© 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.
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation3
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
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation4
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%
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation5
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
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation6
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
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation7
Primary objective for 2004 is increased profitability
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation8
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
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation9
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
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation10
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
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation11
Despite the emphases on time-to-market reduction initiatives, most are challenged to meet on-time and on-budget attainment
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation12
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
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation13
Companies are progressively adopting planning tools to increase both productivity and profitability
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation14
Companies are embracing customer collaboration processes
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation15
The overwhelming majority of respondents consider the implementation of these leading practices proved to be effective in supporting their objectives for profitability and performance
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation16
Customer Order Management practices influence customer demand and support increased revenue and profitability objectives
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation17
On-time delivery (OTD) continues to be a key performance indicator for customer satisfaction
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation18
Real-time customer order management capabilities are primarily in order entry/tracking and inventory reservation
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation19
The trend toward global sourcing is on the rise
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation20
Most companies are embracing logistics leading practices in the areas of differentiated logistics services by customer segment and flow through strategies
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation21
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%
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation22
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.
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation23
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
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation24
Questions?
Karen ButnerIBM Institute for Business Value
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation25
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
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation26
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
Source: IBM / IndustryWeek Value Chain Survey, 2004
PartnershipPerformance
Profitability
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation27
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
Source: IBM / IndustryWeek Value Chain Survey, 2004
PartnershipPerformance
Profitability
Energize your Supply Chain Network: Value Chain Survey Results
March 2004 | © 2004 IBM Corporation28
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
Source: IBM / IndustryWeek Value Chain Survey, 2004
PartnershipPerformance
Profitability