Aberdeen Examines BI in the Supply Chain

May 23, 2011 Dan Burger

Business intelligence has to do with brains, but what about the bucks? If you ask supply chain executives about the value that business intelligence brings, it’s clear the two can’t be separated. But business value is not necessarily concordant with big software investments. And companies with an IBM i platform running their critical supply chain applications have the same issues related to organizational and process management, along with technology management, as any other organization.

What’s hoped for in a business intelligence solution and what’s getting accomplished often isn’t within shouting distance of one another. And that’s why analyst firms such as the Aberdeen Group do research that shows the two extremes and everything in between.

According to an Aberdeen Group research survey that was conducted in March and April, only 33 percent of the companies surveyed had a supply chain business intelligence initiative in place for two or more years. When looking at only small and mid-size companies, that figure drops to 20 percent. It’s the enterprises with revenue in excess of $1 billion–where 50 percent have a BI initiative–that inflate the implementation figure.

As Bill Langston, marketing director at New Generation Software noted to me, “It’s significant that Aberdeen points out that companies with revenue of more than $1 billion are far more likely than small to mid-size companies to have a business intelligence program. I think that’s fairly accurate and relevant to IBM i customers since the vast majority of them are in that under $1 billion category. IBM i IT professionals who invest the time to understand how the business applications they maintain on IBM i and the business users BI needs have a great opportunity to provide value to their employers.”

New Generation Software is in the IBM i business intelligence market with a product that spans ad hoc query; production, and Web reporting; online analytical processing; business performance dashboards; summary-to-detail drill down; native access to DB2 on i; and remote access to Microsoft SQL Server, MySQL, Oracle, PostgreSQL, and other data sources.

Before looking into what the report has to say about business value, let’s interject the business reasons that fuel BI initiatives, according to the survey responders. The top concerns, in descending order, were: the growing complexity of global operations, the lack of visibility into various aspects of the supply chain, a need to improve top line revenue, a steady increase demand volatility, and increased exposure to risk (unforeseen disruptions, for instance) in the supply chains.

Now back to the value proposition. Aberdeen starts with cash conversion cycle times. The business intelligence initiatives in best in class companies (the top 20 percent of those surveyed) have an average cash conversion cycle time of 39 days, while the industry average is 48 days. Those top companies also show a considerably higher customer service level–96 percent compared to an industry average of 84 percent. Another performance indicator that draws a lot of attention is forecast accuracy. The BI best of class are accurate 79 percent of the time, while the industry average is just 65 percent. How are you comparing so far? Keep in mind that the top companies in this survey also averaged a 2 percent reduction in warehouse operating costs, while the industry average was an increase of 3 percent.

Other insights noted in the report indicate that best-in-class companies are 40 percent more likely to have an individual or a team responsible for collecting and managing operational data, and are 46 percent more likely to measure costs at the line-item level to perform activity-based costing.

I find it interesting this survey reveals companies have too many BI systems. More than 85 percent report having a historical reporting platform implemented–those that do not provide current or predictive views. However, when the business intelligence is counted on for operational data (some would call this transactional data), 72 percent of the best in class companies have that in place.

Aberdeen offers the following advice for those selecting BI software. Ease of use is important to both the end users and the supply chain analysts. The software provider must demonstrate supply chain domain expertise, meaning industry-specific expertise, as well as a demonstrated prowess for the size of enterprise that matches your situation. Discover the hidden costs related to modular add-ons and user-driven pricing that can increase maintenance fees. Ask for customer references that include points of view that pertain to value gained and implementation risk. Look for rapid deployment packages. Avoid ties to obsolete technologies. Trading partner collaboration is a must. Expect the capability to extract reports from the underlying database and the capability to integrate with multiple applications.

To provide some advice for IBM i (iSeries and AS/400) shops, I refer to an article published by the IT Jungle in August 2009 based on an interview with Aberdeen’s vice president and group director of technology research, Dave Hatch. In his view, running an application on the IBM i means the data extraction from DB2 and the subsequent building of the BI data model uses the same processor, which can be good or bad.

“The positive approach to staying outside the system is that once you’ve done the data extract, the incremental extracts, from that point forward, aren’t going to tax the system. If the AS/400 is supporting a lot of users across a lot of applications, that is a pretty good approach,” he said in that interview. “Because BI can be a very processor-intensive activity, depending how complex the calculations are in the data models that are being built. If you run on the AS/400 system, that system does a good job of parsing processes across a multiprocessor environment. It also does a good job of spreading user workloads if there are a lot of users across the applications. That’s a reason companies that use the AS/400 fall in love with it and stick with it. It is a workhorse that can handle high volume transactions.

“You can also produce updates to the data model much faster using the AS/400,” Hatch said. “An operational BI environment (that depends on information in the DB2 database) is much faster because of instant access on the system to refresh data models,” he says. “This doesn’t matter in some businesses where the rate of business doesn’t change that fast. But in the wholesale distribution environment, for instance, one of the big pressures is change orders. When you have a lot of products that are distributed to a lot of customers and customers are changing orders, that effects business. It effects how you load a truck and change a delivery in the middle of a route. Having the capability to do that is paramount in some businesses.

“So whether your BI is on the AS/400 or another platform comes down to how are you driving your reports? It becomes a strategy decision. If you have core systems set up on the AS/400, it makes sense to add BI to that system. If you don’t have reports coming from the AS/400, it doesn’t matter what approach you take.”

The Aberdeen report, “Business Intelligence Command and Control Center for the Chief Supply Chain Officer” can be downloaded here.

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