EXECUTIVE SUMMARY

The data clearly reflect that there has been a fall back in the direction of supply
chain efforts around the globe, based on current economic conditions and a
need to use supply chain to cut costs. This trend is under execution and has
been combined with moderate improvements in most areas of importance.
Among the key findings, these characteristics could be cited:

1. Continued improvement in the reported range of cost savings: more firms
finding revenue increases as a result of Supply Chain Management (SCM)
efforts in 2009 show there is still room for making significant gains, even
in a down economy.

2. Europe continues to surpass North America in the overall cost reduction
and revenue growth results, indicating that you cannot rest on past laurels
or previous gains; someone is always moving ahead.

3. Given the current economic conditions, the emphasis has shifted back to
cost reduction, with particular emphasis being focused on the area of
strategic sourcing, as 81 percent of NA firms and 73 percent of those in
Europe indicate they will be rethinking sourcing points. 57 percent of all
respondents have “near-term” plans to change sourcing points or buying
habits.

4. Eighty-eight percent of respondents have set objectives for the purchasing
function to generate new cost savings. Suppliers should get ready for, or
are already being faced with, pressure for help in cutting costs before a
key customer goes into the market for lower prices.

5. Target percentage improvements to costs show Europe with 80 percent
and NA with 73 percent having goals greater than 6 percent, a harbinger
that the pressure is already being applied to achieve annual requirements
for improvements, and modest improvements will be unacceptable.

6. North American firms are more likely to have a SCM organization, but
European firms have more mature supply chain organizations, with CEOs
more likely to be involved in running the organizations (plus 50 percent
for Europe compared to 30 percent in NA.). It’s an old story, but most
firms are simply too slow to recognize the values that can be added from
a consistent focus on supply chain under the direction of professional and
involved management. That’s a lesson the leaders wrapped up years ago.

7. Sixty-seven percent of responses indicate strategy and change management,
including formulating and implementing initiatives, will be a part of SCM
to meet business objectives. There is supporting evidence that SCM is
becoming part of a solid business strategy for the future, a means to
reach overall business objectives.

8. SCM organizations control the traditional aspects of supply chain, but
European efforts are more likely to consider strategy and after-sales
service as elements of SCM, indicating an opportunity for future NA SCM
efforts. Most firms stop the supply chain effort with delivery. The Europeans
are showing that much can be added in the way of customer intimacy
through staying with the customer all the way through handling returns
and making necessary changes, so the need for returns goes away.

9. About half of firms have completed some form of Green analysis or
evaluations, with 54 percent identifying quantifiable savings, but the
forward intentions vary and evidence of a consistent approach and
documentation of valid savings is nebulous.

10. Execution of Green initiatives is slow to develop and many firms
indicated they have taken a back seat in the current economy.
Seventy-seven percent report Green initiatives have led to no
increase in revenues.

11. Europe is ahead of NA in adopting Green initiatives, with increases
over last year. NA respondents think conserving natural resources
is the main issue, while Europeans think it is related to a sustainable
business reputation.

Other findings:

SURVEY ANALYSIS

1. Supply Chain Management Policies and Practices

Leadership

Supply Chain is finally becoming a company-wide effort. Fifty-three percent of
the respondents indicated they had an executive officer who manages all supply
chain functions.

Management Involvement

Leadership is an extremely important aspect of successful supply chain efforts,
but it doesn’t stop with a professional leader: SCM must involve others from
the management ranks. In 2009, 37 percent said they had top management
involvement from the financial sector, and another 42 percent said they had
medium involvement, or a strong 69 percent overall level.

Organization

We see continued progress with the establishment of supply chain organizations,
with 64 percent now reporting the existence of an “official” SCM group.
Specific functional involvement varies as indicated.

• Finance — 75 percent with medium to high involvement
• Information Technology — 73 percent
• New Product Development — 59 percent

If there is an area of opportunity, we would cite the fact that more than half of the
firms indicated new product design, development and launch, or helping to bring a
new product or service to market was either not part of the business or not included
under the supply chain management organization.

Planning continues to rise in SCM importance, with 91 percent reporting developing
courses of action to meet demand, sourcing, production, and delivery requirements,
including forecasting and scheduling as part of the effort.

From a less positive note, only 34 percent indicated the company included “make”
or manufacturing as part of SCM. Previous documentation has shown that those
firms in the leader category do this consistently. Eighty-three percent include
“deliver” or logistics, including order management, transportation, warehousing, and
distribution. Sixty percent are now including customer and demand management
under the SCM umbrella.

If we could point out an opportunity area, it would be in relationship to post-sales
support for customers, including the handling of returns, repairs, and maintenance.
This is a sector where the Europeans appear to have made more progress than NA,
and could be a matter to discuss as firms lay plans to sustain relationships with key
customers who could be seeking better pricing.

Interestingly, 67 percent report strategy and change management, including
formulating and implementing initiatives to meet business objectives as part of
their current SCM organization, which is consistent with the theme of shifting focus
toward meeting the demands created by the global downturn in business conditions.
Consistent with previous surveys, 46 percent say information technology (IT)
enablement or applying technology to create added value is part of the SCM
organization. This is another slight improvement, but leaves us longing for the point
when virtually all supply chains will realize the advantages of using IT as an enabler
to process improvement, and not as an off-the-shelf single process solution.
On a final positive note, 87 percent reported that performance measurement and
analysis is now under their supply chain umbrella, a necessary step to confirm the
savings and validate the need for continued SCM efforts.

2. Supply Chain Continuity and Protection

Initiatives

As we analyzed the data, we were pleased to find that 87 percent were either
evaluating or implementing options related to sustainable supply chain initiatives,
with 48 percent currently implementing such initiatives.

Green Issues

When we turned specifically to Green issues under the sustainability heading, we
received a wealth of information, not all of which was consistent. A special section
has been added to the 2009 survey report to cover these findings and the implications
surrounding the data. For now, let us point out that we are encouraged that the issue
is rising in importance and SCM is being tasked with making a mark on turning the
results of efforts in this area into new values for the company and its network partners.
When asked if Green and sustainability supply chain issues are receiving more or
less emphasis than 18 months ago, 62 percent reported seeing more emphasis and
another 30 percent saying they say about the same level. This is very encouraging
news, as we believe Green will be a dominant element in future SCM efforts. Other
comments will be made under the section considering whether the Green initiatives
are real or not.

Risk Management

The matter of risk management and handling risk as part of SCM has been
thoroughly discussed in past surveys, and we saw little change in results in 2009.
This remains an area of concern by nearly all supply chain organizations, but only
among the leaders do we find the kind of deliberate and consistent attention that
leads to knowing what to anticipate in the way of risk and having contingency plans
to deal with unfortunate circumstances.

When asked to rate the level of agreement with statements relating to the extent
to which a company manages supply chain risk, we received the answers in the
following table.

Note that on a scale of 1 to 5, we had a 3.9 response indicating the organization
applies lessons from past problems. This is a positive step as it shows firms are
digging into their databases, as we have recommended, to find the source cause
of their difficulties and to anticipate reoccurrences in the future.
Unfortunately, the survey received only a 3.4 rating when it came to the company
having well-communicated contingency plans for use in case of a significant
disruption. The balance of the queries gave us results similar to past surveys, so
we leave with the need to put more emphasis on finding not just the causes of
disruptions and problems, but formulating reaction plans and not depending on
heroic actions that are very costly and often unnecessary if good pre-planning
were exercised.

3. Investment and Performance

Sourcing

As a clear sign of the times, when pressure is applied it usually goes toward those
involved in purchasing, procurement, and sourcing. Such is the case with the 2009
survey results. When asked if they were re-thinking existing sourcing points (or
what is tantamount to considering changing suppliers for more favorable pricing),
75 percent replied positively.

When we went further to question if they had near-term plans to change sourcing
points, 57 percent said yes. The handwriting is on the wall, and suppliers are advised
to begin securing their positions with their most strategic customers before more
favorable pricing is sought and found.

As we went into the details behind this apparently economy-induced trend, we
found some revealing data. Eighty-eight percent of the respondents have set
objectives for the purchasing function to generate cost savings in the next 12
months. These targets range from 38 percent reporting a 0 to 5 percent range,
47 percent from 6 to 10 percent, 15 percent greater than 11 percent. Going even
further, 75 percent said they had set objectives beyond 12 months.

In terms of current activities that are considered critical to procurement in this
environment, the list was topped by profit improvement, reduced prices, and optimized
total cost of acquisition. The next highest areas of importance were agile reaction to
change in customer demand and better balance of actual supply and demand.

Reactions to Economic Conditions

Beyond the impact on sourcing, we found a number of areas where the economic
downturn was having an effect. The following chart shows some of the leading
conditions respondents felt had been impacted by the global downturn. Heading
the list, not unexpectedly, was the immediate need to improve costs.

Among the other impacts, two stood out: demand to shorten cycle times and receiving
help from suppliers with new materials and innovative concepts. When questioned on
the impact on sales and operations planning, two factors headed the list of needs: agile
reaction to changes in customer demand and better balance between supply and demand.

 4. Survey Results

When we reached the area of what had actually been accomplished in the way of
cost reduction and revenue increases, we were delighted to find improvements
continued in spite of the economic conditions. In terms of revenue growth, we were
surprised to see an improvement over 2008, with 30 percent reporting no results or
not knowing versus 40 percent in 2008. The shape of the results curve was also
shifted toward the more positive end.

Costs were also improved, as 13 percent reported “None” or “Did Not
Know” vs. 22 percent in 2008. Once again, the savings curve moved
another notch toward the more positive area.

When asked to place the organization and its level of performance on total
supply chain management cost relative to the industry, over half said they were
in the middle, a pretty good indicator they believe more progress is possible.

5. Demographics

The 2009 survey was again primarily corporate in nature, divided by 50 percent
representing corporations, 28 percent from divisions or business units, and 22
percent from groups or multi-divisional units.

Twenty-two industries were represented, plus those placing their business in the other
category; with sales ranging from less than $250 million to greater than $1 billion.

PATTERNS

Supply chain is finally becoming entrenched as a company-wide improvement effort,
including transforming business processes to achieve near-optimum operating
conditions. We note from the survey that such efforts are now receiving the kind of
management attention we have always felt was necessary for success.

Planning continues to rise in supply chain management importance as well. Ninety-one
percent reported they were developing courses of action to meet demand, sourcing,
production, and delivery requirements, including forecasting and scheduling as part
of the supply chain organization. Less encouraging was the fact that only 34 percent
included manufacturing in the scope of their supply chain, something we consider a
mistake as there must be a solid linkage here if optimum conditions are to be achieved.
As reported, we found that the current economy is having a direct effect on supply
chain sourcing efforts, with clear signs that pressure is again being asserted in the
sourcing area as a means of cutting costs.

We can see that purchasing is once again front and center in supply chain as an
expedient for cutting costs. Hopefully, strong relationships based on collaborative
efforts will not suffer in the short term.

Of special interest was the fact that when we looked at processes now considered
part of SCM organizations, Europe turned out to be more likely to consider aftersales
service and strategy as part of their portfolio of tools. We see an opportunity
in these times to focus on this area to cement relationships with key customers.

SURVEY DETAILS

As mentioned, supply chain management continues to establish its position as a
management discipline and strong improvement technique for running a business.
As evidence of how SCM has been maturing, the following illustration shows how
long SCM organizations have now been around.

Of note, European firms that have SCM organizations have had them for longer
than North American firms.

The processes being brought under the SCM umbrella also bears evidence to the
extent the discipline is being extended. When we asked about the processes
considered to be a part of a SCM effort, we received the following results:

In general, planning, sourcing, logistics, demand planning, strategy and performance
management are considered solidly part of SCM efforts. New product development,
manufacturing, and technology remain on the fringe. Significant differences between
Europe and North America are in the areas of after-sales support and strategy.
Europe is more likely to consider these processes as part of SCM.

The 2009 survey reflected the impact of the global economic downturn in several
aspects relating to overall supply chain efforts. European firms rely more on global
markets and global supply points than North American firms. Therefore, European
firms have had to be more proficient at managing global supply and demand networks.
Perhaps due to this requirement and the lesser ability in Europe to apply sales and
operations planning, European firms consider their supply chains less agile in reacting
to demand changes. They see an increased need for this agility as the most critical
impact of global conditions.

European firms are more likely to agree that global networks and assets are optimized
and supply and demand better synchronized across global networks. As expected,
from this more globalized perspective; Europe ranks itself better in metrics related
to global planning and factors such as forecast accuracy and production flexibility.

In terms of the impact of the downturn on new product development and introduction,
North American firms think the greatest impact has been the need to shorten cycle
times. Europe thinks the greatest impact has been the need for more logistics support.
In terms of overall SCM competence, the results were generally very positive. 40
percent say they are average and another 40 percent say they are above average.
More North American firms consider themselves above average compared to Europe.

Looking at one more aspect, that of risk management, the survey again reports high
attention being applied to lessons learned from past failure and analyzing root causes
for failure, but no significant progress in introducing innovative or failsafe techniques.

IS THE GREEN INITIATIVE REAL?

We encountered mixed results when we purposefully included questions on Green
issues and their relationship to supply chain. We began by asking if Green initiatives
are receiving more attention than 18 months ago and found 62 percent responding
affirmatively. While this was a positive indicator, further questions brought conflicting
responses. The reasons given for less emphasis were in line with the general patterns
already reported. Among those responding negatively to the first question, 39 percent
said it was due to business conditions and another 38 percent said other priorities
were ranking higher. When asked how they would rate their company’s Green effort,
26 percent replied in the bottom third, 51 percent in the middle and only 21 percent
in the top third, as shown in the next chart.

Forty-eight percent of respondents indicated supply chain professionals play a
support role in their company’s Green initiatives, with 22 percent indicating such
professionals have a lead role. The most important environmental issues facing the
responding firms were:

• Waste disposal and recycling
• Fluctuating fuel costs
• Demonstrating a sustainable business reputation

About half of the firms have completed some form of Green analysis or evaluation,
with 54 percent identifying quantifiable savings, mostly in energy and transportation.

While these are positive results, on the other hand, 77 percent report Green
initiatives have not led to increased revenues.

Notably, a larger proportion of European firms (33 percent) have seen added
revenue streams compared to NA firms (20 percent)

In general, when evaluating business partners from a Green aspect, the tendency is
to look at efforts related to resource efficiency in energy, waste and water areas.

We conclude that Green issues remain on the business radar screen, and some actions
have taken place to determine the issues and potential benefits, but we really came
up with little in the way of documented implementations. The area remains a challenge
for the future, with our advice that it isn’t just something that is nice to include. There
are definite returns on effort that impact financial performance. The next illustration
calls attention to some of the differences between sector attention in this area.

THE RENEWED CALL FOR ACTION

Following a review of the overall responses, we would offer the following calls for
action as firms move forward with their supply chain efforts:

• Be careful that the drive to overcome poor economic conditions does not
destroy much of the good work that went into supplier collaboration and
customer satisfaction. As firms go into the market to find savings, work with
suppliers which show an inclination to seek mutual values. They need new
savings as much as the buyers and our experiences indicate the best results
come from a joint effort to reduce mutual costs.

• Use the downturn as an opportunity to collaborate with network partners to
find areas where new values can be found. We see strong evidence that supply
chain leaders have taken a proactive approach to working with important
network constituents to find these new values. They simply do not accept
economic conditions as an excuse for poor performance and are hard at work
finding the next level of savings in their supply chains.

• Taking a lead from the European respondents, use post-sales support for
customers as an example of how to enhance relationships with key customers.
Dig into the source problems and reduce the need for returns, repairs, and
maintenance.

• Rid the firm of the technology paradox. Only 46 percent of the respondents
said technology enablement is helping, that is, applying technology to create
added value is part of the SCM effort. The leaders have demonstrated that a
close working relationship between the supply chain professionals and IT and
the CFO yield superior results.

• The survey reports high attention is being applied to lessons learned from past
failures and analyzing root causes for failure, but risk management is no closer
to where it should be across supply chains. It’s time to have an understanding
of the potential supply chain risks and have a contingency plan ready for
action when problems are encountered.

 CONCLUSIONS

The 2009 survey continued to document further savings and increases to revenues.
It was obviously affected by a shift in emphasis as firms cope with the current
global economic downturn. Nevertheless, the continued progress shows there is
opportunity for more gains, if the firms will stay the course and use supply chain
as a means for improving both costs and revenues.

Of special interest, we found attention to the Green issues was growing and receiving
some attention, but it remains a new frontier for overcoming past practices and
forging new models that make sense — not just from a public relations aspect, but
from sensible management.

The necessary ingredients for success and superior performance continue to be
substantiated: a strong supply chain strategy linked directly to business results, a
solid professional management staff with help from IT and the CFO, defined metrics
and objectives for continued improvement, and the application of collaboration and
technology to derive network enhancements.

The results are ever more indicative that more progress is being made with supply
chain management maturity.

 

To download the full report, please go to http://www.csc.com/management_consulting/insights/33001-2009_global_survey_of_supply_chain_progress