Monday 21st Aug 2017 - Logistics & Supply Chain

Five levers to cut supply chain costs and boost sales

Companies that implemented five operational flexibility levers boosted sales by up to 15 per cent and cut supply chain costs by up to ten per cent, according to the 2011 Global Supply Chain Trends survey by consultants PRTM.

The survey of executives from 150 global companies found that supply chain executives faced high volatility, massive swings in customer demand, and challenges in ensuring sufficient supply. As a result supply chain flexibility was the new imperative for growing company revenues while keeping supply chain costs under control.

The report supplements PRTM’s study last year and sets out five levers that increase operational flexibility, drive revenue and cut costs saying that companies which have implemented these levers have, on average, achieved a 12 to 15 per cent revenue increase and reduced supply chain costs by 8 to 10 per cent

However, PRTM found that operational flexibility requires significant investment as well as a top-down commitment from supply chain executives.

“Volatility is the new norm for supply chain operations, and continuing economic uncertainty is affecting demand by driving shorter capital investment cycles and tighter inventories,” said Dr Reinhard Geissbauer, director at PRTM and leader of the study.

“At the same time, political unrest, growing competition for resources, and a supply base not yet fully recovered from the financial crisis is generating supply shortages. And that outlook does not even include singular events such as Fukushima, Icelandic volcanoes, and other natural events.”

In the survey, supply chain leaders are defined as the top 20 per cent of supply chain performers, while laggards are the bottom 20 per cent. Companies were evaluated according to various quantitative criteria and PRTM’s Supply Chain Maturity Matrix, which is based on the Supply-Chain Operations Reference-model (SCOR).

The five levers are:

1. Supply assurance/proactive capacity management
More than 70 per cent of respondents said that supply assurance management—ensuring that the necessary resources to satisfy customer orders are available—is the most important lever to boost operational flexibility. Yet nearly half of respondents have not fully implemented partnerships with key suppliers and one-third said they haven’t focused on it at all.

2. Collaborative end-to-end demand and supply planning
Supply chain leaders have established end-to-end, real-time supply and demand planning with both key customers and suppliers. Collaborative forecasting, executive sales and operations planning and real-time demand planning are being implemented, on average, by more than 50 per cent of the companies surveyed. However, more than 20 per cent said their companies have not even started to execute these key end-to-end planning initiatives.

3. Tighter integration/partner supply chain architectures
All players in the global supply network must work together to execute agreed upon performance standards. In the last two years, more than 70 per cent of respondents began establishing flexible production facilities, but more than one-third reported issues with key supplier architectures and nearly the same percentage found major gaps in their customers’ architecture.

4. Tearing down the wall
Eliminating the divide between supply chain management and product development/engineering is essential for accelerating ramp-up and ramp-down of products into diverse customer markets. Half of those surveyed understand this and consequently have invested in higher development responsiveness. A “win-win” collaborative set-up includes joint consideration of product development, sales and supply chain requirements.

5. Superior collaboration and flexibility
In today’s volatile environment, collaboration and flexibility are critical for success. Only 10 per cent of respondents reported that they have developed these capabilities to the point where they can adapt their business models faster than the competition.

You can discuss this on our Supply Chain Standard Linked In page.

 

 

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