Majority of Supply Chain Improvement Efforts Focus on Short-term Gains

CSC Survey: Focus on cost, lack of strategy and limited collaboration constrain benefits

El Segundo, CA — November 1, 2004 — The second annual supply chain management survey from Computer Sciences Corp. and Supply Chain Management Review revealed that companies continue to make progress toward supply chain optimization, but they are still leaving money on the table. Key reasons include an overemphasis on near-term cost savings, lack of a strategy or connection to the company's overall strategic goals, limited use of optimization to build new revenues and limited collaboration across the company or with external suppliers and customers.

The survey showed that although companies are making significant investments in software and technology to lead supply chain improvements — particularly in the areas of purchasing, logistics and inventory management — technology is still being put ahead of strategy development and process improvement. Thus, organizations are not seeing advances in collaboration across the supply chain, even in many leading companies.

The result is that businesses are failing to achieve the full benefits of advanced supply chain management in terms of building revenue and increasing customer satisfaction, said Chuck Poirier, author of seven books on supply chain management and a partner with CSC's Supply Chain Solutions practice. The number of respondents indicating that supply chain management is fully, or even partially, integrated into the overall business strategy, or seen as a strategic competence, remains low. This disconnect, along with the focus on short-term cost savings rather than long-term revenue growth and customer relationship, greatly impacts an organization's ability to enhance customer loyalty and improve profitability.

According to the survey, retail and high-tech companies rate themselves as more advanced in supply chain capabilities than other industries. The findings revealed a widening gap between those companies, such as leading retailers, reaping the benefits of supply chain advances and those still struggling to do so.

This year's survey showed that while respondents overall had advanced their supply chain capabilities, a sizable gap still exists between the best and the rest, said Poirier. This presents a challenge and an opportunity for the non-leaders to close that gap or to leapfrog ahead of competitors in an industry.

According to Poirier, the gap may be a result of the lack of strategy development among the responding companies. The shortfall is especially evident when it comes to connecting the supply chain strategy with the business strategy. Just over half of all respondents in both North America and Europe reported that their firms did not have a supply chain strategy or were just starting to develop one. On the other end of the spectrum, only about one in five respondents in both geographies reported having a comprehensive strategy across the entire corporation.

The 2004 results showed some noteworthy forward movement in a few areas, with the greatest progress during the last 12 months in purchasing, logistics and inventory management. In terms of overall sophistication, respondents cited purchasing and sourcing (tied at 23 percent), then logistics (20 percent in 2004 versus only 13 percent in 2003), as their areas of greatest success. Forecasting and planning came in fourth with a jump from 10 percent in 2003 to 19 percent in 2004.

Surprisingly, said Poirier, there was no change in the number of respondents claiming high levels of advancement in the area of customer collaboration. However, collaboration — both internal and external with suppliers and customers — was cited as the single most pressing need. This finding confirms that supply chain professionals understand the criticality of forging collaborative relationships, said Poirier. It also says that they are still struggling with the ways and means to achieve it.

However, progress is being made on one collaborative front. It involves the relationship between supply chain leaders and their counterparts in information technology (IT). In 2003, 39 percent of respondents said that their work relationship with IT leadership regarding the introduction of new technologies had not been very effective or was only marginally so. That number decreased sharply to 14 percent in 2004. In addition, 37 percent of this year's respondents said that the relationship was moderately to very effective, compared to 30 percent in 2003. According to Poirier, it looks as if the message of collaboration between the supply chain (responsible for process improvements) and IT (responsible for the systems to enable the improvements) finally is getting through.

Perhaps the most important insight from the survey is that the real business benefit of advanced supply chain management remains largely untapped, said Frank Quinn, editor of Supply Chain Management Review. The results only hint at what can be achieved in terms of cost savings, revenue increase, profit improvement, customer satisfaction ratings and more. If business executives keep an open mind and dedicate themselves toward real advancement, they can start to see breakthrough results in every area.

Conducted this summer, the 2004 Global Survey of Supply Chain Progress was sent to supply chain professionals in North America, Europe and selected countries around the world. The names were drawn from readers of Supply Chain Management Review and other publications of Reed Business Information, as well as clients of CSC.

A total of 236 respondents completed the eight-page questionnaire. The majority of responses came from North America (128), mainly the United States. European companies represented the next highest geographic segment with 60 respondents. Thirty-five responses came from countries outside of North America and Europe. Thirteen did not indicate location.

Organizationally, 56 percent of the respondents represented corporate entities; 28 percent were from divisions, wholly owned subsidiaries or strategic business units; and 16 percent from groups or multiple divisions. More than 20 different industries were represented in this year's survey. They ranged from aerospace and defense to retail and consumer packaged goods to high-tech and telecommunications.

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