The supply chain is strategic - are we drinking our own kool aid?

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A few interesting studies have come out as of late.  And I’m not so keen on what they are showing… The first is an annual Gartner Supply Chain Study, in which they partner with Supply Chain Digest and survey their readers. A few excerpts of the stats as pulled from the Supply Chain Digest article….

  • Top Barriers to Achieving Supply Chain Goals: Forecast accuracy/demand variability (59%) , Supply chain network complexity (42%), Lack of internal cross functional collaboration and visibility (39%)
  • “improving planning processes” was cited by respondents as the number 1 supply chain investment priority
  • 27% of respondents said supply chain excellence was a main or key differentiator for their companies; 47% said supply chain was one of several differentiators, while 26% said SCM was a necessary function but not a differentiator to their firms.
  • the preponderance of companies (55%) describe themselves as “mainstream” in their approach to technology adoption, versus just 13% “aggressive” and 32% “conservative.”
  • the number 1 imperative of supply chain initiatives was to “improve efficiency and/or productivity,” followed by “reducing operating costs”

Most of the results are disappointing in my opinion.  For as much as people are saying that supply chain is strategic and breeding innovation in an organization, these survey results would suggest not so much; in fact, over a quarter still consider it only a necessary function, not a differentiator at all. And for the majority, their associated approach to technology adoption is “mainstream” at best. Some of the responses appear to indicate that supply chain strategy  continues to be the "same old, same old".  Case in point: the number one challenge is variability, yet the #1 investment priority is improving planning processes. Companies are still trying to plan their way out of their problems.  With the complexity, volatility and risk inherent in today’s business environment, even the best laid plans will be obsolete as soon as you leave the planning meeting.  What’s needed is a capacity to respond to change and reconcile plans on a continuous basis, not as part of a fixed planning cycle.  When is that going to be widely recognized? I also came across the PRTM Global Supply Chain Trends Report 2010-2012 (free download with registration) which was another validator that there is certainly room for improvement in companies’ supply chain strategies. The report asks the question: Are Our Supply Chains Able to Support the Recovery?  PRTM highlights five key trends in this context:

  1. Supply chain volatility and uncertainty have permanently increased Market transparency and greater price sensitivity have led to lower customer loyalty. Product commoditisation reduces true differentiation in the consumer and business-to- business environments.
  2. Securing growth requires truly global customer and supplier networks Future market growth depends on international customers and customised products. Increased supply chain globalisation and complexity need to be managed effectively.
  3. Market dynamics demand regional, cost-optimised supply chain configurations Customer requirements and competitors necessitate regionally tailored supply chains and product offerings. End-to-end supply chain cost optimisation will be critical.
  4. Risk management involves the end-to-end supply chain Risk and opportunity management should span the entire supply chain—from demand planning to expansion of manufacturing capacity—and should include the supply chains of key partners.
  5. Existing supply chain organisations are not truly integrated and empowered The supply chain organisation needs to be treated as a single integrated organisation. To be effective, significant improvements require support across all supply chain functions.

The study indicates that companies believe there will be a significant upturn in demand from their customer base as well as a significant increase in company profitability over the next few years. The real question is whether this expectation from the survey is from the usual appreciation of business cycles that have long been through expansions and contractions? Or is it from a collective impression that things are in fact getting better? Regardless, one key point is that the findings also indicate that many companies lack the capabilities critical for meeting growing demand or for managing an increasingly complex and global supply chain. Companies need to understand how to capitalize on the optimism of a growing consumer demand by ensuring they have the most up-to-date capabilities.  But no matter what happens with consumer demand, supply chain visibility and supply/demand balance is crucial to a company’s success at all times and during every type of condition. While I am at….a quick plug for the supply chain expert community, go answer the question posted there of which of the 5 trends resonates the most for you and your business? Is there another trend you're seeing that should have made the list?  Could end up being a good debate.

Discussions

Paul Gooch
- July 16, 2010 at 5:21am
John, I share your concerns...it seems either the supply chain community doesn't get it, or they have been unable to influence senior management thinking. 15 years ago I was saying to the leadership of a major chemical company that improving forecast accuracy wasn't going to cut it...it certainly wouldn't change the inherent variability. On the other hand, the more we could shorten the manufacturing cycle the less we would need a forecast. "We are not a retail operation" was the answer..."we don't have POS information". Wrong...we had an ERP system which gave us real-time order information, but we weren't using it to develop basic leading and trailing indicators, or relational data-bases.
There are very few prophets in their own time and their own land..
Best regards
Paul
Ron Freiberg
- July 16, 2010 at 1:02pm
Let's face it guys, most CEOs do not have a good idea of what the Supply Chain is let alone how improvement in the supply chain differentiates them vs. competition. Most, especially those with financial backgrounds, consider supply chain improvement at the best as a contributor to the bottom line and not as a competitive initiative. Just look at how projects are justified on the books; if it doesn't support profitability improvement, it doesn't get approved. If there were a calculation for market share improvement by X dollars hence boiling down to increased profitability due to improved speed, flexibility, flow and collaboration, there would be a higher appreciation for supply chain improvement. As it is, we as supply chain professionals need to push the training of our respective organizations.

Ron
Don Benson
- July 17, 2010 at 5:05pm
The kool-aid we are drinking (and that many vendors need to serve to survive) creates the belief that we can have a robust supply chain with the purchase and implementation of the new or a particular technology. We need to start considering the possibility that technology may be useful/required but is not sufficient.

Organizations exist because of the people. Robust relationships and effective communication toward joint objectives cannot be accomplished via digital content.

Don

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