More companies adopt supply-assurance programs

Recent events such as the earthquake and tsunami in Japan are calling more attention to the need for operational flexibility in the supply chain. Supply chain volatility—whether caused by economic, business, political, or geographical factors—is leading companies to look for new ways to quickly adapt to changes in customer demand or in the availability of supply.

That's the key finding in a 2011 supplement to the Global Supply Chain Trends report from the consulting firm PRTM. According to the report, companies are testing a variety of ways to maximize their supply chain flexibility (see chart, below). The most popular method is to create supply-assurance programs, which entail establishing partnerships with key suppliers based on long-term commitments. Of the 150 senior executives who participated in PRTM's study, 72 percent said that they regard supply-assurance measures as one of the best approaches to achieving flexibility.

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[Figure 1] Levers for increasing supply chain flexibility Enlarge this image

Assurance measures not only help to keep supplies flowing steadily but also increase a company's flexibility to respond to changes, said W. Brad Householder, a director of PRTM Consulting, in a presentation at the Supply Chain World North America conference in Baltimore, Maryland, USA, in May. When companies have these types of programs in place, they are better equipped to work with their suppliers to handle significant upswings or downswings in supply, he said.

Another popular way to increase flexibility is through end-to-end supply chain planning. Sixty-five percent of the surveyed executives said they viewed end-to-end supply chain planning as an excellent way to increase flexibility. Leading companies collaborate with supply chain partners on end-to-end demand and supply planning by connecting, automating, and actively managing real-time information, the study noted.

Although they recognize the importance of supply chain assurance and end-to-end visibility, relatively few of the study participants had begun work in those areas. Only one-third of the executives said their companies had focused on supply-assurance programs. More than 20 percent of respondents said their companies had not even started to execute end-to-end supply chain initiatives.

The study also found that many supply chain executives said their requests to implement flexibility measures were not approved by corporate leadership. They noted that their need to spend additional money on these measures was at odds with their companies' efforts to reduce total supply chain costs. Still, many believed that implementation of operational flexibility measures would result in more revenue and cost savings.

For more information on the study, click here.