Magazine Article | May 1, 2002

Hedging Your IT Bet

Source: Field Technologies Magazine

When it comes to choosing IT projects, there is something to be said for swinging for the fences. But, don't forget that Babe Ruth had almost twice as many strikeouts as he did home runs.

Integrated Solutions, May 2002
Ed Hess

In the past few months, I've talked with my share of vendors and analysts in the AIDC (automatic identification and data collection) market. (For those not acquainted with this technology space, the vendors are the people who bring you all things bar coded and the analysts are people who predict the relevance of AIDC technologies in the scope of the entire enterprise.) While there were a handful of common themes that ran throughout these discussions - shrinking margins, the value of direct/indirect sales - I was struck by a couple of conversations that seemed counterintuitive.

At both the AIM Annual Meeting (AIDC industry association get-together) and Executive Marketing Summit (AIDC industry executive strategy session), vendors were bemoaning the fact that technology returns are much less of a selling point than ever before. I was jarred. I thought every good vendor led with operational benefits and closed with financial benefits. "A $200,000 project with a six-month payback - one that will indefinitely produce returns - doesn't even get on the radar screen at most large companies. These guys are looking for $3 million projects with two-year paybacks," lamented one vendor as several others nodded in agreement.

Big Rewards In Expanding Small Projects
Granted, saving a couple hundred thousand dollars from a project is a lot of money for a $10 million company. When you reach more than a billion dollars in annual revenue, however, does the expected small return of a bar coding project in one of your manufacturing facilities justify the expense of the project? Apparently, it does not. (After technology, implementation, labor, and training costs, you complete a project that might annually save enough money to pay a couple of IT salaries.)

This is not to say that tier-one companies should overlook AIDC technologies simply because small-scale implementations result in small-scale, albeit almost guaranteed, returns. Instead, companies should look to wrap bigger supply chain initiatives around these proven and mature technologies that include bar codes and wireless RF (radio frequency) communications. For instance, using these technologies as the foundation of a distribution center overhaul will almost certainly improve inventory accuracy and turns, product picking and packing, volume shipped, and space utilization. Expanding these technologies from one manufacturing site to many will make forecasting and planning more accurate. The improved accuracy and instant access to supply chain information can be part of a much larger CRM (customer relationship management) initiative at your company. And, it will certainly be an asset to your sales force as it relays delivery schedules, pricing data, and product availability information to your customers. The same accurate data can be used to make your e-commerce projects more relevant.

There is something to be said for the fact that big risks bring big rewards and small risks bring small rewards. You're not going to bring the house to its knees by making five-dollar bets. Similarly, you're not going to make a dent in your company's annual report by spending your IT budget in an ultraconservative manner. However, AIDC technologies afford you the luxury of hedging your let-it-ride IT bet. Using these technologies as the underpinnings of a much bigger enterprise initiative (e.g. CRM, field service, e-commerce) is a play that more tier-one companies should consider.