You need to build different supply chain configurations within your overall chain that can then meet end customers’ performance requirements, be flexible and match your financial needs.
Companies which elevate supply chain to the executive level and keep their supply chain fast, efficient and tailored to customer needs emerge as Leaders in the latest global supply chain survey from Price Waterhouse Coopers (PwC). Brett Cayot, Principal and Partner in the firm’s U.S. Advisory practice, shares the latest findings, trends and surprises.
Over 500 supply chain experts from leading companies across Europe, North America and Asia recently participated in PwC’s ninth Global Supply Chain survey. The findings, this year, according to Brett Cayot, differed from previous surveys.
“Companies are becoming much more demanding - they want their supply chain provider to do it all and deliver everything,” he reveals. “In 2008, the focus was on globalisation and saving costs; in 2009, it was about managing working capital in the supply chain. In 2010, it was all about responding to the upturn and flexibility. This year, the supply chain needs to do all these things at once.”
This is not as difficult as it sounds, according to Cayot. “It comes down to the ability to look at the supply chain in segments. You need to build different supply chain configurations within your overall chain that can then meet end customers’ performance requirements, be flexible and match your financial needs.”
The PwC survey divided companies into two categories, based on their approach to - and performance in - supply chain activities, classifying them as either Leaders or Laggards.
While Leaders focused on best-in-class delivery on time to their customers, reducing costs and flexibility in responding to customer needs, the Laggards went for a ‘one-size-fits-all’ approach to supply chain management. The results of these conflicting approaches were reflected in the company’s financial figures and in its customer service.
“We saw that Leaders are twice as profitable – they have an EBIT of 16 percent compared to the Laggards’ rate of 7 percent. Leaders had sales growth of over 30 percent compared to a 13 percent contraction for Laggards. Customers are also affected by this – Leaders’ on-time delivery rate is 96 percent compared to 79 percent for Laggards,” says Cayot.
Flexibility ranked high for the survey respondents; that’s why one solution does not fit all. “Some folks need a daily delivery service, others want a weekly truck service,” he explains. “You need to tailor the supply chain to meet different customer segments and to manage various levels of volatility.”
Configuring a supply chain within a supply chain to meet different requirements, he argues, means that you will have the right functions in place to handle customer requirements in the future.
Another finding from the survey was that the Leaders were more likely to outsource supply chain production and delivery but kept control of strategic global functions like sales and operations planning and procurement in-house. “It boils down to balancing capabilities and costs,” he says.
Leaders in both mature and emerging markets are investing heavily in differentiating their supply chain capabilities. “We discovered that they are investing in seven areas to improve their supply chain performance,” confirms Cayot. “Improving delivery performance through better visibility, forecasting and vendor management inventory; minimising costs by offering different service levels where possible; being more volume flexible and responsive – focusing on how the supplier can ramp up quickly if demand goes up or bring down supply chain costs when demand goes down. They’re also working on minimising risk by looking at multiple sources for production, different port options etc. Cutting out complexity in the supply chain, reducing their carbon footprint and improving tax optimisation are also important.”
Interest in next-generation technology and sustainability issues is also growing, the survey found. Over 50 percent of respondents said they are implementing – or plan to implement – new tools for process automation or transparency.
“It was clear that companies need to manage increasingly complex supply chains, more demanding customer requirements and the growing need for flexibility. There’s no longer one single way of doing things – there’s maybe five – so you need next-generation technology to manage it.”
The survey revealed that over two-thirds of respondents think sustainability will play a more prominent role in supply chains in the future.
“Companies are investing in sustainable supply chains for four main reasons,” says Cayot. “They want to reduce their environmental and social damage, protect their reputation as a good corporate citizen, reduce costs and make productivity improvements. Last but not least, they hope to increase revenue and improve their corporate brand image for key stakeholders.”
So, how can a Laggard turn into a Leader?
“Leaders elevate the supply chain organisation to the executive level so that it takes centre stage. And, leading companies want supply chains that are efficient, fast and tailored,” concludes Cayot.
Key survey findings
- The EBIT of companies with efficient, fast and tailored supply chains is double that of those that don’t.
- One size does not fit all – supply chains need to be tailored to meet different customer requirements.
- Over 50% of respondents said they are implementing new tools to increase automation and transparency in their supply chain.
- Investing in next-generation technology and sustainable solutions is crucial for the supply chain of the future.
- Maximising delivery performance and minimising supply chain costs create the highest value for a company.
- Leaders were more likely to outsource supply chain production and delivery but kept control of strategic global functions like sales and operations planning and procurement.
About Brett Cayot
Job title: Principal and Partner – Global Logistics & Distribution Lead, Advisory Practice, in PwC U.S. Advisory practice.
Family: “Wife, Belinda, and three canine children – Brutus, Gus and Grace”
Background: 15 years of supply chain consulting in strategy, operations and technology with a focus on logistics and distribution. Experience working in over 10 different countries and managing global teams with resources located around the world.
Motto/favourite quote: “If you don’t know where you are going, you might wind up someplace else.” – Yogi Berra
Hobbies/interests: Indiana University basketball, New Yankees baseball, Chicago Bears football, skiing, watersports and travel.