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Survey: Europe Takes Lead in Supply Chain Advancement

Recent turmoil in financial markets has left an uneasy feeling across industries worldwide. The economic downturn has some business leaders unsure of how to react. But there is evidence that a strong focus on reaching optimized conditions across a supply chain network can offset much of the downward pressures firms are facing in pricing and volumes.

This year, the greatest gains appear to be happening in Europe. The Global Survey of Supply Chain Progress (PDF), showed Europeans ahead of North America in nearly every element of supply chain optimization. The survey was prepared by CSC, Supply Chain Management Review and Michigan State University (MSU), with assistance from the Council of Supply Chain Management Professionals and Supply Chain Europe.

In its sixth year, the survey included supply chain professionals from 22 industries and more than 32 countries. It revealed 63 percent of European respondents believe their flows of materials, people, information and cash are optimal compared to less than half of their North American counterparts. While Asia-Pacific fell into a lower position in terms of supply chain advancement, it led Europe and North America in the area of innovation management.

"Part of the understanding behind the circumstances is the fact that European companies have a stronger customer orientation than what is typically espoused but not enacted on the part of U.S. firms," says Chuck Poirier, author of nine books on supply chain management and a partner in CSC’s Global Business Solutions group. "Another is the greater level of supplier collaboration and the search for mutual savings within European firms."

Industry leaders

Aerospace and Defense (A&D), chemicals and consumer goods sectors led in overall supply chain performance. The survey shows that progress toward this goal is occurring as specific industries develop advanced practices in areas pertinent to their increased success and continuity. As their supply chain efforts mature, leaders are shifting focus from traditional core competencies such as, excellence in warehousing and transportation, to broader process improvements that help distinguish them within market segments.

For example, leading consumer goods firms now excel at segmenting customers and then matching specific, essential offerings, with a particular focus on providing services for which there is a return on effort.

"Industry characteristics reflect movement beyond the internal 'four walls' of expertise to attaining best practices across the enterprise in areas of importance for each market, such as strong internal integration for the chemical and consumer goods segments, and leadership positions in customer integration by third-party logistics providers and wholesale distributors," says Poirier.

"Companies in these industries are forging ahead by ensuring that best practices in areas such as order management are practiced across the network, and root-cause problems are eliminated throughout the end-to-end supply chain. Two positive impacts are an increase in 'perfect orders' and a dramatic reduction in reconciliations." The general industry ranking is depicted in Figure 1.

Rankings in Overall Supplier Chain Performance by Industry

Note: Some industries did not have enough responses to establish a significant ranking.

 

 

 

 

Lacking sales forecast

The survey revealed some progress was reported with sales forecast accuracy, but not enough to swing companies strongly toward having the type of responsive supply chain necessary to meet the vagaries of the market.

"Supply chain leaders are overcoming this deficiency by having greater interaction with their supply chain partners through the sales and operations planning portion of their efforts," says Morgan Swink, professor and Eli Broad Legacy Fellow of Operations and Supply Chain Management at MSU.

Sixty-five percent of all respondents say they depend less on forecast accuracy and more on the responsiveness of their supply chains. To reduce the amount of inventory and safety stocks, leaders have begun to rely more on working with key supply chain partners to get closer to actual demand and then matching supplies against what is really needed.

Question: We depend less on forecast accuracy and more on responsiveness.

"Firms that begin with forecast accuracies as low as 40 percent, are able to reach levels of 75 percent or higher," Poirier says. "The secret is including external parties, suppliers and customers, in the review sessions to dramatically improve the accuracy of delivered data."

Focusing on Green

More than 80 percent of leaders indicate an emphasis on Green issues, as opposed to about half the laggards. The effort is picking up momentum as these leaders increasingly place responsibility for "being Green" on suppliers and promote results in their marketing campaigns, says Poirier.

Europe appears to employ a broader width of improvement activities than North America, particularly in the areas pertaining to Green. But there are indications that Green is being accepted as an initiative. More progress can be expected across the board, the report says, as future supply chains will be criticized severely if they do not address Green issues.

Valuing supply chain

The 2008 survey shows that realized results continue to validate what can be accomplished through a concerted supply chain effort. Those firms indicating some level of cost savings came in at 78 percent, in a range from 1 to 5 percent to 16 percent or more. Nearly 60 percent indicated they were in the 1 to 10 percent range. But the data showed wide differences in the revenue gains and cost savings achieved by leaders and laggards. Average leaders indicated three-year revenue gains of about 11 percent, as opposed to a 3 to 4 percent gain for laggards.

Question: In the past three years, what has been the overall impact of your supply chain initiatives on revenue and costs? (Mark one in each category.)




For several consecutive years now, supply chain leaders have demonstrated the powerful advantages of advancing their capabilities. For companies that are not in the leader category, the competitive disadvantage worsens every day, the survey says.