Economic pressures force companies to contain costs and boost revenue throughout the supply chain. It comes as little surprise, then, that the economic downturn caused firms to turn to their supply chains for help.

When asked what happened to the emphasis on supply chain performance during the global economic downturn, executives resoundingly reported it had increased, according to recent findings from the eighth annual Global Survey of Supply Chain Progress, conducted by Supply Chain Management Review, the Eli Broad Graduate School of Management at Michigan State University and CSC, with assistance from the Council of Supply Chain Management Professionals and Supply Chain Europe magazine.

Completed by 164 supply chain executives split evenly between manufacturing and service organizations, the survey says that 78 percent of respondents reported that focusing on the supply chain had become more important of the past 12-24 months.

In some cases, firms turning to their supply chain for help were successful, while for others there was an apparent lack of capability, meaning that costs were sustained rather than reduced and market shares declined.

“The lessons on how businesses survived a serious economic downturn are becoming more evident,” Brad Barton, CSC’s Supply Chain Practice Leader, said in an announcement of the findings. “To reduce costs, business leaders went directly to their supply chains, working with key suppliers to reduce cycle times and increase revenues with their best customers.”

Supply chain management, which became a logical area of concentration to counteract the effects of the economic decline, was found to focus squarely on costs and internal improvements, with firms keeping their current offerings “as close to prime as possible.”

Some firms sought and received support from supply chain partners while others stayed put.

“The two areas receiving the most impact were the demand to shorten cycle times and the need for more help from sourcing and suppliers,” according to the report. “This trend would be borne out throughout the survey as suppliers were expected to help pick up the slack due to lesser sales volumes.”

There was clear evidence that companies relied more on suppliers to help with cost control, new product development and meeting customer demands. At the same time, there was a continued expectation of finding better prices or the buyer would shift its supply base. In such an environment, the key for suppliers was to sustain the most important customer base by offering help in both areas.

Supply chain leaders moved to a more strategic approach in dealing with the economic downturn, analyzing, identifying and understanding the factors key to anticipating the need for change. As expected, the leaders are coming back faster than the laggards (or “followers”).

“[T]here was a sharp contrast in the ways that leaders and followers addressed these difficult times. Followers were more likely to scale back on product and service offerings, whereas leaders were more likely to have reconfigured their global networks to adjust to changing conditions,” the report explains. “Strategic flexibility is the hallmark competence of the supply chain leaders. Their abilities to anticipate and react to the dynamics of the downturn allowed them to weather, and in some case, thrive in tough times.”

When probed on supply chain efforts’ effect on immediate cost improvements, 61 percent reported “moderate” to “high” results while only 6 percent said there was no impact. Forty-seven percent said materials costs had been reduced, 26 percent said they stayed the same and 26 percent noted an increase.

Interestingly, results also show that leaders took advantage of the economic climate to build market share. When asked if the downturn had resulted in changes to market share, 37.5 percent of respondents reported their market share increased during the tough times; 40 percent said it remained the same and 22.5 percent said they lost market share. Obviously, there were some shifts in the customer base, most likely to the firms able to offer better pricing and service.

“If ever there was a call for action, it appeared in the 2010 supply chain survey results. Failure to have a supply chain in prime condition was a ticket to increased costs and lost market shares,” according to Barton. “Firms have only bottomed out in the global recession, and we expect continued emphasis will be placed on supply chain optimization for the next 12 months.”

Overall, the findings in this year’s Global Survey of Supply Chain Progress suggest that most firms are at or near the bottom of the economic trough and are slowly coming back to more favorable conditions.

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Resources

Eighth Annual Global Survey of Supply Chain Progress
Supply Chain Management Review, the Eli Broad Graduate School of Management (Michigan State University), CSC, the Council of Supply Chain Management Professionals and Supply Chain Europe, Oct. 20, 2010

…Supply Chain Efficiency Was Key Factor In Driving Profits for Manufacturers and Service Providers During Down Economy
Supply Chain Management Review, the Eli Broad Graduate School of Management (Michigan State University), CSC, the Council of Supply Chain Management Professionals and Supply Chain Europe, Oct. 20, 2010