During Down Economy, Supply Chain Efficiency is Key to Driving Profits

News Article -- February 07, 2011

Supply chain efficiency to weather the downturn

Completed by supply chain executives from 20 different industries worldwide, the “Global Survey of Supply Chain Progress” was conducted by CSC (NYSE: CSC), Supply Chain Management Review, The Eli Broad Graduate School of Management at Michigan State University, with assistance from The Council of Supply Chain Management Professionals (CSCMP) and Supply Chain Europe magazine.

This year’s 2010 edition focused in particular on business results during the worldwide downturn and how supply chains had played a role in reducing costs and sustaining revenues.

And the bottom line is clear: Over the past year, an efficient supply chain was essential to maintain prices on goods and services, as well as to generate new revenues. “The lessons on how businesses survived a serious economic downturn are becoming more evident,” said Brad Barton, CSC’s Supply Chain Practice Leader. “To reduce costs, business leaders went directly to their supply chains, working with key suppliers to reduce cycle times and increase revenues with their best customers.”

A tight tango with suppliers

When asked what happened to the emphasis on supply chain management in the last 12 to 24 months, 78% reported it had increased.

The emphasis is definitely shifting back to cost reduction, and pressure applied to the sourcing group, to find new savings from obliging suppliers. The fact is that this has been a demanding period for suppliers, asked to perform a balancing act!

There was clear evidence that companies relied more on suppliers to help with cost control, new product development and meeting customer demands. At the same time, there was continued expectation of finding better prices, or the buyer would shift its supply base. The key for suppliers was to sustain the most important customer base by offering help in both areas.

A mixed bag of results…

Businesses were affected differently in these troubled times, and depending on whether they were among the leaders or the followers, they adopted different approaches in their supply chain management.

A number of leaders took advantage of the disrupted economic context, to build market share, with 37.5% indicating their shares had gone up over the period, even if 22.5% said they went down. This resilience in the wake of adversity, their rapid responsiveness, can be explained in part, by the fact that they tend to rely on a centralised organisation that exercises a greater global control and functional span. For this particular period, their reaction in terms of the supply chain, was to raise their expectations and ask suppliers for improved offerings.

Followers, on the other hand, were more likely to decrease product and service offerings, and to seek a better balance in terms of supply/demand. They also focused on how to redesign their products to cut manufacturing costs, and in the process, turned to their suppliers for help with new materials and innovative concepts.

Going green?

Green issues continue to be a part of any emerging supply chain strategy. According to the survey, 62% indicated that green/sustainability supply chain issues were receiving more emphasis in their company today than 18 months ago. But the actual results have a wide variance, with lukewarm results being the order of the day. For example, 72% reported that green initiatives had resulted in no revenue increases, while 60% indicated cost savings from green initiatives from 1% to 11%.

Supply chain optimisation to help rise out

At this point in time, all businesses must perform within tight financial ropes. The survey shows that savings in 2010, which were essentially flat, or fell off slightly, when compared to 2009: 20% of the firms reported no savings or not sure of savings (up from 13% in 2009); Only 10% (down from 20% in 2009) reported 11% to 20% savings.

These results suggest that most firms are at the bottom of the economic trough and will use their supply chains to keep a lid on costs, as they slowly rise out of the downturn. “If ever there was a call for action, it appeared in the 2010 supply chain survey results,” asserts Barton. “Failure to have a supply chain in prime condition was a ticket to increased costs and lost market shares. Firms have only bottomed out in the global recession, and we expect continued emphasis will be placed on supply chain optimisation for the next 12 months.”

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