Energize your supply chain network

Energize your supply chain network

Alec Hutcheon, Managing Consultant,
Business Consulting Services, IBM Indonesia

Supply chains are facing more challenges than ever before. In
addition, traditional supply chain business models are giving way
to the emergence of new horizontally integrated, high-performance
on demand value chain networks.

These two trends were the basis of a recent survey conducted
by IBM Business Consulting Services and IndustryWeek Magazine,
which sought to gain a better understanding on where supply chain
management is today and how it is evolving.

The survey was expected to provide a perspective on the
continuing evolution of supply chain and value chain management
principles.

Specifically, the value chain survey sought to identify
current practices, capture significant trends and establish
operational performance benchmarks in five key areas of SCM,
namely, new product development, supply chain planning, customer
order management, procurement and logistics.

It consisted of 18 to 24 questions about overall business
objectives, enabling technologies and current practices as well
as core performance data, such as level of resources, cycle times
or efficiency rates.

Out of 25,000 surveys distributed, a total of 1,461 responses
were received from companies in the consumer products and
industrial products industries in the U.S., with representation
from distribution and transportation, high technology, energy,
services, retail and wholesale industries.

Clearly, new supply chain strategies are opening up
competitive advantage opportunities to those with the ability to
execute at a high level of performance. Companies that fail to
energize their supply chain by implementing new and innovative
business models may face significant obstacles in delivering
expected profitability on the long-term basis.

The supply chain executives and managers participating in the
survey identified three areas of focus, namely, profitability,
performance and partnership. For them, profitability has become
the new top objective of SCM. Pure cost reduction and pure
revenue increase will be secondary objectives if they do not lead
to increased profitability. The quest for profitability is
demonstrated through supply chain initiatives that can deliver a
rapid return on investment.

Performance of the supply chain has received a renewed focus,
too. Companies are challenged to continuously improve their
performance indicators-for example, reduced time to-market,
reduced lead times and on-time delivery-and to increase their
compliance including adherence to plan and perfect order.

At the same time, companies are broadening the reach of their
key performance indicators to measure the extended value chain
network that includes their customers, suppliers, service
providers and other partners.

In relation to partnership, it is clear that collaboration is
becoming the next frontier of improvement to reach a new level of
operational excellence. True partnerships are required to develop
new, more complex and better products and services faster.

Companies and their partners are hard pressed to produce
hybrid and cost-effective products and services, and then deliver
them through multiple channels.

In the past, companies have focused on supply chain
improvements with initiatives centered on operational excellence-
including rapid return on investment -- and cost cutting. Today,
new SCM business models are required to meet the expected level
of profitability, performance and partnership.

Following the best-in-class supply chain leaders, companies
are now investigating how they can leverage the supply chain to
outperform their competitors and progress in supply chain
maturity.

The survey revealed that today's supply chain executives are
concentrating on operational excellence while meeting
profitability and other business performance objectives.

Here is what the respondents said in regards to each of the
major areas:

In the New Product Development (NPD) area, they reported that
cost and time were two crucial factors that were driving their
NPD strategy. Product innovation management was essential to
optimize the return on investment for NPD.

Companies are developing strategies for cost reduction, which
includes increasing the level of commonality of components,
platforms and assets for reuse. They are also implementing
strategies for revenue growth, such as increasing the speed to
market.

Also, many are implementing integrated, collaborative
processes with their partners to manage product change and new,
derivative product launches.

The second area, Supply Chain Planning, is about sensing and
responding to market trends. Advanced planning systems and
innovative supply chain practices have been implemented or
piloted to increase the responsiveness to customer's demands.

The complexity of products and markets has forced companies to
extend their strategy to an end-to-end supply network. Market
leaders are increasing their capability to sense market changes
while developing capabilities to respond faster through improved
collaboration with their partners.

Customer Order Management means real-time processing to ensure
superior customer experience. Order-management processing is
critical to delivering superior customer service and
perfect-order standards.

The demand for on-time delivery against the inability to
fulfill sales orders due to out-of-stock conditions continues to
be the chief challenge in meeting customer responsiveness and
satisfaction targets. It also turns out that companies have been
slow to embrace leading customer relationship management (CRM)
practices of self-service, automated cross-selling and up-selling
and purchasing customer focus groups.

Procurement must go global to achieve the next level of
advantage. Today, the trend toward global sourcing is on the
rise, with growth rates of 6 percent - 8 percent from three years
ago. Attainment of perfect delivery at the original request date
is growing rapidly, but supplier lead times have remained
somewhat static.

More than 30 percent of the respondents indicated average
supplier lead times of 20-plus days. Their information technology
focus was on the integration of internal procurement and supplier
management functions, as well as on external integration with
their trading partners.

The last area, logistics, focuses on differentiating
competencies through outsourcing. Specifically in logistics
transportation, warehousing/distribution and freight bill audit
and payment, outsourcing was a theme for 70 percent of the
respondents. Companies are implementing flow-through strategies
(cross-checking, merge-in-transit) to provide specialized
logistics services by the customer segment.

Over 50 percent of the respondents are achieving order-filled
rates of 97 percent or greater, but on-time delivery rates are
low. Now technologies, such as Radio Frequency Identification
(RFID) are creating significant change in logistics performance
and inventory control.

However, the focus for the majority, as evident by this year's
results, has remained operational excellence attainment
(performance through partnership) and managing the supply chain
to deliver increased profitability.

Continuous global and local economic fluctuations have
increased the stress on manufacturing businesses. SCM processes
are challenged to provide operational excellence, lean, cost-
effective and rapid delivery of products and services globally.
Product's life cycles are becoming even shorter as customer's
demands are becoming increasingly volatile. Markets, supply and
operations are becoming progressively more global.

In summary, the results of the 2003 IndustryWeek Value Chain
Survey show that new key trends are emerging and evolving. First,
Supply Chains increasingly include outsourcing and partnerships,
presenting even greater challenges in managing demand and supply,
and controlling logistics spending.

Second, real time and accurate access to relevant customer and
supply chain operational data, such as inventory, orders and
shipments is essential in meeting customer-service-level
requirements.

Third, pure product innovation is lessening in importance as
the focus moves toward the product time-to-market and life cycle
management to support higher sales and profitability objectives.
Increased importance is also being placed on product "afterlife"
management.

Results also show that optimizing supply chain performance,
productivity, and responsiveness has become increasingly
important to achieve cost-and-service-level objectives.

Finally, technology components with proven and rapid
return-on-investment are favored to support critical supply chain
processes, such as leaner manufacturing processes, demand-driven
supply chain processes, and customer responsiveness. New
technologies, such as RFID, are changing the game in SCM.