© 2002 ibm corporation |august, 2004 | deeper industryweek value chain survey conducted by ibm...

© 2002 IBM Corporation |August, 2004 |

deeper

IndustryWeek Value Chain Survey Conducted by IBM

Energize your supply chain network

GAINNew competitive advantage from existing investments

Karen ButnerIBM Institute for Business Value

SCM Global Solutions

Energize your Supply Chain Network: Value Chain Survey Results

March 2004 | © 2004 IBM Corporation2

The Value Chain Survey provides a unique perspective on the views and priorities of SCM executives

IBM Supply Chain Management Services and IBM Benchmarking Program, in conjunction with IndustryWeek magazine,

conducted a comprehensive Value Chain Survey to ascertain what is “top of mind” with key SCM executives.



The survey provides a comprehensive assessment of the SCM executives’ agenda for the next two to three years

Target Group of Respondents

− The Value Chain survey captured trends, practices and operational performance benchmarks in five key areas:

Framework

− Each of the 5 independent surveys included 18-22 questions on business objectives, enabling technologies, and key performance measurements such as FTE’s, cycle times, and efficiency rates.

− There were a total of 1,461 respondents. The number of respondents by survey: New Product Development: 360

Supply Chain Planning: 270

Customer Order Management: 270

Procurement: 396

Logistics: 175

LogisticsProcurementCustomer Order

ManagementSupply Chain

PlanningNew ProductDevelopment



The 1,461 respondents spanned all industries

Source: IBM Business Consulting Services & IndustryWeek survey

The survey reveals a remarkable convergence of views around major issues, across both size (revenue per site) and industries

Participant Site’s Annual Revenue

53.7%

15.6%11.9%

18.8%

0%5%

10%15%20%25%30%35%40%45%50%55%

$0- $25M $25 - $50M $50M -$100M

> $100 M

Pe

rce

nta

ge

of

resp

on

de

nts

Industries Represented

Retail 1%

Other 3%

IndustrialProducts 50% Energy

1%

ConsumerProducts 34%

High Tech 1%

Distribution 14%

Services 1%



The survey was rich in performance metrics and business practices

Key Performance Indicators: Sample Data only

All Companies Median Value

All Companies Benchmark Value*

Number of FTEs for the order materials process per $1 billion purchases

122 50

Percentage of sales due to product/services launched in the past year 15% 28%

Customer lead time (order entry to shipment) in days 7 2

Finished goods inventory turn rate 10 24

Cost of Goods Sold as a percentage of revenue 67% 23.2%

Cash-to-cash cycle time in days 67.5 44

* Benchmarks are computed as 80th percentile



Revenue growth takes precedence over cost containment

Welcome back to the top line

Four out of five CEOs across the world believe that revenue growth is their number one priority – and the means to achieve their financial performance objectives

At the same time, CEOs believe they must maintain their ongoing emphasis on cost containment

Most CEOs believe that differentiated products and services will be a key driver of growth in a hypercompetitive market – and product/service innovation will only be achieved through new capabilities



Primary objective for 2004 is increased profitability



To achieve profitability objectives, companies are adopting SCM advanced practices

Key Focus Area for Strengthening Financial Performance Over the Next Three Years

Widely Adopted

Somewhat Adopted

Not Adopted

• Responsive end-to-end supply chains

• Variable cost aligned with revenues

• Real-time information

• Shared risk



Innovative supply chain management performanceis characterized by on demand maturity

on demandTraditional

Static Supply Chain

Horizontal Process

Integration andAutomation

FunctionalOptimization

Horizontal Process

Integration andAutomation

FunctionalOptimization

on demandon demandSupply ChainSupply Chain

ExternalCollaboration



Balancing customer requirements while managing costs and resources, is key to bringing new products and services to market in a timely fashion to meet profitability objectives



Despite the emphases on time-to-market reduction initiatives, most are challenged to meet on-time and on-budget attainment



Being able to respond to an ever faster changing environment is increasingly gaining importance

Responsiveness – the new key competence CEOs recognize that they need to sense,

analyze and respond more effectively to continuously changing market conditions and risks

Agility has been made a high priority

Yet very few CEOs rated their organizations’ ability to react to these changing conditions and external forces as being very good.

Reinstituting a “customer responsive” organization is high on their growth agenda

CEOs recognize the need to establish effective, real-time response capabilities

CEOs are aware of the power of IT and the weaknesses that result from lagging behind



Companies are progressively adopting planning tools to increase both productivity and profitability



Companies are embracing customer collaboration processes



The overwhelming majority of respondents consider the implementation of these leading practices proved to be effective in supporting their objectives for profitability and performance



Customer Order Management practices influence customer demand and support increased revenue and profitability objectives



On-time delivery (OTD) continues to be a key performance indicator for customer satisfaction



Real-time customer order management capabilities are primarily in order entry/tracking and inventory reservation



The trend toward global sourcing is on the rise



Most companies are embracing logistics leading practices in the areas of differentiated logistics services by customer segment and flow through strategies



Outsourcing of logistics functions continues predominately in the areas of freight bill audit and payment, customs/export services, warehousing and transportation

Of those outsourced functions most responded that they have met objectives:

– Customs – 55% extremely effective, 44% somewhat effective

– Warehousing – 43% and 55%

– Transportation management – 62% and 35%

– Facilities maintenance – 36% and 60%



Recommended ActionsFocused and variable logistics network structures and processes

are required for supply chain success in today’s global economy

Create competitive “fit for purpose” supply chain structures by focusing on differentiating competencies which support the customer value proposition and exploit the advantages of global sourcing and networked value chains

To accommodate the variability brought about by customer demand fluctuations and changing requirements, develop and implement dynamic and adaptive supply chain logistics structures

Control and marshal logistics assets and virtual assets acquired through outsourcing and partnerships in realtime. Integrate the entire end-to-end global logistics network and manage event exceptions proactively

Create competitive advantage through aggressive exploitation of new supply chain technologies (RFID) and reduced cost of operations through new ways to deliver and finance technology infrastructure.



New competitive advantage from existing investments: Profitability, Performance, Partnership

ProfitabilityQuest for profitability demonstrated through SCM

initiatives that can deliver a rapid return on investment (ROI)

PerformanceStrong focus on end-to-end supply chain visibility

(sensing) and end-to-end responsiveness (adaptive supply chain)

PartnershipCollaboration is next frontier of improvement for

renewed operational excellence. Partnerships are required to: Develop new products/services faster Produce hybrid and cost effective products/services Deliver through multiple, global channels Increase performance of operations

Source: IBM / IndustryWeek Value Chain Survey, 2004

PartnershipPerformance

Profitability



Questions?

Karen ButnerIBM Institute for Business Value

[email protected]



Summary

Traditional supply chain business models are giving way to emergence of new horizontally integrated, high-performance, on demand value chain networks

New supply chain strategies create competitive advantage opportunities

Companies must energize their supply chain through implementing new and innovative business models, while leveraging existing investments



SCM quest for profitability is demonstrated through initiatives that can deliver superior products and services with rapid time-to-market and return-on-investment

Profitability1. Create superior innovation processes of

products and services to meet customer needs in collaboration with supply chain partners

2. Implement real-time accurate access to relevant customer & supply chain operational data

Quickly identify root causes of issues

Manage by exception through alert messaging

Shared information on plans, issues and actions to enable rapid decision-making

3. Develop variable cost structures that can be controlled and managed in direct relationship to customer demand Initiatives support profitability objectives

through growth, cost containment, and rapid ROI



Profitability



Optimizing supply chain performance, productivity, and responsiveness are focus areas to achieve cost and service-level objectives

Performance1. Implement responsive, end-to-end and

integrated processes to synchronize demand and supply and eliminate supply chain waste (time, inventory, effort, money)

2. Standardize and align measurements to monitor daily performance

Scorecards to identify performance trends and recurring issues

Integrated end-to-end supply chain measurements

– Perfect order (on-time, right product, right price, damage free)

– Cycle time reduction in on-time delivery & new product time to market

– Customer service level attainment3. Implement a robust capability to sense

and respond to customer demands and other critical events as they occur

Initiatives support performance objectives of cost containment and improved service levels through increased customer responsiveness



Profitability



The number of players has increased dramatically, as well as the complexities involved in delivering customer value in the extended supply networkPartnership1. Develop and implement the ability to

execute across the supply chain network in a synchronized way through collaborative planning and execution with customers and suppliers.

2. Rationalize the logistics network and outsource non-differentiating activities to partners

3. Develop and implement dynamic and adaptive supply chain logistics structures for variable cost control.

4. Develop and implement global sourcing and supply networks End-to-end visibility and

adaptability

Networks of supply chain partners that sense and respond in a coordinated fashion to changes in their environment

Initiatives support objectives of growth, cost containment and improved service levels through collaborative partnership in the extended supply chain



Profitability

© 2002 ibm corporation |august, 2004 | deeper industryweek value chain survey conducted by ibm...

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