But many firms lack technology strategy for logistics, supply chain management, study finds
Chicago September 25, 2003 Only those supply chain executives that leverage tactical efficiencies to achieve strategic business objectives will be rewarded with world-class performance and sustainable growth, a new report on logistics and transportation asserts.
Consulting firm Cap Gemini Ernst & Young, Georgia Southern University and the University of Tennessee issued the findings in their 12th annual report entitled "Operations Excellence: The Transition from Tactical to Strategic Supply Chains," released this week at the Council of Logistics Management conference.
While the 2002 study focused on the strategic implications of visibility in the supply chain, this year's study asserts that the core of operations excellence is the marriage of customer relationship management (CRM) and supply chain management. However, while 84 percent of the 185 logistics executives surveyed said their firms have linked their technology strategy to their overall business strategy, barely half (58 percent) say they have a formal technology strategy for logistics and supply chain management.
"This year's study shows that the shift to product-plus strategies requires companies to be very good at providing customer service and minimizing their operating costs," said Tony Ross, Americas practice leader for logistics and e-fulfillment for Cap Gemini Ernst & Young. "Only those companies who serve their customers flawlessly through on-time delivery, correct invoice, ability to match purchase order, invoices and bills of lading, and [that] minimize the number of over/short/damaged deliveries can grow their business."
The good news is that respondents indicate that the percentage of "perfect orders" increased from 75 percent of all orders last year to 81 percent in 2003. One way this is happening is through higher levels of transportation and warehousing software package integration to order management systems than in years past.
One interesting finding is that while almost half (47 percent) of firms named reducing costs as the primary objective or goal of the business unit, only one in five (19 percent) listed increasing customer satisfaction and three in ten (30 percent) said that customer service was the top strategic issue for their business, and less than one in four (23 percent) indicated that cost leadership was a strategic imperative.
A mind shift has also taken place at the boardroom and business unit management level about the role of logistics: more CEOs (41 percent last year versus 36 percent this year) view logistics as a strategic component rather than a cost center, while business unit management ranks logistics more frequently as a strategic component (41 percent) or service center (28 percent) than as a cost center (21 percent) in its hierarchy.
"The study shows that firms seeking operations excellence first must achieve functional excellence, but it is not an end to itself; its goal is collaborating internally to achieve operations excellence," said Dr. Karl Manrodt, assistant professor of information systems and logistics at Georgia Southern University. "Operations excellence is the foundation on which to build an adaptive supply chain. The ability to respond to changes not simply to react to them requires adaptable processes and information flows. This means today's technology solutions must be capable of integrating with current solutions and processes, as well as being easily adapted to market changes."
Half of the companies who responded had less than $1 billion in annual revenue, while respondents as a group accounted for more than $18 billion in annual spending on transportation. More than half (61 percent) of respondents were manufacturers.
The 2003 study had a number of key indicators that speed of business has increased since last year: inventory turns are up (from 12 last year to 14.5 this year), days sales of inventory has decreased (49.4 days to 37 days), and average days sales outstanding has decreased (from 45.7 to 40.0 days).
Supply chain visibility is still an issue, as distance from the plant or warehouse increases. The top three capabilities that companies report out in terms of visibility are tracking outbound shipments (80 percent), carrier selection (74 percent) and internal visibility of orders (72 percent), while the bottom three are 24 hour customs notification (41 percent), electronic tendering of orders (39 percent) and global visibility of orders (37 percent).
Many respondents indicated they have reviewed products, streamlined offerings and undertaken product and supplier rationalization projects over the last two years, but the majority of companies have still not begun the process of identifying their key suppliers, customers or products. Barely half of respondents (51 percent and 54 percent respectively) have completed product rationalization or inventory optimization, while around four in ten (44 percent and 38 percent respectively) had completed supplier rationalization and customer profitability analysis, and only 28 percent have streamlined product offerings.
"Operations excellence is the goal because too much time, energy and resources are being used by firms on 'point solutions' which address problems, not processes, and tend to be siloed by nature," said Dr. Mary Holcomb, associate professor of logistics and transportation and assistant dean in the College of Business at the University of Tennessee. "Instead, operations excellence puts the focus on solutions that are integrated with the rest of the firm's infrastructure (like CRM) and its supply chain partners. It is an end-to-end perspective, with tactics and strategy aligned to accomplish the goal."