Supply chain visibility and transparency to dominate in 2012

Global supply chain optimisation provider Manhattan Associates is forecasting that supply chains will continue to be exposed to a growing set of unpredictable influences in 2012.

Cost will remain a core issue for most organisations, along with increased supply chain risk, which calls for better contingency planning, greater agility in the supply chain and wider use of technology.

"An organisation’s supply chain operates within an increasingly complex and dynamic world, but can become a key source of competitive advantage, as well as an enabler for business growth if managed correctly," Manhattan Associates managing director for Australia & New Zealand, Raghav Sibal said.

"Supply chains in 2012 are required to be increasingly flexible, scalable and agile to address more and more specific market requirements across a wider number of channels and geographies.

"This is essential to ensure companies can maximise sales at every opportunity, make their extended supply chains as efficient as possible and protect the organisation’s brand equity."

Manhattan Associates has identified 8 top trends that are set to influence the supply chain scene in Australia in 2012:

1) Attention to cost continues

In 2012 companies will be looking for greater visibility of supply chain costs and activities so they can plan resources more efficiently. Companies will be finding ways to optimise productivity through improved task management, advanced labour management and use of voice technologies.

IDC analysts suggest that the ‘lean manufacturing’ approach [1] will help companies to respond better to the current volatile environment and take costs out of the system rather than transferring it between companies. Retailers will make better use of real-time information about customer needs and buying behaviour and feed this information to their suppliers to increase order frequency, and better match supply and demand.

2) Need for better understanding of how costs are incurred and allocated

Most companies know that an individual customer’s behaviour and their specific demands drive many aspects of cost and, therefore, the profitability of their company. Most companies also know that a small percentage of their customers drive most of the profits. Despite this, most businesses still don’t really know what it costs them to serve each individual customer on a customer-by-customer basis.

In order to calculate the total cost-to-serve (TCS), companies need to start getting much better at being able to capture direct and indirect costs across departments and allocate those costs down to individual SKUs, customers, and/or brands.

Part of the art of calculating TCS is knowing which cost elements to include – those costs within your control that reflect the true variability in cost-to-serve for various sourcing, fulfilment and ordering patterns. Luckily, there are some powerful off-the-shelf solutions now available in the market-place that are enabling companies to understand the ‘true cost to serve’.

3) Need for contingency plans

The BCI Supply Chain Resilience 2011 report [2], which questioned 559 businesses from 62 countries, found that levels of supply chain disruption remain undiminished with 85% of respondents experiencing at least one incident in 2011. Only 8% of respondents confirmed that all of their key suppliers had business continuity programmes in place to deal with any problems and less than half of those companies check that their programmes are likely to be effective in practice.

According to Sibal, companies without such plans are often left telephoning around suppliers to cope with any incidents and this can lead to supply shortages and empty shelves.

"Retailers need to take action to ensure their supply chains don’t become affected by harsh weather conditions, strikes or other disasters, leaving customers disappointed and without the items they have paid for.

"In the era of multi-channel purchasing, suppliers and retailers must ensure they are properly prepared to deliver on customer promises."

4) Wider procurement networks

Last year proved that there are numerous unforeseen events including earthquakes, flooding and tsunamis that can affect the supply chain.

To mitigate the risks for their business, both manufacturers and retailers will look to source from more suppliers and implement supply chain tools that will allow them to be more agile and be able to respond more quickly to unforeseen events.

5) Improve visibility with technology

Supply chain analysts almost unanimously agree that the best supply chains in the future will be those that have the best visibility in both directions [3]. Technology will play a greater role in providing real-time visibility of sales and stocks to support the agility required in the current environment.

Adoption of technology-led solutions will accelerate. Retailers will continue to invest in centralised planning and forecasting processes that take into account a larger number of local factors. Suppliers who can keep pace, and indeed stay ahead, will win.

It is expected that more companies will be looking for not just Total Cost to Serve (TCS) Solutions as they seek to evaluate the costs of supplying specific customer groups from different sourcing points but Extended Enterprise Management (EEM) solutions as they seek to gain control of their supply chain from source through to consumption.

Distributed Order Management tools, in concert with EEM and TCS type solutions will enable orders to be fulfilled from wherever it makes most sense to fulfil an order from, balancing the need on the one hand to maximise customer satisfaction, and on the other to maximise profitability for the company in fulfilling that order. Increased visibility in the supply chain will enable greater control over activities within the chain, aiding agility while maximising profits and reducing risk.

6) Coping better with business expansion

Forecasting and order management tools should be used to ensure that enough of the fastest selling products are re-ordered and routed to wherever demand is being detected and registered, thereby enabling the balancing, prioritising and streamlining of stock levels across the business.

Bringing vital information to supply chain partners’ fingertips via sophisticated supply chain intelligence tools means the whole enterprise network can make smarter and faster decisions with regards to warehouse and distribution management. All of this is paramount, particularly as a supply chain elongates as a result of business expansion be it through organic growth or following the acquisition of another business.

A great example of transforming a supply chain infrastructure to support rapid business growth is Jockey, a leading supplier of underwear, which increased its scope to 120 countries and into online retailing, without compromising its existing services. The deployment of more flexible supply chain technology has helped Jockey meet its multi-channel needs and accelerated the delivery of goods from suppliers, lowering lead times by as much as 80%.

7) Labour Deployment Methods to Respond to Changing Buying Patterns

As the speed and agility of supply chains evolves, the way in which labour resources are optimised also needs to evolve in order to keep pace with the changing buying behaviours of consumers. When retailers add the ability to change where and how products are fulfilled, they also need the ability to flex resources up or down to ensure they have the right number of people to support the real-time changes taking place at the store, in the distribution centres (DCs) and across their fleets.

Labour, as a key resource and cost within the distribution centre, must be optimised to the demand. To ensure the proper level of labour, companies must address the following:

  • Plan and forecast annual workforce budget
  • Establish appropriate level of regular workforce for projected work
  • Optimise the mix of Regular, Overtime and Temporary
  • Plan for seasonal changes, new product introductions and promotions
  • Continually optimise staffing levels by day, shift job and zone

8) China’s critical role

China is exposed to significant natural threats, including earthquakes, windstorms, floods and tsunamis. A recent FM Global study underscores the fact that supply chains in the region are more likely to face business disruption by a natural disaster, particularly because China has not yet fully embraced many of the risk management practices followed in Europe and the United States.

The research uncovered that twice as many companies surveyed (86% versus 43%) say they are more reliant on China as part of their supply chain for their key product lines than they are on Japan.

Moreover, 95% of companies reliant on China for their supply chain are concerned about natural disaster-related disruptions, as this would have far-reaching and long-lasting negative economic impact. It could slow down the global economy because China is not only a major exporter of goods, but also a major importer of goods.

"Some of these trends are not new – we’ve seen them influencing corporate strategy for several years now, but a number are more immediate and require close attention," Sibal said.

"Those organisations that are prepared for change will stand the best chance of making the most from 2012."

[1] IDC Manufacturing Insights Predictions 2012
[2] BCISupply Chain Resilience 2011 report
[3] Enterra Insights

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