risks of developing & implementing a Supply chain control tower (SCCT)? Throughout several researches, the following main challenges (description of challenges) are:

• Change management
• Lack of process standardization both internally and externally due to misalignment between software and real business need (in short, external parties’ connection to the SCCT issues)
• The need of gaining partners’ trust (e.g. supplier, carrier) for standardized processes
• Poor data quality, and poor external system integration
• Budgetary constraints
• Lack of top management commitment, and goals conflicts, which spread throughout the implementation
• IT risks
• Language issues

On top of that, change management, poor data quality and accessibility, and external parties’ connection to the SCCT seem to be the most considerable risks. Firstly, change management for daily users is the key for a successful SCCT implementation, but it is often underestimated. The challenge was caused by employee’s resistance to change, age, lack of communication throughout the company, and lack of standardized work procedures. Potential issues related to this risk are that employees leave, and new employees joining the firm, updates in internal systems, which consequently requires training refresh and the digital documentation of knowledge to avoid losing of expertise. Secondly, if the data feeding the SCCT is inaccurate, unreliable, and inaccessible, the analysis of the SCCT cannot be used. Finally, there is a high possibility that external parties have different IT architectures than your company, or even are not IT ready yet, so this causes integration problems between the company and all of its trading partners.

After analysing and narrowing down the relevant risks to your organization, a risk response strategy should be developed based on the impact and probability of occurrence. Examples of how this strategy looks like can be referred to the Rating scales for Failure model and effect analysis by Slack (2019), and the Contingency plan by Templatelab (n.d.) (see the figure above).

Moving to costs that may incur during the SCCT development & implementation process, it is unclear how much the development and implementation of a SCCT cost an organization. Thus, to estimate the total costs of the project, some techniques such as estimation based on similar projects and total cost of ownership could be applicable. Besides, a company can try to brainstorm cost drivers, based for a example on different steps in the SCCT development and implementation process. Then, it may apply ABC analysis to recognize and pay more attention to the biggest potential costs. A list of relevant cost drivers is described as follows:

• Potential costs incurred in the Initiation phase: feasibility analysis, temporary hired employees, consultation costs
• Potential costs incurred in the Development & Implementation phase: system design/setup, coding, system testing, data cleaning, documentation and procedures change, training, system installation, software purchased price (acquisition costs)
• Potential costs incurred in the Continuous Improvement phase: annual system subscription, number of transactions via the SCCT, maintenance/upgrade

After identifying these cost drivers, the costs may depend on the implementation approach that the company choose to follow. For example, if a firm decides to develop a SCCT themselves, then it has to consider whether it has sufficient capabilities to realize that or need to hire extra staff. Furthermore, development costs of a SCCT in this approach are mainly based on payment to the SCCT development team, usually paid by hours. This is different than when the company outsources an existing SCCT from a third-party supplier where costs are the acquisition costs and other daily operations costs such as IT support, upgrade, transactions via the SCCT, etc.

Would you like to add anything according to your experience? Feel free to share with me in the comment.

Thank you for reading and see you in the next post!

Recommended reading:

Trzuskawska-Grzesinska, (2017) Control towers in supply chain management – past and future

Slack, (2019) Operations Management

Liotine, (2019) Shaping the Next Generation Pharmaceutical SupplyChain Control Tower with Autonomous Intelligence

Vlachos, (2021) Implementation of an intelligent supply chain control tower: a socio-technical systems case study

Gao, Feng & Zhang, (2021) Managing supply chain resilience in the era of VUCA

https://templatelab.com/wp-content/uploads/2019/09/contingency-plan-template-12.jpg

Series Supply Chain Control Tower