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Supply chains: how to prevent import phaseout from getting bogged down in contradictions

Vexation and optimism. Irritation and the need for development. Budget deficits and new sources of liquidity. On the one hand, import phaseout is an urgent task for everyone as Western technologies have become toxic and create too many risks and, on the other hand, the market is tired of import phaseout efforts. Sergey Kotik, Development Director of GoodsForecast, told CNews what steps the vendor of supply chain management solutions is taking to smooth out contradictions and support import phaseout initiatives.

Cnews: The quality of supply chain management directly affects the continuity of production operations and stability of providing goods and food to the population. That said, there were not many import phaseout projects in 2022–2023 in general. What does that have to do with it?

Sergey Kotik: There are changes from bad to good when a problem becomes apparent and there are changes from good to better. As for import phaseout, changes most often follow the first scenario, when development initiatives stumble or fail due to previously used Western solutions or when authorities ban something or issue a new order. Few people are eager to re-spend money to replace a solution that has already been implemented and is working. Companies start such projects under the pressure of circumstances when external conditions, rather than internal impulse, compel them to do that.

Last spring, due to the departure of Western vendors, the Russian IT community was optimistic with domestic IT companies planning to occupy the vacated niches. We observed the increasingly growing number of incoming requests for advice, demonstrations and even pilot projects, though it took long to deal with actual implementations.
For example, last year we managed to implement two pilot import phaseout projects for two of the three leaders in ferrous metallurgy. In one of those groups, we have built a prototype system that can replace SAP APO SNP based on completely domestic developments. To build the prototype, we utilized the company's existing planning model with a full data set, including more than 3,000 material specifications that are produced using 79 lines and plants. It takes only about 15 seconds to calculate a full model once ported to the GoodsForecast platform using a regular PC. However, in general, there have been few pilot projects focusing specifically on import phaseout, let alone industrial implementations. There were objective reasons for that which consist in both the essence of such a phenomenon as import phaseout, when you need to change what you already have or had and what generally performed well, and the specifics of our solutions, their scale, complexity and impact on customers’ business processes.

Cnews: Why do some companies opt for import phaseout while others postpone it till the last minute?

Sergey Kotik: In July, we took part in a major industrial forum hosted by Yekaterinburg and talked a lot with representatives of the industrial and manufacturing sectors about the motives for postponing or, straight conversely, forcing import phaseout projects. For example, there are companies with a rigid stance that are determined to retain old Western solutions as long as they can. Conversely, there are solutions that, for one reason or another, need to be replaced urgently, by a certain date. Maybe they were disconnected from clouds and left without any tools at all.

We all live under uncertainty and make decisions under uncertain conditions, subject to assumptions and probabilities, influenced by our characters and business partners. Every single organization that makes an import phaseout decision has to go through all the stages: denial, anger, bargaining, depression and, actually, acceptance as such. In reality, it looks like a step-by-step progression from being certain that a problem doesn't exist to creating an implementation roadmap and planning a project. The speed of moving through the stages and, consequently, of making decisions to switch to domestic software varies from industry to industry and from segment to segment. In publicly owned companies, where the government sets requirements and issues directives, import phaseout projects are being implemented in a much more active way. In the commercial sector, we work with, such decisions have been increasingly postponed for the most part.

At the anger and bargaining stages, organizations have other things to worry about other than IT infrastructure upgrade and replacement of legacy technologies with new ones. This necessitates re-implementing something that has already been implemented, re-investing, going through all implementation stages and retraining the staff. It turns out that what is already in place and still works was implemented vainly? What about the time, money and effort spent? And how long are these sanctions going to continue? Why rush around? And where to get money for the new implementation?

At the late stages of bargaining, companies start comparing solutions, shopping around, weighing price against quality. And it is precisely the quality and functionality of most of the available solutions that customers are not always happy with. They were not satisfied with Western solutions in terms of price and quality as well but now a vendor with 20-30-40 years’ history and experience is replaced by a 2-year old startup that has ambitions, and may even have talents, but has no systems as such. Here is where everyone gets into a vicious circle: customers want to implement the project as quickly and cost-effectively as possible, and preferably for free, as a reference for the development team. However, IT companies can't give them that because it takes time and money to develop full-fledged high-quality solutions.

Cnews: How do you deal with this contradiction?

Sergey Kotik: In the niche of integrated business planning and supply chain management solutions, GoodsForecast has a strong position because we have been in the market for a long time and were successfully competing with Western vendors long before they left. We used to compete and win their tenders. We have a cutting-edge low-code integrated planning platform and a developed product line. We have a portfolio of projects and mastered best practices. In fact, we are leading the market as we have the most mature solution in the market. At the same time, we continue to adhere to our development strategy, which implies continuous improvement of the quality of solutions and services and strengthening of the team. We have become even more active in developing our platform so that new solutions and models can be rapidly deployed on it. A consulting division has been set up in the company which allows developers to focus on product improvement. We systematically expand our partner network.

The obvious advantages of domestic software, including the financial supporting of implementations by the government, no exposure to geopolitical risk and prompt customization possibilities are not always strong arguments in favor of switching. They're more like bonuses. Therefore, it is important for us to qualitatively and substantially compete with the implemented Western solutions already at the stage when the organization is at the bargaining stage and is yet to make a replacement decision. When it comes to the next stages of decision-making, the depression and acceptance stages will be as short and imperceptible as possible if the organization has already found a worthy domestic alternative during the bargaining stage.

Cnews: If a company ultimately makes an import phaseout decision, how do you further help accelerate the switch-over?

Sergey Kotik: That's a very good question. It's a really complex task with a lot of inputs. There are companies for whom deadlines are critical, whether for technical reasons, because of regulatory or authority requirements, because of sanctions or the terms of other contracts. In such case, everything is driven by the goal of meeting the deadline – from prioritizing work to planning and monitoring project milestones.

There are companies that don't want to just change a solution, but want to see their import phaseout project as part of a whole set of measures to further develop and digitally transform their businesses. Then additional time will be spent on pre-project consulting, drafting terms of reference, creating a target picture of how the processes and IT landscape should look like, drafting an implementation plan and formalizing policies for interaction with the customer. At the same time, we strive to solve all technical issues concerning the selection of automation tools, harmonization of master data, etc. in parallel.

Other companies just need replacement solutions. For such case, we have also developed an algorithm of actions. It is important to correctly assess the criticality of the technologies used and the impact of planning processes on business activities, weigh risks and build a sequence of work to implement new solutions, given the frequency of using functionality and customer priorities among other things. In addition, to ensure the continuity of the customer's processes, we draft a transition period action plan.

One of the large-scale projects we plan to complete by the end of the year is the introduction of an integrated planning platform in Gazpromneft's network of filling stations. We are updating the GoodsForecast.Replenishment solution launched back in 2019 and this is part of a global import phaseout project at the customer company. While previously the platform functioned based on Microsoft technologies, all non-fuel product range and inventory management processes will be transferred to a fully import-independent open-source technology stack to improve the reliability of the digital system. At the same time, new models will be added to the system to predict the effectiveness of promotion campaigns and improvements will be made to further reduce manual labor.

Cnews: What trends in import phaseout efforts aimed to replace solutions designed for automating planning and managing inventory do you see now?

Sergey Kotik: Increasingly frequently companies request not just to replace what has already been implemented but to develop and re-engineer processes and create new solutions based on domestic technologies. Import phaseout has become one of the main principles of digital transformation and even one of the conditions for its very possibility. Companies want not so much to introduce new solutions as develop further, create new products and business models, perform more efficiently, optimally distribute resources and efforts and it is in this context that import phaseout is important.

Another trend is the leading role of the state. It has penetrated very deeply into IT, being today the largest customer of developments, defines lists of the highest-priority solutions, critical information infrastructure items and prohibited classes of solutions. Industrial centers of competence have been established. However, while the state's involvement and influence is extensive, it is not always beneficial for the market and partly becomes a barrier. Especially for those small IT companies, which were developing at the expense of grants, but now have been left out of the Industrial Competence Centers (ICC) program, which is actually aimed more at the development of customized domestic solutions by the largest industrial players themselves.

Nevertheless, there is high enthusiasm in the IT environment in terms of the development of technologies that can be classified as import-substituting and in terms of technology development in general. Professionals are still migrating between employers and sustainable teams are still being set up, but we expect the market to consolidate and stabilize as early as in 2024.

Source: Cnews. “Import phaseout 2023" overview

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