Last year PRTM conducted 2011 Global Supply Chain Trends survey that examined the issue of supply chain flexibility. One hundred and fifty respondents from a broad range ofcompany size (24 percent having between $1 and $5 billion in annual revenuesand 32 percent with revenues about $5 billion annually) and diverse industries such as automotive and industrial companies, consumer retailers, health care and pharmaceuticals, and the aerospace sector, participated in this survey. Firms were categorized into Supply Chain Leaders, Supply Chain Challengers, and Supply Chain Laggards. Supply chain leaders are defined as the top 20 percent of supply chain performers, while laggards are the bottom 20 percent. Companies were evaluated according to various quantitative criteria,including on time in full (OTIF) performance, supply chain cost, and supply chain flexibility. They were also assessed according to PRTM’s Supply Chain Maturity Matrix, which is based on SCOR. Leading companies are at maturity stage 3 or 4, with very mature processes and external supply chain partnerships.
The results of the survey revealed the following levers of supply chain flexibility -
Supply assurance management was the most important lever and it entails establishing partnerships with key suppliers based on long-term commitments.The study found that flexibility leaders work with key suppliers to develop a preferential delivery schedule in case of capacity restraints, as well as processes that have maximum upward and downward volume flexibility. These leading companies also communicate real-time demand and guarantee orders in a predefined volume band to their supply base. Moreover, they secure supply for critical material groups in multiple geographic regions to ensure reliability. Flexibility leaders engage with the entire partner network - providers of material, labor, and equipment - to ensure a stable in the presence of demand uncertainties. These companies are quick at responding to disruptions. Despite the criticality of supply assurance and proactive capacity strategies for flexibility, nearly half of respondents have not yet fully implemented these levers. A third of the companies report that they have not focused at all on this lever.
End-to-end planning was reported to be the second most important lever for achieving supply chain flexibility. Leaders have already improved their planning capabilities. These companies do real-time planning and execution tightly focused on critical resources, and effective modeling of scenarios for rapid response to high demand volatility and major supply disruptions. As shown in the figure below, collaborative forecasting, executive sales and operations planning, or real-time demand planning are being implemented on average by more than 50 percent the companies surveyed. However, more than 20 percent of respondents said their companies have not even started to execute key end-to-end supply chain initiatives. Leading companies select key materials or products at Tier 1 and Tier 2 suppliers, and target them for specifi c forecasting and planning. On the demand side, leading companies focus their planning efforts on products in different customer segments that require guaranteed lead times and are indicators for changing demand patterns
Figure 3: Implementations of End-to-End Planning
Another key lever for operational fl exibility is the proactive management of a company’s supply chain architecture, including the architecture of customers, key suppliers, and other supply chain partners. Optimized supply chain architectures define how the various supply chains in the extended enterprise play together as an integrated whole. True supply chain flexibility occurs only when organizations can make the necessary alignments and partnerships work across the extended supply chain. . Approximately 71 percent of survey respondents are working on setting up flexible production and assembly facilities; many companies are developing flexible shift models to quickly ramp-up or ramp-down their supply chain capacities. And 61 percent of respondents have implemented measures, either fully or partially, to increase flexibility of their overall supply chain configuration. However, integration with key suppliers, partners, and customers is generally less advanced. More than a third of respondents reported issues with their key suppliers’ architecture, and a nearly equal proportion found major gaps in their customers’ architecture as evidenced by the customers’ ability to jointly react to changes in demand.
Flexibility leaders are working to expand their supply chain architecture to include design and engineering setup, manufacturing facilities in various regions, and logistics and service structure. Leaders also ensure that all players in the global extended enterprise network measure themselves according to jointly agreed upon performance standards.
Figure 4: Strategies for Optimizing Supply Chain Architecture
The key differentiating lever in a faster time-to-market environment is the ability to master new product introduction and product retirement across very diverse customer markets. As shown in the figure below, half of the survey respondents understood this need and invested in higher development responsiveness. Supply chain flexibility leaders in particular realize that accelerating ramp-up and ramp-down of products requires integrating product development and supply chain activities from the onset by means of cross-functional teams that define product requirements across the entire life cycle and planning for significant shifts in demand and supply availability. Basic practices such as tighter management of engineering change orders and a focus on component reuse are critical as well. This joint approach marks a significant departure from the more common functional separation between product development, quality, procurement, supply chain, manufacturing, and service operations. A “win-win” collaborative setup includes joint consideration of product development, sales, and supply chain requirements.
Figure 5: Development responsiveness and ramp up
Along with the above listed four approaches to achieve operational flexibility, flexibility leadership demands right mindset and a commitment from top management. Nearly all companies surveyed acknowledge the need to significantly improve operational fl exibility. However, many supply chain managers complained that required investments—e.g., for training employees in new processes were often not approved. As shown in the figure below, only 10 percent of the surveyed companies, on average, said their collaboration and flexibility practices were at a level of maturity that allows them to adapt their business models faster than the competition. Asked to rate their companies’ skills at supply continuity assurance management, for example, only 9 percent of respondents said they were better than their competitors. Based on the survey responses, more than half of survey participants are at a level of collaboration and flexibility maturity that significantly lags behind the competition. During the last three years, many companies were overwhelmed by the magnitude of demand and supply volatility. Consequently, they tended to focus on short-term priorities, applying approaches that worked in the past. Leading companies, by contrast, met the challenges of volatility with a mid- or long-term perspective and investments that were warranted. They made operational flexibility a top management priority and secured support from managers across sales, engineering, and key supply chain functions. These companies have achieved effective supply chain planning and forward-looking supply assurance, setting up truly responsive supply chain architectures and improving development responsiveness and ramp-up. Not surprisingly, they have outpaced their competitors.
Figure 6: Supply Chain Collaboration and Flexibility Maturity
Survey respondents indicate that focused investment in operational fl exibility pays off, both in revenue realization and in cost savings. Supply chain flexibility drives revenue and achievable sales margins. Based on the response of the survey participants, operational flexibility helps improve revenue realization by up to 15 percent and cost savings by as much as 10 percent annually. Higher revenues originate from a company’s ability to respond to significant demand upswings. In a volatile world, large orders do not depend solely on customer loyalty; a company’s ability to deliver the required quantity to any global customer location on time is also critical. Lower overall supply chain cost is driven by fewer supply risks, reduced working capital, better planning of inventories and logistics, and less time spent on expediting and crisis management. For example, supply chain leaders are securing the supply of critical raw materials or products in long-term commitments to ensure best prices and on-time delivery. They also do end-to-end supply chain planning to reduce inventories and free up working capital.
Figure 7: Benefits of Increased Supply Chain Flexibility
Source: Geissbauer, R., Roussel, J., Takach, J., and D'Heur, M. 2011GLOBAL SUPPLYCHAIN TRENDS - Achieving Operational Flexibility in a Volatile World: AN ANNUAL SURVEY by PRTM MANAGEMENT CONSULTANTS