Companies face five key supply chain challenges as they seek to take advantage of the economic recovery, according to a new study by PRTM Management Consultants.
Lessons Learned from the Global Recession
The study, Lessons Learned from the Global Recession, found that most of the 350 manufacturing and service companies surveyed now 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.
However, PRTM warned: “This widespread optimism may be premature. Our findings indicate that many companies lack the capabilities critical for meeting growing demand or for managing an increasingly complex and global supply chain. Driven by short-term exigencies, many companies did not strengthen critical capabilities during the recession. Only a small percentage truly improved supply chain flexibility and processes needed both to capture an increase in demand and to better manage high volatility.”
The five trends identified by the study are:
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 organisation 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 survey found that many participants were driven by short-term exigencies and did not strengthen critical capabilities during the recession.
Gordon Colborn, director, PRTM’s Global Supply Chain Innovation practice, said: “Only a small percentage truly improved supply chain flexibility and the processes needed both to capture an increase in demand and to better manage volatility.
More than 85 per cent of companies expect the complexity of their supply chains to grow significantly by 2012, due to the challenges of expanding services to new global customers—their primary source of revenue growth. Specifically, more than three-quarters of respondents expect an increase in the number of international customer locations; more than two-thirds expect a higher number of product variations will be required to fulfil local customer expectations and to counter shrinking revenues.
Colborn said serving customers in an increasingly complex global environment extends the risk management challenge across the entire supply chain. “Dealing with cost pressures of their own, many companies have increased efforts in asset management and have shifted supply chain risks upstream to their suppliers.”
It came as no surprise that between 65 and 75 per cent of survey participants now listed end-to-end supply chain practices like advanced inventory management or improved delivery to customers at the top of their management agendas, he said.
The study sets out a five point agenda for chief operating officers over the next two years:
1. Improve customer access and accuracy of supply chain planning
2. Increase upstream and downstream supply chain flexibility
3. Focus on total supply chain cost engineering
4. Implement end-to-end supply chain risk management
5. Integrate and empower supply chain organisation
Ultimately, the report said: “The main challenge for many companies is not to redefine their organisation models, but to transition and manage the organisational change. To make a truly empowered supply chain organisation work, companies first must determine what their target models should look like and persuade senior management to make the required changes. To make an integrated supply chain work, it is essential to train and acquire top talent with end-to-end supply chain knowledge.”