April 10, 2007

Top Supply Chain Trends

By David R. Butcher

Supply chain strategy is a holistic view of demand, product and supply processes

aimed at maximizing opportunity and mitigating risk. To this end, here we address

both the leading high-priority supply chain initiatives and the day-to-day business

processes we can expect in the near future.

Reducing operating costs and inventory, improving on-time delivery, availability and

cycle times — these are all top business objectives in supply chain initiatives. Yet

supply chain strategy is not simply about supply, operations or manufacturing.

Rather, it is a holistic view of demand, product and supply processes aimed at

maximizing opportunity and mitigating risk, as AMR Research defines it.

An increasing number of companies cite supply chain initiatives and prowess in

annual reports and meetings with financial analysts, as we recently noted. Global

supply chain excellence, we argued, is more than just an emerging skill; in fact, for

most companies it will be a key determinant of overall company success — even

survival. And the full impact of globalization really started to be felt in the supply

chain last year.

To this end, here we address both the high-priority supply chain initiatives as

validated by supply chain leaders and the trends we can look forward to as they

relate to the supply chain.

Respondents of a survey recently conducted by E2open, a provider of supply chain

management software, validated the highest-priority supply chain initiatives as

follows:

• Forty-eight (48) percent identified lean supply chain — eliminating waste and

unnecessary steps, for example, by evolving from a “push” to “pull,” demand-driven

strategy;

• Forty-five (45) percent identified operational improvement programs — obtaining

visibility into supply chain information by replacing manual processes with

automation;

• Thirty-nine (39) percent identified globalization — leveraging economies of scale

across multiple operating units; and

• Twenty-nine (29) percent identified improvement in trading partner integration by

migrating to multi-enterprise supply chain platforms.

Additional initiatives identified by respondents included outsourced manufacturing

and design, as well as operating and sourcing, in low-cost countries such as China,

Southeast Asia, Eastern Europe and Latin America. (See: Is the Promised Land

Offshore? and Asia's Major Players)

But what about the day-to-day business processes? The following are major trends

that experts anticipate will have the biggest impact on tomorrow’s supply chain.

Lean Six Sigma Logistics

Lean and Six Sigma practices are no longer being applied only in manufacturing,

according to Thomas J. Goldsby, University of Kentucky, in World Trade magazine

recently.

Leading companies are finding that the application of Lean and Sigma makes good

business sense in logistics management… given that wastes and process variation

exist throughout our logistics and supply chain networks.

Much discussion has focused not only on Toyota’s production system, which relies on

a “pull” method of material flow and perfect quality in process execution in order to

minimize waste, and on customers, but also on the continuous improvement

methodology of Six Sigma for understanding and reducing process variation.

Lean Six Sigma Logistics embodies the elimination of waste through disciplined

efforts to understand and reduce variation, while increasing speed and flow in the

supply chain. In particular, Lean Six Sigma Logistics focuses on logistics flow,

capability and discipline as the guiding principles for solving logistics challenges:

“Effective deployment of these principles will help us to bridge our suppliers with our

own processes, and then bridge our processes to the customer,” Goldsby writes in

World Trade.

(See: The Lean and Mean Supply Chain)

Third-Party Logistics Services

Among the major findings of the 2006 Third Party Logistics Study conducted by

Georgia Tech, Capgemini, DHL and SAP, was that future outsourcing practices are

likely to continue the use of traditional services that are prevalent today (e.g.,

transportation, warehousing, customs clearance, etc.). In addition to these,

however, value-added services relating to information technology (IT), customized

logistics solutions and 4PL services are seen growing in terms of contemporary

interest.

As for technology enablement, most customers are looking to the 3PL sector for

leadership, functionality and operational capabilities, reports World Trade. Because of

concerns that improvement is needed, 3PLs’ IT capabilities are expected to become

even greater differentiators of 3PLs than they are today.

Moreover, according to John Langley Jr., Ph.D., Georgia Institute of Technology,

“many 3PL-customer relationships are evolving from conventional customer-supplier

relationships to true ‘partnerships.’”

Evolution of the IT-Supply Chain Gap

Execs continue to view IT with skepticism… for good reason. Gartner, Forrester and

other leading analysts regularly report systematic disconnects between IT and

business processes that affect ROI negatively. Logistics and supply chain operations

personnel often aren’t comfortable vetting IT projects, citing a lack of technological

expertise. Consequently, the IT department often develops the business case for a

project involving IT changes, also causing trouble because IT typically does not know

supply as well as others in the supply chain.

“The situation is improving,” Nick Owen, a member of PA Consulting Group, tells

World Trade magazine. Not only have execs recognized there is a real

communications gap, but the function of IT itself is changing from managing

information to managing business. Over the last few years, IT has come notably

closer to business.

Visibility

One of today’s overarching goals is the visibility of the entire supply chain.

Automation plays a major role in this.

Yet because more than half of supply chains are still managed manually with phone,

fax and paper, it remains virtually impossible to have visibility into the overall supply

chain picture.

“Any supply chain project has to have very precise control,” Bill Gauld, principal at

The W Group and former CIO for media giant Pearson plc, tells World Trade

magazine. “There are no second chances, so the supply chain isn’t where I’d put

unproved technology.

“You want rock-solid, predictable performance here.”

Companies realize they need to manage projects tightly. As such, the most proactive

companies are developing meaningful metrics to measure the success or failure or

specific projects.

Other supply chain trends noted by experts include increased product sourcing in

low-cost regions and better-attuned consideration of supply chain risk.

What supply chain trends do you see taking place? Of all of those covered here,

which seems the most significant to you?