Planning and forecasting were seen as the greatest challenges to efficient supply chain management, according to a report released by research company Terra Nova, on Monday.
The report, entitled ‘Supply Chain Intelligence Report (SCIR) 2009’, stated that the issue of planning and forecasting to meet market demand would become more problematic, as the world changed, and the pace of the change increased.
“The supposition of SCIR 2009 is that only by increasing visibility in your supply chain and by improving its reactivity/flexibility, will one be able to effectively address the challenges of planning and forecasting. By increasing forward and backward visibility along the supply chain, companies will have a greater lead time to adjust their production schedules and orders, providing them with a longer window of visibility, their one and only opportunity in which they can plan and forecast with any degree of confidence,” the report noted.
The SCIR is an annual independent and international study into the supply chain and logistics practices of emerging economies around the world. The 2009 edition saw over 200 senior company officials take part in an in-depth survey.
This year’s report incorporated the Complexity Masters theorem, which was developed and published by Deloitte in 2003, and which holds that companies in the US and Europe, with complex value chains and the capability to properly manage those complex value chains, were 73% more profitable than their peers.
To ensure that the theorem was applicable to an emerging economy such as South Africa, TerraNova incorporated several additional questions into the survey, as to address local complexity and capability issues. When the theorem was applied to the South African context, only 6% of the total number of companies surveyed were 67% more profitable than their peers.
These companies are known as the complexity masters.
When asked whether they were satisfied with the availability of information in their supply chain, 66,4% of the respondents indicated that they were. About 75,% of the complexity masters were satisfied, suggesting greater visibility in the supply chain for these companies.
TerraNova noted that upon closer examination, the only two areas of supply chain visibility in which the complexity masters were less than satisfied than their peers, were the stock levels of finished good in retail outlets, and customer service levels, which means the forward visibility in the supply chain.
“It is our belief that this greater dissatisfaction does not emanate from reduced visibility upstream compared to their peers, but rather from a greater realisation on the importance of this variable, and a desire for even more visibility than they currently enjoy upstream in the supply chain.”
To gauge the levels of supply chain reactivity or flexibility, the respondents in the SCIR 2009 were asked to indicate their level of agreement with a series of statements relating to their ability to react to changes in demand.
A total of 68,5% of the total sample agreed with the statements made. However, 95,2% of the complexity masters indicated their agreement with the statements, demonstrating their high level of supply chain reactivity/flexibility when compared to the rest of the sample.
TerraNova stated that the respondents were also asked how much consideration was given to a list of issues, before making important supply chain decisions. Again, the complexity masters paid far more attention to a broad range of matters before making these decisions, particularly in the areas of taxation, product life-cycle, and environmental issues.
“This thorough approach to planning is part of the behaviour of the complexity masters that ensures their greater success.”
With regard to environmental impacts, TerraNova stated that a lack of attention to environmental and social issues could have a profound negative effect on long-term success.
“Surprisingly, many South African companies do not have any measures regarding the impact of their supply chains and operations on the environment, nor do they plan to introduce any of these measures within the next 12 months. This revelation is quite startling, considering the long publicised and growing concern about the environment globally.”
On closer examination, however, the complexity masters cast a different picture. Only about 11,4% of complexity masters stated that they did not have a plan to introduce metrics to measure their impact on the environment, compared with the 41,3% for the total sample of respondents.
“Perhaps this progressive behaviour is partly driven by their global complexity, and the fact that they are required to conform to certain standards in international markets. Perhaps the complexity masters are more sensitive to changing consumer, employee, and shareholder expectations, and believe that they can boost their long-term sustainability by being proactive in this regard,” TerraNova stated.
The SCIR 2009 set out to test the hypothesis that the planning and forecasting challenge could only truly be addressed through increasing visibility along the supply chain and improving the reactivity/flexibility of the supply chain and operations.
TerraNova stated that by using the Complexity Masters theorem, conclusive evidence to support this hypothesis has been found. “Our model hypothesises that competitive advantage from a value chain point of view, as measured by our sustainable success measures, emanates from a company’s ability to operate both more efficiently and more effectively. Both of these measures are enabled by improved forecasting and planning, something the marketplace is under increasing pressure to achieve.”
The researchers noted that the evidence clearly showed a significantly better performance from complexity masters than from the rest of the sample.
Once a business has some degree of visibility, TerraNova’s hypothesis continues, its success will depend on its relative ability to react with agility and flexibility. “We believe that the essential components of reactivity are flexibility with respect to the ability to deploy supply chain assets, and the ability to assemble a virtual ‘best of breed’ supply chain team that can redesign, implement and operate what will need to be almost an organic supply chain. One that changes, learns and evolves continuously.”
TerraNova noted that organisations that had integrated systems that could turn fixed costs to variable costs through in- or outsourcing, and those that have strategic relationships with supply chain partners that give them a virtual ‘best of breed’ team were better able to react to the change.
“Once again, the evidence is that complexity masters do this more than the rest of the sample. They outsource to third party logistics more, they use consultants continuously, and they are bigger users of logistics solution providers.”
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