Building the Smarter Supply Chain of the Future

© Copyright IBM Corporation 2009

THE SMARTER SUPPLY CHAIN OF THE FUTUREIBM Global Chief Supply Chain Officer StudySimon Terry

(C) 2008 asbl Atomium / Artists Rights Society (ARS), New York / SABAM, BrusselsPhoto Number: WC6D8959

IBM Global Business Services

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400 Supply Chain Executives World-wide

25 Countries

400 Supply Chain Executives

We ran our Global Chief Supply Chain Officer study to gain insight into the challenges facing supply chain executives around the world… to learn what strategies and initiatives they are undertaking.

0 5 10 15 20 25 30Utilities (e.g., gas & electric)

Government and public servicesAerospace and defence

TelecommunicationsTransportation and logistics

Life sciences / pharmaceuticalsChemicals and petroleum

Food, beverages and tobaccoAutomotive

Consumer products / wholesaleIndustrial products

ElectronicsRetail

Number of Respondents

29 Industries

35 40 45

25 Countries


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We found a volatile marketplace where supply chains continue to become more global and more complex...

Businesses are becoming more global

Supply chains are becoming supply networks

The product portfolio is changing rapidly

Foreign subsidiaries tripledfrom 265,000 to 790,000 between 1995 and 2007

The number of transnationalcompanies doubled from

38,000 to 79,000

80% expect the number of collaborative relationships with

third parties to increase

R&D outsourcing is expected to increase by 65% 2007 - 2010

Engineering services and product design projects are forecast to increase 80%

Large consumer products companies are introducing

10,000 SKUs per year

Expect high/very high level of complexity over 5 years

Currently experiencing high/very high level of complexity

Experienced and expected level of complexity

32%more

79%

60%

Expect high/very high level of complexity over 5 years

Feel prepared for expected complexity

Complexity and preparedness to handle

30%Complexity gap*

49%

79%

Source: IBM Global CEO Study 2010, n=1522


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…and that it’s no longer enough to build supply chains that are efficient, demand

driven and transparent.They must also be Smart

Instrumented

Interconnected

Intelligent

Our research found five challenges that define the agenda…

visibility

55%

70%

60%56%

43%

customer demands

cost containment risk

globalization


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COST CONTAINMENT

SUPPLY CHAIN VISIBILITY

RISK MANAGEMENT

INCREASING CUSTOMER DEMANDS

GLOBALIZATION

55%

70%

60%56%

43%

© Centre Pompidou, 2008 / Architects: R.Piano, R.Rogers

Visibility

Despite abundant information and connectivity, supply chain executives still rank visibility as their greatest challenge


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Extent of implemented Integration PracticesLeaders vs. Others

* Leaders determined based on respondents’ ranking in AMR Research Supply Chain Top 25 for 2008

Customer Inventory Planning

& Deployment

Planning with Suppliers

Shared, real-time electronic

data

Continuous Replenishment with customers

30% 16% 24% 9%24% 19%

Sum:extensive

& some extent

Extensive

86%

79%

72%

53%

11%

63%

16%

62%

72%

61%

7% Gap

11%Gap

19%Gap

1%Gap

Extensive

Top Supply Chains:

Extensive

Others:Some Implementation Some Implementation

Leaders of top supply chains are much more focused on improving visibility. Twice as many report extensive implementations of collaborative planning with suppliers and vendor-managed inventory

Visibility

Of your supply chain partners, where is your greatest supply chain visibility issue?

Ranking

Others

Customers

Logistics Providers

Contract Manufacturers

Suppliers


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Very Significant Greatly Significant Moderately Significant

How significant are the following barriers to visibility & collaboration? (respondents answered very to moderately significant)

Organizational silos

Too busy to assist others

Not rewarded for it

Technological tools not effective

Not viewed as important

Concerns about intellectual property

75%

75%

68%

63%

52%

31%

Visibility

It may seem logical to blame poor visibility and collaboration on inadequate IT but supply chain executives point elsewhere.

Not surprisingly, organizational silos are the biggest barrier. But we wereshocked so many executives reported that their organizations are too busy to share information or simply do not believe collaborative decision making is that important.


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COST CONTAINMENT


RISK MANAGEMENT


GLOBALIZATION

55%

70%

60%56%

43%

Risk Management

Mounting supply chain risk – even more than customer demands and increasing costs –has leaders on edge.


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The focus on risk management is not driven by the economic environment but from thousands of recall headlines, globalization and the complexities of greater supply chain interdependence.

What are the obstacles for implementing risk management programs?

Standard processes

Insufficient data

Inadequate technology

Culture

Organization

Access/Process controls

Financial

46%

42%

34%

26%

23%

6%

15%

Risk Management

• 69% formally monitor risk, but only 31% manage performance and risk together.


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Currently implemented/Implementing

What types of and risk management practices have/are you implementing?

Integrating process controls

Incorporating risk strategies

Compliance programs

Using supply chain event

management

92%96%

80%72%

79%82%76%

57%

Plan to implement in next 3 years

Currently implemented/Implementing

Plan to implement in next 3 years

Leaders Others

Leaders are sharing risks across their supply chain network to reduce vulnerability.

Risk Management


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COST CONTAINMENT


RISK MANAGEMENT


GLOBALIZATION

55%

70%

60%56%

43%

Customer intimacy

Rising customer demands ranks as the third highest supply chain challenge


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We forgot about the customer.

No extent

19%

Very great extent

5%Significant extent

15%

Moderate extent

33%

Little extent

28%

Extent of external demand collaboration with customers

10%Top supply chains claim to collaborate with customers more

Almost Half (47%) FAIL to Collaborate with Customers!

Customer intimacy

• Two out of every three companies struggle to accurately identify customer needs.

• 80% design products jointly with their suppliers, but only 68% do so with customers.

• In supply-chain planning 53% of companies include customer input, while 63% invite supplier participation.


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COST CONTAINMENT

RISK MANAGEMENT



GLOBALIZATION

55%

70%

60%56%

43%

Cost containment

Cost Containment ranks 1st for supply chain executives’ responsibility to the business but their 4th greatest challenge


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Cost is still very much top-of-mind with Supply Chain Executives, especially in today’s volatile environment.

43%

20%17%

10%8%

2%

Total cost Price Quality Capabilities Delivery Proximity /geography

Quality improvement efficiencies

Product/service innovation

Lead time improvement

For competitive advantage

In support of enterprise growth initiatives

Cost containment efficiencies

How do you position your supply chain to meet the challenges affecting your organization?

69%

54%

48%

45%

31%

30%

Which one area of focus best describes your relationship with suppliers?

Cost containment


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What efficiency practices and initiatives are you implementing?

Formal distribution strategy

Differentiated logistics services for distinct customer

segments

Network optimization and simulation tools

Collaboration & integration among 3rd

party logistics providers38%

30%

32%

42%

24% Supply chain visibility for managing exceptions

79%

70%

58%

67%

Extremely Effective

Extensive implementation Some implementation

83%

90%

48%

63%

Extremely Effective

25%

Transportation

Manufacturing

Procurement

To what extent have you outsourced the following functions?

64%

19%

Extensive outsourcing Some outsourcing

75%

66%

50%

24%

48% Warehousing and/or DCs

52% Customs/Export management

29% Custom order and call operations

28% Field services/ reverse logistics

Logistics played a surprisingly large part in cost containment strategies

Cost containment


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Companies with top supply chains are moving more quickly toward agile supply chains and variable cost structures that allow rapid response to changing market conditions.

Others

Top supply chains

Percentage who report extensive adoption of agile supply chain practices.

37%

22%

Cost containment


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COST CONTAINMENT


RISK MANAGEMENT

GLOBALIZATIONINCREASING CUSTOMER DEMANDS

55%

70%

60%56%

43%

Globalization

Many companies are encountering issues with global sourcing.


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Percentage who have experienced these outcomes as a result of globalization over the past three years

Top supply chainsOthers

Improved overall performance

Increased sales

Improved margins

Increased lead times

Increased costs

Decreased customer service levels

Decreased quality

POSITIVENEGATIVE

10%BETTER

3%BETTER

22%BETTER

22%BETTER

Our findings suggest globalization has contributed more to revenue growth than to cost reduction.

59%

37%

63%

41%

43%

33%

4%

12%

33%

36%

30%

14%

37%

38%

Globalization

• Nearly 40% report improved margins.

• Yet more than 30% are experiencing increased costs.

• Higher profits seem linked to sales increases (as reported by 43%).


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What are the major challenges that you have in regard to global sourcing & global operations?

Have experienced issues Future concern

Regulatory / legal issues in sourcing or manufacturing country contract

Difficulty evaluating / managing new sources

Lead times are greater than expectations

Delivery issues and reliability of commitments

65%

73%

76%

80%

Quality issues 75%

Capacity issues for new / unproven sources or operations supply 76%

Global sourcing continues to have its challenges and impact on performance

Globalization


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What have we learned from talking with 400 multi-industry supply chain executives world-wide?

How will we tame the volatility?


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The Supply Chain of the Future must be SMARTER...It will be Instrumented, Interconnected & Intelligent

Instrumented

Interconnected

Intelligent

• Sensors, actuators, RFID & smart devices

• Real-time data collection

• Inventory location, shelf-level replenishment detection, transportation locations & bottlenecks

• System integration ERP-to-ERP-to-ERP across the network

• Collaborative decision making

• C-Suite risk management, integrated financial controls and operational performance

• Simulation to evaluate trade-offs of cost, time, quality, service and carbon

• Probability-based risk assessment & predictive analysis

• From sense-and-respond to predict-and-act


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Procurement professionals must play a key role in building smarter supply chains

• Supply chains will rely less on labour

• Extensive interconnectivity will facilitate collaboration on a massive scale.

• Worldwide networks of supply chains will make shared decisions

• Some decisions will be made automatically

• Real-time tradeoffs of service levels, costs, time and quality

• Variable cost structures that fluctuate with demand

• Supply chains will have the flexibility to reconfigure as conditions change

• Different services

• Different cost drivers

• Complex relationships

• Revenue, cost and risk allocation


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The Smarter Supply Chain of the Future

IBM Global Chief Supply Chain Officer Study

www.ibm.com/supplychainstudy

Simon [email protected]

(C) 2008 asbl Atomium / Artists Rights Society (ARS), New York / SABAM, BrusselsPhoto Number: WC6D8959

http://www.ibm.com/supplychainstudy