Study finds that companies are struggling to handle supply chain complexity

Supply chains are growing increasingly complex as companies try to respond to customers' expectations for faster order fulfillment and greater satisfaction levels. A recent study conducted by the supply chain software company JDA shows that companies are more than aware of that complexity but are struggling to respond effectively, particularly when it comes to inventory management and demand management.

The JDA Vision 2015 Supply Chain Market Study found that the majority of companies are pursuing sophisticated supply chain strategies, such as supply chain segmentation (80 percent) and integrating sales and operations planning (S&OP) with inventory planning (58 percent). Yet oftentimes these strategic objectives are not being backed up with best practices or appropriate technology. For example, more than three in 10 large companies (revenues over US$5 billion) do not have a defined "consensus demand management process." In such a process, the sales, marketing, and supply chain functions come together to create a common, agreed-upon forecast. According to JDA, a defined consensus demand management process is crucial for creating a sound S&OP process.

Likewise, companies are striving to optimize their inventory management practices and have set priorities such as improving service levels (93 percent of respondents) and moving inventory closer to demand (88 percent). Yet the study also found that there is no standard set of metrics for measuring inventory management performance. Instead, respondents listed more than 25 different metrics that they use.

Similarly, most companies seem to lack the sophisticated technology they need to effectively manage their inventory and to forecast demand. The study found that only 3 percent of organizations used any sort of algorithm-based technology to forecast the effects of sales promotions, and that 59 percent did not develop any sort of forecast for new-product launches.

Respondents further reported that 33 percent of all customer orders require expediting, perhaps because many respondents do not have sophisticated transportation operations or supporting technologies. According to JDA, only 26 percent of respondents' transportation organizations employ a shared-services model for transportation management, only 46 percent have a "core carrier" program, and just 43 percent use transportation management software.

The report urges companies to combat growing complexity by increasing visibility across their networks. Doing so would require them to implement more up-to-date technology and automation as well as to form more tightly integrated supply and demand planning processes that cut across traditional silos such as marketing, sales, and supply chain management.

The study was based on responses to a 90-question survey from 255 executives in 17 countries. The executives represented a mix of wholesalers, retailers, manufacturers, and third-party logistics providers.

A copy of the study can be found here.