Saturday, May 14, 2005

Excel & SCM Solutions

Saw this blog entry recently on one of the more popular blogs by Frank Scavo Frank argues that Microsoft Excel is the market leader for SCM solutions and is a viable alternative to buying SCM solutions for some companies. Good point. Others have taken this thesis much further and claimed that excel is adequate for even large companies.

All the companies that bought SCM solutions had a Microsoft Excel based solution before (and might still have it for some areas that they do not have planning solutions implemented for yet). These companies moved to SCM solutions because they understood how inadequate excel based planning processes. They saw the value in moving to SCM solutions. Many of them did pilots before investing in SCM solutions. Most of them are getting big return on investment within one or two years. But there is a fundamental shift in SCM solutions – leveraging excel where it makes sense.

Excel has its advantages. Some of them are

  1. Familiar interface. Planners use it every day.
  2. Desktop availability very similar to web; in addition, with Excel, planners can display a lot more data than can be provided in a standard web based tool.
  3. Very easy configurability for the end user - layout, pivots, filtering, graphs, logical functions, math functions.
  4. Very easy availability of skilled resources to help end users with more sophisticated changes to the built in logic.

But Excel based planning also has its big disadvantages

  1. In even medium sized enterprises, multiple people are responsible for coming up with the operational plans (demand plan, staffing plans, production plans, logistics plans etc.) and Excel based planning is very poor at synchronizing those plans.
  2. Excel models will be disconnected from the back office systems leading to painful keying in of master data.
  3. Excel is not fit for detail models - planners have to resort to simplifying assumptions giving wrong answers fast - leading to value leakage.
  4. Enterprise has no control over assumptions and logic used in the planning process. This leads to insufficient managerial control and maverick behavior.
  5. Communication of metrics (this quarter we need to focus on revenues rather than market share and profitability, next quarter we need to focus on market share rather than profitability and revenue) is very tough.

These disadvantages were the reason why customers chose (after a lot of due diligence) to migrate to SCM solutions.

The best in class SCM solutions have now moved to marry the advantages of both of these approaches. Here you have a central data and plan synchronization infrastructure. The front end exposed to the users is Microsoft Excel. Some of the light planning logic can be directly incorporated into the Excel sheet; all of the reasonably sophisticated calculations will reside in the planning systems that will be available to the spreadsheets as web services.

My belief is that in the future even small companies can get big value through SCM by seamlessly migrating to best in class SCM solutions. They can do this with much smaller investment (bite sized functionality available at lower price points). They can do that with much smaller disruption to their processes by using Excel as the front end. The same spreadsheets they are using now will be used in the future but will be populated with data from the solutions mentioned above in the backend.

What do you think?

Karthik Mani

1 comment:

  1. Excel functions best as tool for sorting data and formulating op plans. In my experience Excel is best used to identify trends to improve op plans; to figure out what is efficient and what can be improved. This is all dependent on the data collected up front, however. In my operation we collect massive amounts of data through the daily operation, much of it without even knowing if we will use it later on. Usually, though, a need presents itself and we can go back months or years to identify trends for the customer.

    Your point about familiarity is a good one. Excel is easy to email, FTP and generally everyone is familiar enough with it to communicate. In my opinion it works best as the visibility tool while larger systems do most of the work.

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