Breaking the chains

All over Canada, IT professionals are pulling on their raincoats and strapping on their hip-waders.

It has nothing do to with the massive amounts of precipitation we’re expected to get in the days ahead. Everyone’s getting ready to wade through the flood of excess inventory that has filled the PC market.

IDC Canada put a damper on Microsoft’s upbeat XP launch Thursday with bad news about the continued deterioration of the desktop segment. The research firm reported a 26 per cent year-over-year decline in the consumer area, while commercial PCs shipments dropped just over 10 per cent in the third quarter. This comes only a week after IDC revised its long-term forecast for IT spending in the next three years. After months of calling it a downturn, IDC has now gone all the way in dubbing the situation a “PC recession.”

There are already some popular scapegoats on the sacrificial altar. The terrorist attacks in the United States on Sept. 11 and the subsequent decline in customer confidence will be the most popular, though IDC also evangelizes a concept called “good enough computing” that means most people see no reason to upgrade. Beyond those factors, however, we should recognize this scenario for what it really is: an industry-wide failure to properly manage supply chains.

Although the decreased IT spending in the U.S. eventually makes its impact felt here, Canada’s corporate enterprises have fallen significantly behind in bringing their supply chains into the 21st century. In fact, IDC earlier this year said only three per cent of Canadian businesses employing between 100 and 499 employees have automated these systems, compared with more than 15 per cent of the same-sized businesses in the U.S. This was one of the most dire warnings that came out from the Canadian E-Business Roundtable in July.

It is not as though the market lacks appropriate solutions to bring antiquated supply chains up to speed. There are specialty software firms in this segment, like eConnections and i2 (which prefers to call it the value chain). PeopleSoft also includes modules in its products that address the issue, while Oracle recently said it would bring its supply chain management software online as a service.

Some enterprise companies may be put off by the so-called supply chain revolution because the technology can’t always prevent the human errors that put companies at the wrong end of the supply/demand equation. Though there are increasingly sophisticated tools to monitor consumption across various components of the chain, forecasting remains incredibly difficult to do. Even at this early stage of Web-based supply chain history we already have a casualty of sorts in Nike, which took a hit on its earnings last Spring after an i2 project didn’t turn out as expected. This sets back the supply chain industry in much the same way that Sobey’s botched implementation of SAP did for enterprise resource planning last year.

The problem is particularly acute in the PC sector, which has extremely short life cycles and a need for just-in-time manufacturing and delivery. Small mistakes here can mushroom into a glut of products — or a shortage. The fallout from this sort of mess not only hurts manufacturers, obviously, but in many cases their reseller partners as well.

Although there is still much education to be done to get supply chain management issues on the CEO’s agenda, perhaps we are fortunate that so much focus has been placed on customer relationship management (CRM) instead. Forecasting will probably never be an exact science, but there is surely no better way of pinpointing demand than by knowing customers better. The challenge in most CRM projects is usually getting departments within a company communicating properly. Perhaps clearing those hurdles to serve customers better will better prepare enterprises to get their supply chains in order.

In any case, the economic conditions outlined by IDC means everyone has to be very careful about setting their IT priories for the year head. You can’t set priorities without having clear long-term goals in mind. If we don’t want to end up in the same cyclical downturn a few years from now, a well-organized supply chain has got to be one of them.

sschick@plesman.com

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