Manufacturers that employed supply chain management best practices, or “levers,” such as collaborative planning and proactive capacity management, were better positioned to absorb supply chain shocks like the economic recession and the earthquake in Japan, according to a new report.
“The flexibility imperative is really becoming the central focus of supply chains,” said Brad Householder, director of the supply chain practice at PRTM, a Waltham, Mass.-based consulting firm.
PRTM surveyed senior executives at 150 global companies, most of them manufacturers, and found that the top 20% in various measures of supply chain cost and performance excelled at “operational flexibility”: the ability to respond to large swings in supply and demand by rapidly adjusting production internally and at suppliers. The leading companies achieved double-digit revenue growth and cut costs by up to 10% through better risk management and planning, among other things.
In four years of doing similar studies, Householder said, PRTM has seen companies’ priorities evolve from cost reduction in the depths of the recession, to maximizing working capital, to being able to respond to renewed consumer demand in the recovery.
“Supply chains leveled out in relative volatility, and then, bam! -- the world kind of hit them,” with natural disasters and unrest in the Middle East, Householder said. Operational flexibility became the latest strategy for meeting demand in the face of supply chain risks.
Supply chain collaboration key to flexibility
Companies were measured according to several criteria, including on time in full (OTIF) performance, supply chain costs, and PRTM's maturity matrix, which is based on the Supply Chain Council Inc.'s Supply Chain Operations Reference (SCOR) model. PRTM has a consulting relationship with some of the companies, but the vast majority aren’t clients, Householder said.
PRTM identified five common supply chain management strategies, or levers, that managers at the best-performing companies used to achieve operational flexibility (see the sidebar). Householder said the leaders don’t rely on a single approach, but have instead built broad-based strategies that rely on IT-enabled supplier networks to facilitate end-to-end planning, collaboration and supply chain analytics. Still, fewer than half of the surveyed companies said they have implemented the strategies.
Householder sees more use of supply chain analytics and the maturing of business intelligence (BI) as the biggest technology trends going forward.
More companies are trying to produce better demand forecasts by applying supply chain analytics to multiple demand inputs. “You’re talking real-time demand planning and more point of sale data,” he said. “You need a good analytics toolset.”
Householder sees strong potential in manufacturers' ability to apply BI to the sales and operations planning processes they use to synchronize customer demand with production.
“It’s really a decision-making process, and it’s a decision-making process that should be data driven,” he said.