Executive Briefings

Global Supply Chain Management: Demand-Supply Networks: Success Factors in 2010

Analyst Insight: Economic volatility has been the cause for the majority of supply chain disruptions in 2008-2009, forcing companies to put an increased emphasis on supply chain management. In today's multi-enterprise demand-supply networks, process collaboration, closed-loop integration between planning and execution, and enhanced focus on intelligence and performance management become key to success.

Economic volatility over the past several years has been illustrated by highly unstable raw material, fuel and commodity prices. Most recently, it has intensified because of the global economic recession that began unfolding a couple years ago. These trends have led to unprecedented challenges in global supply chain management. Aberdeen's mid-year study, The Supply Chain Executive's Agenda for 2009, showed that the top supply chain disruptions over the past year were: 1) reduction in customer demand; 2) raw materials price volatility; 3) fuel price volatility, and; 4) commodities price volatility. In addition, there has been an increase in the percentage of surveyed respondents (compared to previous year) saying that the deterioration of their own, or their suppliers' financial condition, had disrupted their supply chain operations.

The top three actions companies have taken to date to combat the effects of the recession were: 1) reduced inventory at all levels; 2) to shift focus from strategic to more tactical, short-term improvement projects, and; 3) restructuring the supply chain organization to increase efficiencies. From a competitive differentiation standpoint, companies with superior performance in on-time delivery, cash-to-cash, and landed-cost metrics (the "Best-in-Class" performers in this study) have superior capabilities in:

• Closed-loop integration of planning and execution and B2B connectivity with partners.
• Supply chain responsiveness
• A more "intelligent" and "enabled" supply chain. For instance, the Best-in-Class are more than twice as likely as Laggards to use supply chain visibility software, 2.7 times as likely to use transportation management software, and 2.9 times as likely to use inventory optimization software.

The Outlook

To mitigate the effects of the recession, companies should:

• Reduce inventory by segmenting it based on profitability and extending inventory management beyond finished goods 
• Evaluate alternative sources of working capital financing
• Renegotiate agreements with partners tailoring them to market conditions and partners' performance

In the long term, supply chain infrastructure must be improved by enhancing visibility and integration, supply chain responsiveness, and supply chain risk management.

Economic volatility over the past several years has been illustrated by highly unstable raw material, fuel and commodity prices. Most recently, it has intensified because of the global economic recession that began unfolding a couple years ago. These trends have led to unprecedented challenges in global supply chain management. Aberdeen's mid-year study, The Supply Chain Executive's Agenda for 2009, showed that the top supply chain disruptions over the past year were: 1) reduction in customer demand; 2) raw materials price volatility; 3) fuel price volatility, and; 4) commodities price volatility. In addition, there has been an increase in the percentage of surveyed respondents (compared to previous year) saying that the deterioration of their own, or their suppliers' financial condition, had disrupted their supply chain operations.

The top three actions companies have taken to date to combat the effects of the recession were: 1) reduced inventory at all levels; 2) to shift focus from strategic to more tactical, short-term improvement projects, and; 3) restructuring the supply chain organization to increase efficiencies. From a competitive differentiation standpoint, companies with superior performance in on-time delivery, cash-to-cash, and landed-cost metrics (the "Best-in-Class" performers in this study) have superior capabilities in:

• Closed-loop integration of planning and execution and B2B connectivity with partners.
• Supply chain responsiveness
• A more "intelligent" and "enabled" supply chain. For instance, the Best-in-Class are more than twice as likely as Laggards to use supply chain visibility software, 2.7 times as likely to use transportation management software, and 2.9 times as likely to use inventory optimization software.

The Outlook

To mitigate the effects of the recession, companies should:

• Reduce inventory by segmenting it based on profitability and extending inventory management beyond finished goods 
• Evaluate alternative sources of working capital financing
• Renegotiate agreements with partners tailoring them to market conditions and partners' performance

In the long term, supply chain infrastructure must be improved by enhancing visibility and integration, supply chain responsiveness, and supply chain risk management.