Growing pains

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Logistics Manager’s exclusive Supply Chain Challenges survey shows that activity is steadily increasing and companies need to stamp down on costs to manage growth effectively. Lucy Tesseras reports.

Some 70 per cent of respondents expect the level of activity to rise over the coming year – up from 67 per cent in the last survey.

The trend towards growth is still strong, according to Logistics Manager’s latest Supply Chain Challenges survey. Over the past quarter 45 per cent of supply chain professionals witnessed an increase in activity, and compared to last year 55 per cent have seen an improvement.

And the trend looks set to continue over the coming year. Some 70 per cent of respondents say they expect the level of activity to rise over the next 12 months, compared to 67 per cent last quarter.

With increased demand comes increased cost though, so the need to manage these costs effectively is paramount. Unsurprisingly, therefore, controlling costs is still seen as by far as the most critical supply chain challenge with 74 per cent of respondents highlighting it as a key issue. Some 37 per cent said managing growth would be critical over the next year- down from 46 per cent last quarter. But another 55 per cent ranked it as “important”.

It has been a chaotic few months for supply chain professionals, what with another Icelandic volcano disrupting air space and the impact of the earthquake in Japan causing havoc to global supply chains.

On top of that, the rising cost of fuel and raw materials has made it a very challenging period, so it’s hardly surprising that 47 per cent of supply chain professionals said costs are higher than last quarter, next to 18 per cent who said they were lower. Some 68 per cent have seen costs rise compared to last year, a significant increase on last quarter when just 54 per cent said the same. The number of people who have seen no change to costs has dropped from 16 per cent three months ago to ten per cent this quarter.

In fact, compared to the same period last year bulk diesel prices have increased 13 per cent. However, in the past three months, since our last survey, bulk diesel prices have actually dropped three per cent.

Total vehicle operating costs, including insurance, tyres, maintenance, vehicle and driver costs, increased by 6.1 per cent year-on-year to January 2011. Deep sea rates from China to Europe actually dropped 11 points in the week from 10th June 2011 to 17th June 2011. And from China to the rest of the world rates have gone down steadily since the same time last year.

But the International Air Transport Association predicts air freight cost pressures will continue to increase. In its quarterly report on air cargo it revealed that jet kerosene prices, although slightly lower in May, were still $40 (£25) per barrel higher than a year ago.

Looking ahead to next year, 65 per cent of supply chain professionals expect costs to continue to rise, while just 29 per cent expect them to stay the same or fall. However, in the more immediate future 45 per cent expect costs to rise next quarter compared to 51 per cent three months ago, and 46 per cent expect costs will stay the same next to 34 per cent last time.

Increasing profitability seems more of a pressing challenge than last quarter with 67 per cent referring to it as “critical” up from 56 per cent three months ago.

Managing online sales growth is becoming an increasing concern with 54 per cent marking it as a “critical” or “important” challenge over the coming year, compared to 44 per cent last quarter.

Managing online sales growth is becoming an increasing concern with  54 per cent saying it is either critical or important.Some 27 per cent of supply chain professionals expect the level of investment in their supply chain to increase next quarter compared to 24 per cent three months ago, and similarly, the number who expect investment to increase next year has risen since last quarter from 41 per cent to 45 per cent.

Sustainability continues to be a hot topic, but quite surprisingly its importance seems to have dropped somewhat as 75 per cent viewed it as “critical” or “important” this quarter compared to 85 per cent last quarter. Correspondingly, the number of people who see it as “not important” has risen to 24 per cent, up from 13 per cent last quarter.

When it comes to external threats facing the supply chain over the next year rising fuel and raw material costs will continue to be a key issue, alongside the impact of government spending cuts and low public confidence. Increasing competition from South America and Asia was also seen as a risk.

The biggest opportunity supply chain professionals will be exploring is expanding into new markets, particularly in Eastern Europe and the Far East, and increasing market share.

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