The Ideal Supply Chain Is Within Reach

The U.S. economy is experiencing a productivity boom last seen in the post-World War II era. The last boom was fueled by the widespread deployment of mass production systems, the automobile, and their pervasive impact on the way we live. This new one can be linked to the widespread deployment of technology and information and, at last, their pervasive use throughout business and society. Economists and futurists argue persuasively that we are at the beginning of the deployment phase of the technology revolution, and that if it plays out, we will see an unprecedented boom cycle.

Follow the leaders

For business, this deployment phase means improving performance across the value chain like never before. The successful will be the productivity and, thus, market-share leaders of the new economy. Some oft-cited examples already exist:

• Dell, with close to $1M in revenue per employee, dwarfing the industry average
• Wal-Mart, whose size exceeds the Gross Domestic Product (GDP) of most countries
• Toyota, which is now the second largest global automaker
• Cisco, which dominates the networking market

In each case, the foundation of their dominance is supply chain performance. These companies leave competitor casualties in their wake as they move forward. As technology drives the productivity boom in many other industries, what do you have to do to take advantage of the foundation supply chain opportunity, to be a leader rather than a casualty? I constantly think about this question and about AMR Researchs role in the process.

Supply chain, supply chain, supply chain

Ten years ago, AMR Research worked extensively with organizations to evaluate and select Enterprise Resource Planning (ERP) systems to replace aging applications and infrastructure. Doing so, we identified a supply chain software market that was forming to capitalize on these largely back-office-oriented ERP backbones. In response, we launched the industrys first service dedicated to analyzing this new software market and teamed with consulting firm PRTM to create the Supply-Chain Operations Reference (SCOR) model and the Supply Chain Council, which now functions as an independent non-profit organization serving the industry.

Now, as we come out of the severe downturn of the past few years, a supply chain opportunity has once again emerged. But this time, while technology remains a critical factor, business and best practices take the lead in this new supply chain revolution.

Best practices are key

To make sense of this new opportunity and to help you to realize it, we have spent the past two years benchmarking supply chain performance across a number of industries. This research reveals some telling results:

• Demand forecast accuracy, perfect order fulfillment (perfect means complete, accurate, and on-time), supply chain cost, and cash-to-cash cycle time are the four most critical metrics a company can use to get a quick, balanced snapshot of its supply chain performance.

  The Takeaway: With these four metrics, you can see how good a view of demand you have, where youre making trade-offs between cost and service, and how well youre managing your cash flow.

• Demand forecast accuracy creates high responsiveness and cuts cost right through the supply chain.

  TheTakeaway: Companies that are best at demand forecasting average 15 percent less inventory, 17 percent stronger perfect order fulfillment, and 35 percent shorter cash-to-cash cycle times, while having a tenth of the stockouts of their peers.

• Demand forecast accuracy correlates with perfect order fulfillment: A 1 percent point improvement in demand forecast accuracy can yield a 2 percent point improvement in perfect order fulfillment capability.

  The Takeaway: Even a minor improvement in a companys demand visibility can have a dramatic effect on its customer responsiveness.

  The supply chain is changing

  These findings make it clear that the supply chain management opportunity is at a crossroads. On one side, you have the general recognition of its strategic importance. On the other side, many of the principles and approaches that traditional supply chain management was established upon are dramatically changing.

  Take the following, for example:

  • As corporate goals move to profitable growth from cost cutting, the supply chain managers role shifts from responsibility for product movement (inbound and outbound) to overall responsibility of the integrated supply chain from customer to supplier, including product and information movement.
  • Lean principles are core to supply chain strategy. These have moved from the manufacturing world, where principles like flow, Just-in-Time (JIT), and kanban reshaped the plant floor, and now are being applied across the enterprise through initiatives like Six Sigma.
  • A real shift has occurred in process design and alignment from a supply/internal orientation to one focused on the demand signal and the integration of the multilayered value chain (from your suppliers supplier to your customers customer).

  Underlying all of this, the technology that is required is also changing. Most companies placed their bets on the potential of optimization technology to overcome constraints, but leaders have targeted execution systems that let them respond to changes faster. Practitioners have also recognized the limits of historical data as a predictor of the future, and are increasingly using real-time information to get closer to demand.

  Introducing your next-generation supply chain team

  With this growing base of benchmarking data as a foundation, and a commitment to understanding the evolving role of technology, AMR Research has grown and refocused its supply chain team to help you navigate the decisions you need to make with speed and confidence.

  Our supply chain work is three-pronged:

  • Strategy: The Demand-Driven Supply Network (DDSN) is a framework we developed to help companies use demand-based data to improve service and lower coststo fulfill the perfect order.
  • Best Practices: Rather than a pure technology bent, our research is based on how to capitalize on Lean management principles, including Six Sigma, to push cost and variability out of every operational area.
  • Technology: We are aggressively covering new technologies like Radio Frequency Identification (RFID) and their potential to create new levels of supply chain performance. But as with all of our technology coverage, we are pragmatic and committed to identifying the real Return on Investment (ROI) and maturity of the tools prior to recommending the implementation.

  Ultimately, it is all about unlocking productivity gains. The potential is to double industry productivity rates by combining multiple lean initiatives with the pragmatic use of information systems and breakthrough technology like RFID.

  Id love to talk to you more about these issues. Please send me an e-mail to let me know your thoughts

  tfriscia@amrresearch.com.