But leaders are 73 percent more profitable than less-effective companies, according to Deloitte survey
New York October 10, 2003 Only a fraction of global manufacturers are effectively managing their supply chains, and these leaders are realizing profit margins significantly greater than other companies with poor supply chain performance, according to the results of a new survey.
The survey, for a study by consulting firm Deloitte entitled "Mastering Complexity in Global Manufacturing: Powering Profits and Growth Through Value Chain Synchronization," revealed that just 7 percent of the queried companies say they are effectively managing their supply chain and that these "complexity masters" are seeing profit margins 73 percent greater than other manufacturers with poor supply chain performance and less complex environments.
By contrast, 84 percent of manufacturers with over $200 million in revenue rated themselves with average-to-poor supply chain performance and are struggling to effectively manage their complex supply chain, with more than half of the largest global manufacturers not meeting their cost of capital.
The results of Deloitte's study, which included responses from nearly 600 companies in 22 countries around the world, point to the positive impact that effectively managing a complex, global supply chain can have on a company's financial performance. Deloitte found it is not simply supply chain initiatives that manufacturers deploy that make the difference, but that the key to generating financial performance is synchronizing the supply chain and managing it from a holistic, rather than fragmented, view.
"In today's highly competitive environment, as companies are under intense pressure to reduce costs, expand into new markets and develop new products, every manufacturer's supply chain is expanding and becoming increasingly complex," said Doug Engel, a partner with the consulting firm and one of Deloitte's national manufacturing industry leaders. "However, complexity is not the enemy to the supply chain; effectively managing complexity can be a manufacturer's greatest asset."
Engel said that, based on Deloitte's research, the consultancy uncovered several differentiating factors that separate the winners and the losers, elements that differentiate the so-called "complexity masters" from the majority of manufacturers. "Surprisingly, it was not the obvious list of supply chain initiatives; rather, the secret was in how the complexity masters managed the supply chain," Engel said.
One of the key goals of the study was to reveal best practices of managing a complex global supply chain that can benefit manufacturers of any size, from $50 million operations to multi-billion dollar giants. These practices focus on integration and synchronization of activities that have historically functioned independently of one another, with the goal of creating growth and maximizing profitability.
According to Deloitte, three critical differentiating factors that complexity masters synchronize across the entire global supply chain are:
Akman said that the complexity masters have synchronized key activities both within and across their customer, product and supply chain operations, moving from sub-optimization to creating a profit cycle.
Other key findings from the report include:
Deloitte's study analyzed the supply chain synchronization of nearly 600 manufacturers in every major industry segment across North America and Europe. Industries represented in the study include aerospace and defense, automotive, life sciences, manufactured consumer products, process and chemicals, high technology and telecommunications, as well as other general manufacturing segments such as metal fabrication, industrial machinery and equipment.
New York October 10, 2003 Only a fraction of global manufacturers are effectively managing their supply chains, and these leaders are realizing profit margins significantly greater than other companies with poor supply chain performance, according to the results of a new survey.
The survey, for a study by consulting firm Deloitte entitled "Mastering Complexity in Global Manufacturing: Powering Profits and Growth Through Value Chain Synchronization," revealed that just 7 percent of the queried companies say they are effectively managing their supply chain and that these "complexity masters" are seeing profit margins 73 percent greater than other manufacturers with poor supply chain performance and less complex environments.
By contrast, 84 percent of manufacturers with over $200 million in revenue rated themselves with average-to-poor supply chain performance and are struggling to effectively manage their complex supply chain, with more than half of the largest global manufacturers not meeting their cost of capital.
The results of Deloitte's study, which included responses from nearly 600 companies in 22 countries around the world, point to the positive impact that effectively managing a complex, global supply chain can have on a company's financial performance. Deloitte found it is not simply supply chain initiatives that manufacturers deploy that make the difference, but that the key to generating financial performance is synchronizing the supply chain and managing it from a holistic, rather than fragmented, view.
"In today's highly competitive environment, as companies are under intense pressure to reduce costs, expand into new markets and develop new products, every manufacturer's supply chain is expanding and becoming increasingly complex," said Doug Engel, a partner with the consulting firm and one of Deloitte's national manufacturing industry leaders. "However, complexity is not the enemy to the supply chain; effectively managing complexity can be a manufacturer's greatest asset."
Engel said that, based on Deloitte's research, the consultancy uncovered several differentiating factors that separate the winners and the losers, elements that differentiate the so-called "complexity masters" from the majority of manufacturers. "Surprisingly, it was not the obvious list of supply chain initiatives; rather, the secret was in how the complexity masters managed the supply chain," Engel said.
One of the key goals of the study was to reveal best practices of managing a complex global supply chain that can benefit manufacturers of any size, from $50 million operations to multi-billion dollar giants. These practices focus on integration and synchronization of activities that have historically functioned independently of one another, with the goal of creating growth and maximizing profitability.
According to Deloitte, three critical differentiating factors that complexity masters synchronize across the entire global supply chain are:
- Customers: collaborating with customers, rather than only with suppliers. Undertaking customer profiling, customer loyalty and customer segmentation initiatives.
- Products: increasing performance through managing products and introducing new products. Managing mass customization of parts; reducing cycle time; improving time to market.
- Technology: implementation across customer, product and supply chain operations, including Product Lifecycle Management and Advanced Planning Systems that focus on long-term planning and forecasting, in addition to more tactical technology, including warehousing management systems and transportation management systems.
Akman said that the complexity masters have synchronized key activities both within and across their customer, product and supply chain operations, moving from sub-optimization to creating a profit cycle.
Other key findings from the report include:
- The vast majority of manufacturers are falling short financially.
- One out of three manufacturers failed to achieve their goals for return on capital/assets in the last year.
- 38 percent of respondents have operating margins of less than 5 percent or are losing money.
- 36 percent missed their goals for return to shareholders.
- 35 percent fell short of their profitability targets and 40 percent did not achieve their revenue goals.
- Supply chains are increasingly becoming more global.
- 80 percent of manufacturers have marketing and sales operations outside their home regions.
- More than half have moved some production and manufacturing to lower-cost regions, such as Mexico, China and Central and Eastern Europe.
- Approximately three out of five outsource segments of engineering and manufacturing.
- Product innovation and new product introduction is a key revenue driver.
- 35 percent of manufacturers' revenues will come from new products introduced in the three preceding years, up from 21 percent in 1998.
- Average product development time today 16 months from concept to launch is 12 percent less than in 2000; by 2006, it is expected to be another 18 percent shorter.
Deloitte's study analyzed the supply chain synchronization of nearly 600 manufacturers in every major industry segment across North America and Europe. Industries represented in the study include aerospace and defense, automotive, life sciences, manufactured consumer products, process and chemicals, high technology and telecommunications, as well as other general manufacturing segments such as metal fabrication, industrial machinery and equipment.
