Improving Product Quality Most Important Supply Chain Initiative in 2010 in IDC Survey

Reducing costs, improving forecasting leading priorities as manufacturers, retailers recover from slump

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Framingham, MA — April 29, 2010 — Improving product quality is the top supply chain initiative for manufacturers and retailers this year, a reflection of the growing number of recalls in categories such as automotive, toys and grocery and increasing pressure on brands from retail private label, according to a new report from IDC Manufacturing Insights and IDC Retail Insights.

The report, "Business Strategy and Supply Chain Innovation," was designed to identify the top business and supply chain issues, as well as how manufacturers and retailers expect to leverage IT resources to address those objectives and challenges. The survey included 415 manufacturers and 179 retailers in the United States, with respondents from various roles across the organization, including Procurement, Supply Chain, Manufacturing/Operations, Merchandising, and IT.

When asked about their top three supply chain initiatives over the next 12 months, not surprisingly respondents said that reducing costs was the top supply chain priority, and there was significant interest in improving forecasting capability and accuracy as well as improving responsiveness to demand changes.

As companies begin to recover from the recession, managing the ability to respond to change and prepare for the return of demand is increasingly critical for business success, IDC noted.

Top Supply Chain Application Investments

When asked about the top three supply chain IT application investments planned for the next 12 months, sales and operations planning (S&OP) topped the list for both retailers and manufacturers. This acknowledges the supply chain's need for better coordination with customer-facing departments.

For manufacturers, investment in strategic sourcing was the second most frequently selected application investment, as many manufacturers plan to use this application as a means of controlling costs. Retailers selected advanced inventory management or inventory optimization (IO) as second most important.

Of note, among manufacturing companies with more than 10,000 employees, manufacturing execution systems (MES) was the second most common response after strategic sourcing, which reflects the renewed interest among large manufacturers in standardizing how they run their factories.

According to Leslie Hand, research director, IDC Retail Insights, the IT investment priorities for retailers reflect the current requirement to more effectively manage top and bottom lines, as well as sales growth in the Web and mobile channels, making better synchronization critical in the coming year. "It's also clear from our results that retailers have received the consumer message that quality, value and transparency are all equally important by ranking product quality as the most important initiative this year," Hand said.

IT Satisfaction Gap

The survey also revealed that there is an "IT satisfaction gap" among manufacturers and retailers, particularly in their expectations of how IT can enable them to respond to unanticipated change. The results do not reflect dissatisfaction with IT departments, but rather underscore the need for IT vendors to do a better job delivering on their value propositions.

"These application investment results confirm our prediction emphasizing manufacturers' increasing interest in S&OP," said Kimberly Knickle, practice director with IDC Manufacturing Insights. "In addition, product quality will continue to be an important initiative in the wake of significant recalls to strengthen consumer trust and loyalty in the market."

IDC is running a Web conference on Friday, April 30, at noon Eastern Time, to discuss the results of the survey. More information here.