The first presentation of the day came from Karen Butner, Global Supply Chain Management Leader for the IBM Institute for Business Value, on IBM's Global Chief Supply Chain Officer Study, based on interviews with 400 some supply chain executives worldwide. Karen Butner has more than 25 years of experience in supply chain management business practices and strategies. Her concentration has been to assist clients in the high technology, retail and consumer products, electronics, and transportation logistics industries develop strategies and improvement agendas to bring significant value in transforming their global supply chain performance.
The setting today is extreme economic volatility, with downward sloping demand still in many sectors, while other sectors (e.g., consumer electronics) have seen continued healthy demand. Planning is still very complex, with increased network complexities and product portfolio turmoil. "Change, change, change" is the theme of the day, and it seems to get more so on a daily basis.
The study took about six months to get through, with conversations (hour-and-a-half interviews) with 400 supply chain leaders in about 30 different industries across 25 counties, and they spoke with a variety of different supply chain executives within the enterprise. They focused on supply chain strategy; how companies are collaborating; how agile companies are; how they manage risk; how they use technology and leverage opportunities around real-time data management. One key focus was on how effective different supply chain initiatives are.
The study focused around the "Three Is" that make up characteristics of the "Smarter Supply Chain": Instrumented -- the ability to collect and aggregate data; Intelligent; and Interconnected. The conclusions point to the emergence of a Chief Supply Chain Officer responsible for managing these complex, global supply chains.
Five themes that emerged as challenges:
Supply Chain Visibility, cited by 70 percent of participants. People know they need more visibility, but often the technology does not allow a higher level of visibility, or the culture (e.g., internal or inter-company) gets in the way.
Risk Management, cited by 60 percent. We have seen some pockets of risk management take hold in certain areas of certain industries, but companies have not adopted a global risk management strategy.
Increasing Customer Demand, cited by 56 percent. Despite the economy, customers still want higher levels of service; they want more, and yet companies are doing less and less to understand customers or collaborate around customers.
Cost Containment, cited by 55 percent. Leaders are not just cutting costs, but they are trying to restructure their supply chains, to make them more variable, to ramp supply up and down in response to changes in demand.
Globalization, cited by 43 percent. Globalization is part and parcel of every supply chain; you can't avoid it.
So what are leaders doing around each of these issues?
"Visibility" covers visibility to suppliers and logistics providers, but also visibility to areas that previously might not have been on Supply Chain's radar, e.g., financial institutions (which previously might have been more the purview of Finance and the CFO), government reporting (especially in Europe and, increasingly, Asia) like tax reporting and, moving forward, carbon emissions.
The biggest barriers to visibility are technology (people need tools to connect); aligning performance measures; organizational silos; and, amazingly, "people are too busy."
To understand what leading companies are doing versus average companies, the study looked at the 17 of AMR's Top 25 Supply Chains that were participating in the IBM study, versus others in the study. Leaders are doing more planning with suppliers, continuous replenishment with customers, and customer inventory planning and deployment (VMI, CFAR), versus "average" companies.
It was not surprising that this was on the list, but it was somewhat surprising that it ranked #2 on the list. Here again, leaders are doing a few things more than others, e.g., more around integrating process controls in logistics and operations (96% of leaders are doing this), and compliance programs with suppliers and service providers (92%), incorporating risk strategies and mitigation policies in supply chain planning (80%); and using supply chain event management techniques with tolerances to monitor disruptions (72%), versus other companies (82%, 79%, 76% and 57%, respectively).
Understanding customer needs ("Getting customer requirements right" ) is still a major challenge, cited by 67% of participants, and yet almost half (47%) of companies fail to collaborate with their customers to any extent around demand.
Leaders are using Sales & Operations Planning to a much greater extent, but they're also taking it to a higher level by bringing in suppliers and customers into the process. Leaders are also integrating demand and supply planning applications to a much greater extent.
Cost, obviously, has been top of mind over the past year, with high-level visibility in every organization. Sixty-nine percent said they are focused on cost containment efficiencies in terms of how they are positioning their supply chains to meet the challenges facing their organizations. This is likely to shift toward enabling growth and gaining competitive advantage as the economy tips upward again.
Leaders are more focused around enabling agility, responsibility or flexibility in their supply chains, and around maximizing variable supply chain costs to be aligned with revenues, e.g., outsourcing more to be able to ramp up and down in response to demand fluctuations. Some companies are going beyond outsourcing functions like Procurement or A/P to more core functions like R&D, too.
The costs issues with regard to globalization continue to be around delivery issues and reliability of commitments; lead times often are greater than expected; quality issues remain a problem; and regulation is an issue.
Asia continues to be the leading region for sourcing direct materials and is expected to continue to grow, with Eastern Europe also expected to be a fast-growing region. The anticipated three-year growth in sourcing from Asia was 61 percent, and for Eastern Europe, 43 percent. No surprise that North America and Western Europe are looking at declines. Central and South America and Africa also are looking to see some growth.
This would probably be a top-five issue were it not for the "struggle for survival" that the economy has forced. But this will no doubt return to the top and pick up steam as growth returns. The top steps that companies are taking now are product redesign and packaging changes (cited by 63 percent); adopting supply chain sustainability strategies that align with broader corporate sustainability goals (e.g., around carbon management, water management, energy usage and waste management, 57%); incorporating sustainability in supplier evaluations.
Region versus region, Asia/Asia-Pacific is farther ahead than Europe and the U.S. in terms of thinking about, and implementing, programs around sustainability.
Building leadership talent was the top challenge with regard to talent management. This doesn't mean just the chief supply chain officers, but the mid- to senior-level executives with product management experience and analytical and collaboration skills, particularly managerial talent in new regions like Asia.
Opportunities for Improvement
Respondents thought that their companies are doing well as aligning supply chain and broader business strategy, continuous process and business improvement, and driving cost reductions. Companies also are getting average grades on driving integration and visibility of information across the supply chain, and also on developing talent within their organizations. Where improvement is clearly needed is in driving integration and visibility within the enterprise and across the supply chain, and positioning the supply chain as a revenue growth driver.
The Smarter Supply Chain – The 3 I's
It is IBM's belief that the supply chain of the future must be:
Instrumented, using sensors, actuators, RFID and smart devices to automate transactions, inventory location, shelf-level replenishment detection; supporting real-time data collection and transparency from POS to manufacturing to raw materials; and "sense and respond" demand/supply signals that allow "predict and act" information flows. Bottom line is that we have the technical capability to collect data; the trick, of course, is making sense of all the data that we can collect.
Interconnected, with multi-tier system integration across the network, and standardized data and processes that spans different companies; collaborative decision-making through decision support and business intelligence, starting with the customer – where trust, of course, is a big challenge to making progress.
Intelligent, using simulation models to evaluate tradeoffs of cost, time, quality, service, carbon and other criteria – evaluations that can't be done on the back of an envelope; with probability-based risk assessment and predictive analytics; and networked planning/execution with optimized forecasts and decision support.
So are we ready for the Smart Supply Chain?
Here's one indicator: the Chief Supply Chain Officer is reporting to a greater extent today than in years past directly to the CEO (46% in latest survey). But the purview of the Chief Supply Chain Officer is still very traditional and has not extended into areas that might require supply chain involvement to address many of the key challenges covered in the study. The Chief Supply Chain Officer needs to be a chief orchestrator (managing all the supply chain assets, e.g., suppliers and facilities); chief collaborator and chief optimizer.
Karen also discussed the "Smartmap" to the Supply Chain of the Future, which she'll cover in greater detail later today.
|Supply Chain authority Andrew Reese is Editor of Supply & Demand Chain Executive. He has been invited by IBM PR to attend this show as a blogger and speaker. Like all other speakers, Andrew will receive all speaker benefits including travel and board.|