Build vs. Buy

I was reminded today about one of the key decisions a CIO must make when evaluating new applications - build vs. buy. Building a custom application is time consuming, costly, risky, and often painful. However, sometimes it does make sense.

The key to the decision lies in the business strategy and the key differentiators for the business. Jim Collins, in his book "Good to Great," talks about the hedgehog concept - the idea that a company should focus all resources on the areas where they excel. This includes IT resources.

If the business has found a way to perform a particular function in a unique manner that provides competitive advantage - then it would be hard to find a pre-built solution that you can buy to automate this function. This is the area where it's worth building a custom solution and maintaining that competitive advantage.

However, other areas of the business that do not directly contribute to a unique differentiator should easily be satisfied with off-the-shelf solutions.

The bottom line: Invest in the aspects of the business that set you apart from the pack and don't worry about using standard common tools for those aspects that don't.

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PPG - A management tool for Predictable Profitable Growth

Predictability. Profitability. Growth. You need all three to achieve maximum results and stakeholder value.

1. If you have profitable growth but actual results are out of line with forecasts then you inevitably have many operational inefficiencies to handle the variances.
2. If you have predictable profits but no growth then you're most likely missing out on many opportunities to leverage a solid foundation for growth. In a public company, the stock price multiple will lag far behind competitors that have all three attributes.
3. If you have predictable growth without profits then you need to take a good hard look at the core business and strategy.

What I love about PPG is that you can use it as a management tool to guide a company and management team. If you identify one or two areas of strength, then you can focus on the other areas. You can develop specific projects and tactics to help develop the model and you can rally a management team around the whole philosophy.

At PL Developments, we had strong profitable growth but limited predictability. The company had grown from a small family-owned business where it was easy to react to variations in demand, supply, and production. As the company grew, it became harder and harder to react without accurate predictions. We put in place initiatives to improve predictability throughout the organization, including:

• sales forecasting and tracking (we could predict what, when, and how much would sell)
• purchasing and scheduling (improved our processes to plan what, when, and how much to make and what, when, and how much to buy)
• production metrics and forecasting (we could predict what, when, and how much to make and it's associated costs!)

Of course there were many facets to these initiatives and they all required technology and systems support, business process change, and most importantly - a change in culture.

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Making warehouse automation stick

Warehouse Automation systems, like other systems, sometimes create more work (or at least perceived more work) for warehouse personnel.

Taking a warehouse and logistics facility from a paper based organization to a systems based organization presents many technical and managerial challenges. Keeping inventory accurate using handheld computers for recording material movements and inventory transactions can be an arduous process for warehouse employees. The 'big' benefits from a warehouse automation initiative are often in other functional areas of the company - not just the warehouse.

Like most other systems' initiatives, include the users in key steps of the implementation process to create ownership and awareness. For example:

• The handhelds are new toys - include all members of the warehouse when selecting and evaluating the new toys. Options include keyboard layout, displays (color or monochrome), keyboard size (watch out for those big fingers!), form ('gun style', 'brick style', 'PDA style', 'tablet style', etc.)
  
• Warehouse location labeling has many options - create a focus group to help design the layout and have warehouse employees practice finding locations using different labeling and numbering schemes

The more employees are included in the design and implementation of the new system, the more they'll understand the issues, challenges, and ultimate benefits.

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