Top Supply Chain Trends

April 10, 2007

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Supply chain strategy is a holistic view of demand, product and supply processes aimed at maximizing opportunity and mitigating risk. To this end, here we address both the leading high-priority supply chain initiatives and the day-to-day business processes we can expect in the near future.

Reducing operating costs and inventory, improving on-time delivery, availability and cycle times — these are all top business objectives in supply chain initiatives. Yet supply chain strategy is not simply about supply, operations or manufacturing. Rather, it is a holistic view of demand, product and supply processes aimed at maximizing opportunity and mitigating risk, as AMR Research defines it.

An increasing number of companies cite supply chain initiatives and prowess in annual reports and meetings with financial analysts, as we recently noted. Global supply chain excellence, we argued, is more than just an emerging skill; in fact, for most companies it will be a key determinant of overall company success — even survival. And the full impact of globalization really started to be felt in the supply chain last year.

To this end, here we address both the high-priority supply chain initiatives as validated by supply chain leaders and the trends we can look forward to as they relate to the supply chain.

Respondents of a survey recently conducted by E2open, a provider of supply chain management software, validated the highest-priority supply chain initiatives as follows:

• Forty-eight (48) percent identified lean supply chain — eliminating waste and unnecessary steps, for example, by evolving from a "push" to "pull," demand-driven strategy; • Forty-five (45) percent identified operational improvement programs — obtaining visibility into supply chain information by replacing manual processes with automation; • Thirty-nine (39) percent identified globalization — leveraging economies of scale across multiple operating units; and • Twenty-nine (29) percent identified improvement in trading partner integration by migrating to multi-enterprise supply chain platforms.

Additional initiatives identified by respondents included outsourced manufacturing and design, as well as operating and sourcing, in low-cost countries such as China, Southeast Asia, Eastern Europe and Latin America. (See: Is the Promised Land Offshore? and Asia's Major Players)

But what about the day-to-day business processes? The following are major trends that experts anticipate will have the biggest impact on tomorrow's supply chain.

Lean Six Sigma Logistics Lean and Six Sigma practices are no longer being applied only in manufacturing, according to Thomas J. Goldsby, University of Kentucky, in World Trade magazine recently.

Leading companies are finding that the application of Lean and Sigma makes good business sense in logistics management… given that wastes and process variation exist throughout our logistics and supply chain networks.

Much discussion has focused not only on Toyota's production system, which relies on a "pull" method of material flow and perfect quality in process execution in order to minimize waste, and on customers, but also on the continuous improvement methodology of Six Sigma for understanding and reducing process variation.

Lean Six Sigma Logistics embodies the elimination of waste through disciplined efforts to understand and reduce variation, while increasing speed and flow in the supply chain. In particular, Lean Six Sigma Logistics focuses on logistics flow, capability and discipline as the guiding principles for solving logistics challenges: "Effective deployment of these principles will help us to bridge our suppliers with our own processes, and then bridge our processes to the customer," Goldsby writes in World Trade.

(See: The Lean and Mean Supply Chain)

Third-Party Logistics Services Among the major findings of the 2006 Third Party Logistics Study conducted by Georgia Tech, Capgemini, DHL and SAP, was that future outsourcing practices are likely to continue the use of traditional services that are prevalent today (e.g., transportation, warehousing, customs clearance, etc.). In addition to these, however, value-added services relating to information technology (IT), customized logistics solutions and 4PL services are seen growing in terms of contemporary interest.

As for technology enablement, most customers are looking to the 3PL sector for leadership, functionality and operational capabilities, reports World Trade. Because of concerns that improvement is needed, 3PLs' IT capabilities are expected to become even greater differentiators of 3PLs than they are today.

Moreover, according to John Langley Jr., Ph.D., Georgia Institute of Technology, "many 3PL-customer relationships are evolving from conventional customer-supplier relationships to true 'partnerships.'"

Evolution of the IT-Supply Chain Gap Execs continue to view IT with skepticism… for good reason. Gartner, Forrester and other leading analysts regularly report systematic disconnects between IT and business processes that affect ROI negatively. Logistics and supply chain operations personnel often aren't comfortable vetting IT projects, citing a lack of technological expertise. Consequently, the IT department often develops the business case for a project involving IT changes, also causing trouble because IT typically does not know supply as well as others in the supply chain.

"The situation is improving," Nick Owen, a member of PA Consulting Group, tells World Trade magazine. Not only have execs recognized there is a real communications gap, but the function of IT itself is changing from managing information to managing business. Over the last few years, IT has come notably closer to business.

Visibility One of today's overarching goals is the visibility of the entire supply chain. Automation plays a major role in this.

Yet because more than half of supply chains are still managed manually with phone, fax and paper, it remains virtually impossible to have visibility into the overall supply chain picture.

"Any supply chain project has to have very precise control," Bill Gauld, principal at The W Group and former CIO for media giant Pearson plc, tells World Trade magazine. "There are no second chances, so the supply chain isn't where I'd put unproved technology.

"You want rock-solid, predictable performance here."

Companies realize they need to manage projects tightly. As such, the most proactive companies are developing meaningful metrics to measure the success or failure or specific projects.

Other supply chain trends noted by experts include increased product sourcing in low-cost regions and better-attuned consideration of supply chain risk.

What supply chain trends do you see taking place? Of all of those covered here, which seems the most significant to you?

Resources

10 Trends That Will Change Your Supply Chain by Gail Dutton World Trade magazine, Jan. 1, 2007

The Top 10 Supply Chain Technologies and Strategies for 2007 by Dan Gilmore Supply Chain Digest, Jan. 25, 2007

Top Supply Chain Initiatives Validated by Recent Survey E2open, March 20, 2007

In Search of a Supply Chain Strategy, Part 1 and Part 2 by Lora Cecere AMR Research, Feb. 22, 2007, and March 08, 2007

11th Annual Third-Party Logistics Study 2006 produced by C. John Langley Jr., Ph.D. Georgia Institute of Technology, Capgemini, DHL and SAP, 2006

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