October 1, 2008
Europe leaped ahead of North America and Asia Pacific in achieving significant cost reductions, revenue gains and sustainability improvements through supply chain advancements, according to the 2008 Global Survey of Supply Chain Progress from CSC, Supply Chain Management Review, the Council of Supply Chain Management Professionals (CSCMP) and Michigan State University (MSU).
The survey, completed by supply chain professionals representing 22 industries and more than 32 countries, showed that Europe is ahead of North America in nearly every element of supply chain optimization. Sixty-three percent of European respondents believe that their flows of materials, people, information and cash are optimal compared to less than half of their North American counterparts.
Asia Pacific has fallen into a lower position as compared to the other geographical sectors in most areas of supply chain advancement, such as strategic alignment, customer integration and supplier integration. However, the region ranked slightly ahead of Europe and North America in innovation management — a proven factor in supply chain success.
In terms of industries, aerospace and defense (A&D), chemicals and consumer goods lead in overall supply chain performance. The survey shows that progress toward this goal is occurring as specific industries develop advanced practices in areas pertinent to their increased success and continuity. As their supply chain efforts mature, leaders are shifting focus from traditional core competencies such as excellence in warehousing and transportation to broader process improvements that help distinguish them within market segments. For example, leading consumer goods firms now excel at segmenting customers and then matching specific, essential offerings.
As leaders focus more on the specific needs of their key customer segments, attention is drawn further toward how to bring distinctions to their supply chain network, which has moved with the help of trusted business partners toward enterprise optimization. Traditional commodity producers, for example, have progressed with the help of key customers to creating connecting portals through which information on supplies, inventories and shipments can be shared instantly with very high accuracy.
“Industry characteristics reflect movement beyond the internal ‘four walls’ of expertise to attaining best practice across the enterprise in areas of importance for each market, such as strong internal integration for the chemical and consumer goods segments, and leadership positions in customer integration by third-party logistics providers and wholesale distributors,” said Chuck Poirier, author of nine books on supply chain management and a partner in CSC’s Global Business Solutions group. “Companies in these industries are forging ahead by ensuring that best practices in areas such as order management are practiced across the network, and root-cause problems are eliminated throughout the end-to-end supply chain. One positive impact is a dramatic reduction in reconciliations.”
“If there is one area of general incompetence exposed by the survey results, it would be sales forecast accuracy,” said Morgan Swink, professor of Supply Chain at MSU. “However, supply chain leaders are overcoming this deficiency by having greater interaction with their supply chain partners through the sales and operations planning portion of their efforts.”
“Firms that begin with forecast accuracies as low as 40 percent are able to reach levels of 75 percent or higher,” Poirier noted. “The secret is including external parties — suppliers and customers — in the review sessions to dramatically improve the accuracy of delivered data.”
As a result of supply chain improvements, 71 percent of all respondents indicate they have realized cost savings over the last three years in a range from one to five percent to as high as 15 percent or more, with eight percent saying they have reached 16 to 20 percent or more. Twice as many leaders reported savings in this highest range than either followers or laggards. Most organizations are still in the area of 10 percent savings.
“Firms are moving from a ‘cost-only’ perspective to a focus on primary objectives such as faster and more personalized order fulfillment, lead-time reductions from placing orders to products delivered, cycle time improvements across what are now becoming global networks, creating and delivering perfect orders, improving customer satisfaction ratings, shortening the cash-to-cash cycle so all parties get paid in a timely manner and asset turn improvement,” said Poirier. “These initiatives are creating significant revenue growth opportunities; about 10 percent of respondents indicate revenue growth of 11 percent or more attributable to supply chain endeavors.
“This type of improvement continues to validate the efforts leaders are making to enhance top-line revenues, as well as bottom-line costs,” he added. “What the leaders have discovered is that pursuing supply chain improvement must also result in better customer satisfaction and, therefore, new sales.”
According to the survey, leaders are more than twice as likely to see growth in this range of revenue improvement. Leaders also have a greater correlation between executive involvement and development of specific supply chain plans that become an integral part of the corporate strategy and planning system. Less mature firms reported an absence of such a connection.
Sustainability initiatives were also studied in this year’s survey, and the results reveal that Europe is ahead in this area as well. “Europe was an early adopter due to its greater focus on customer relationships, but sustainability is starting to be accepted as a supply chain initiative across all regions now, and more progress can be expected,” added Poirier.
Another issue receiving a central supply chain focus is including green initiatives in the portfolio of efforts. More than 80 percent of leaders indicate an emphasis on green issues, as opposed to about half of the laggards. The effort is picking up momentum as these leaders increasingly place responsibility for “being green” onto suppliers and promote positive results in their marketing campaigns. 3M stands out as a company that has made green a major priority across its supply chain, said Poirier.
The 2008 survey was completed by 294 individual respondents. Sixty percent of the firms indicated a size of $500 million or greater, while 40 percent have revenues of less than $500 million. The companies responding were largely corporations with a heavy emphasis on manufacturing and distribution, with five percent indicating a focus on retail operations. To facilitate global participation, CSCMP extended the survey to its global membership, and Supply Chain Europe sent it to the magazine’s subscribers.
Source: www.csc.com
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