Market volatility and demand variability are making it harder than ever to synchronize supply and demand. Companies need optimal supply chain configurations, but lack of visibility into complex global supply chains restrains their ability to predict and respond to volatility. If they want to maintain a competitive edge in today's economic environment, then, they'll need to adopt some new strategies.
That's one of the main messages in "New rules for a new decade: A vision for smarter supply chain management," a report by Karen Butner of IBM's Institute for Business Value. The report presents findings from a survey of 664 supply chain management executives in 29 countries.
The overall mandates for companies today, Butner writes, are to counter demand variability, increase supply chain visibility, and enhance enterprise value. Those broad categories encompassed the supply chain challenges most often cited by the survey respondents. At the top of the list was demand variability, cited by 53 percent. That outranked typical top scorers like cost optimization and inventory optimization (see Figure 1).
"Visionary" companies, as IBM calls them, are successfully deploying a number of strategies that have given them an edge over the competition, despite the many challenges they face. IBM identified 60 of the 664 companies (or 9 percent of the respondents) as being "visionary" based on their use of advanced strategies and initiatives to improve supply chain visibility, partner collaboration, customer demand management, and the optimization of network resources and inventory.
One of the ways these companies are responding to increased volatility is by extending their sales and operations planning (S&OP) process to include key suppliers, service partners, and customers. This "networked S&OP" is based on actual demand information—ideally, reliable and detailed point-of-sale data. In these networked arrangements, companies also share forecasts and their production, supply, and replenishment plans with key suppliers and service providers. To make this possible, visionary companies are investing in analytical and market-intelligence software that supports customer and supplier collaboration and helps them detect events that could disrupt customer service. With more complete and current information, these companies are better able to allocate resources (including staff), synchronize supply and demand, and make mid-course corrections of inventories. More than "sense and respond," Butner writes, they are attempting to "predict and act."
Another initiative undertaken by leading companies is the creation of "virtual command centers." These centers fuse real-time information, event processing, and analytical technologies to enable participants in the supply chain network to collaboratively plan and execute decisions.
Visionary companies are replacing fixed cost structures with more variable ones, taking advantage of partnering and outsourcing to gain flexibility, scale, and skills outside of their own organizations. As part of those efforts to optimize global networks, inventory positioning, and costs, they are using technologies such as simulation models to test new product introductions, or scenario planning and modeling to evaluate the trade-offs of costs with other constraints.
These and other strategies outlined in the report are having an impact. A review of the visionary companies found that they averaged a 27-percent return on invested capital over the past three years and experienced a three-year average revenue growth of nearly 25 percent.
"New rules for a new decade: A vision for smarter supply chain management," is available for download with registration.