Chain of Command

Capgemini’s Global Supply Chain Planning 2009 report provides insights into trends in the economic downturn, and reveals why supply chain visibility is vital for CEOs.

“Effective planning is crucial to achieving a truly world-class supply chain, which in turn determines the success and often the survival of organizations in the current global market”

In a market faced with increased volatility and variability in demand, supplies and lead times, improving supply chain planning (SCP) can significantly lower inventory levels and maximize product turnover. That was the conclusion drawn by Capgemini, one of the world’s foremost providers of consulting, technology and outsourcing services, based on the results of its recently released Global Supply Chain Planning Study 2009. Nevertheless, the study – based on responses from 120 supply chain executives from around the world – finds that even when faced with difficult market conditions, supply chain planning is not being given the focus essential to navigate these challenges successfully.

Despite the fact that supply chain planning is viewed positively as a source of competitive advantage and a critical decision-making function by some – 67 percent of participants indicated that changes in planning processes were key to improving the overall performance of the supply chain – more than half the respondents perceived SCP as nothing more than an important support function or a back-office execution process, suggesting that planning is not being prioritized as it should be by most organizations.

Collaboration is one of the most important factors in effective supply chain management. However, less than 30 percent of respondents involve customers and less than 20 percent involve suppliers in their demand and supply planning processes. Very few organizations are sharing critical information like actual stock levels and gross demand or production plans with their suppliers, relying instead on forecasts and purchase orders to do the job. As a result, accomplishing end-to-end supply chain integration, both internally and externally, still remains a dream for many.

“Effective planning is crucial to achieving a truly world-class supply chain, which in turn determines the success and often the survival of organizations in the current global market,” says Steve Lambert, Global Leader of Supply Chain Planning at Capgemini Consulting. “The traditional supply chain challenges of balancing operational costs, working capital, agility and increasing service requirements are more important than ever, and this is where the opportunity lies for SCP to really innovate and orchestrate the entire supply chain, to effectively achieve the goals of the business and gain a competitive advantage. By giving SCP the attention and resources it deserves, companies should be able to dramatically improve services, quality and costs, which at this time are vital areas of focus.”

Supply chain in the downturn
The global economic downturn presents more challenges for the supply chain function than ever before. Top trends in the market, as reflected by the survey, include increased requirements in terms of customer service, collaboration and transparency, with a strong focus on logistics improvement and globalization. Indeed, the biggest challenges in supply chain management can be directly traced back to the globalization of supplies and markets. With 81 percent of respondents confirming they source at least 10 percent of their supplies from outside their borders, the scale of the challenge faced becomes clear.

In addition, the current global operating environment presents a unique set of potential supply chain risks that are intensified in the economic downturn. Perhaps most notably, while the risks associated with commodity-price fluctuation and availability are well recognized and incorporated into the planning process, exchange-rate fluctuations are not. Also, a significant majority of organizations do not consider energy use, reverse flows/returns, carbon footprint and logistical delays due to natural and geopolitical factors as critical to their planning.

Significant challenges persist
Three-quarters of survey respondents indicated that their organization has regular sales and operations planning (S&OP) processes in place. However, the report also finds that considerable challenges still remain in implementing these. For example, data availability and accuracy continues to be an issue. Necessary data often cannot be readily located, is inconsistent or only exists in fragments, which make it difficult to interpret. A major contributor to these data issues is a lack of adequate IT functionality to support the S&OP process. More than a third of respondents were missing S&OP functionality in their current planning systems, while the vast majority relies on ERP reporting capabilities or spreadsheet analysis for S&OP data reporting.

In addition, with the move to a more globalized model, the trend towards offshoring means more supply resources are being shared across enterprises than ever before and so the ability to run an inter-divisional, global S&OP process is becoming increasingly important. However, the survey’s results indicate that single global S&OP processes are not being widely adopted. Less than one-third of respondents had a single, global process in place for S&OP that spanned all regions and divisions. However, integrated planning tools, providing an insight into real-time data, can play an important role in improving supply chain efficiencies. 

“The macro environment in which organizations and their supply chains operate in is fraught with major challenges,” says Lambert. “While there is a recognition of those challenges and need for solutions at the executive level, misalignment between IT and business groups is creating obstacles for implementing effective solutions. The basic planning process is getting done, but only a few are innovators in their planning approach. With increasing pressure and complexity resulting from global supply chains, process innovation and planning as a differentiator could be leveraged to turn the supply chain into a competitive advantage. By applying new tools, technologies and techniques that are available to integrate supply and demand planning, companies can create a profit-driven planning and execution organization.”

Key findings
• SCP is not yet universally seen as a strategic, decision-critical activity, with the majority of respondents viewing it as simply a support function, and very few respondents considering their organizations to be innovators or best-in-class in planning
• Most organizations are not factoring in the increased risks associated with the tougher economic environment
• Though most companies recognize that close collaboration with partners and customers is key to success, many have not defined mechanisms to accomplish this and struggle to achieve end-to-end supply chain integration both internally and externally
• A significant majority of respondents do not utilize sophisticated and fully integrated tools for their planning processes

Business benefits
Capgemini’s experience in implementing improved demand and supply planning capabilities for major automotive and industrial manufacturers has shown benefits to the tune of:
10% increase in service levels
20% reduction in total inventory levels
56% drop in finished goods inventory
$100 million improvement in working capital