18th Annual Trends and Issues in Logistics and Transportation · 18th Annual Trends and Issues in Logistics and Transportation . ... This year’s annual study examines the trends

Drivers of Sustainable Supply Chain Management

Practice

SynchronizationOctober

2 0 0 9

18th Annual Trends and Issues in Logistics and Transportation

The 2009 Drivers of Sustainable Supply Chain Management Practice


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Executive Summary

In response to the current economic conditions, many firms are taking actions that we believe are reactionary to thesituation. While these changes may have an immediate impact, the concern is that they are not changes that willsustain the business in the long run. Experience has shown that during economic downturns firms often focus on costreduction without consideration given to the long-term impact it may have on the business. Once the economyrecovers these firms will not be in a position to take advantage of growth opportunities. This led us to ask, what arethe drivers of sustainable transportation, logistics, and supply chain management practice? That is, what capabilitiesshould firms be developing that will enable them to continue to advance in both good and bad economic times?

This year’s annual study examines the trends and issues facing transportation, logistics and supply chain professionalsduring these unprecedented economic conditions. This examination enables us to provide an assessment of thecurrent state of practice and to identify opportunities for improvement. More importantly, the study makes it possiblefor us to examine the five fundamental capabilities – optimization, synchronization, profitability, adaptability andvelocity - that firms must develop in order to build sustainable supply chain management practices. The first reportfrom the 2009 annual study provided an overview of the drivers, and the second report provided a detailed view of the“Optimization” driver. This report provides a more in-depth look at the next key driver, “Synchronization.”

Supply chain synchronization helps manufacturers reduce time to market, decrease cost and manage inventory turnsthrough the end-to-end coordination, organization and management of the supply chain. Perhaps no other organizedgroup best depicts this ability than a school of fish that seem to effortlessly coordinate and harmonize their moves.Some of the key findings regarding the state of supply chain synchronization include:

� Supply chain visibility is not increasing at a rate to support the desired level of synchronized flows – includingmaterials, finished goods, data and information and financials.

� North American (NA) companies tend to have better visibility of customers’ point-of-sale (POS) data than EuropeanEconomic Area (EEA) firms; EEA firms tend to have better visibility of finished goods inventory beyond theircountry’s borders compared to NA firms.

� Communication, top management support and visibility of demand are the three most important criteria forsuccessful collaboration for both NA and EEA firms.

A supply chain that does not have synchronization as part of its core capabilities will not win the competition ofsupply chain against supply chain. Winning involves the synchronization of global resources to create the mosteffective and efficient supply chain possible. We hope that this report will assist you in your efforts to develop thiscapability that is a fundamental building block to sustainable supply chain management practice.

Sincerely,

Mary C. Holcomb, Ph.D. Karl B. Manrodt, Ph.D. Belinda Griffin Dawn Salvucci-Favier Associate Professor Associate Professor Senior Manager Senior DirectorUniversity of Tennessee Georgia Southern University Capgemini, Inc. JDA Software Group, Inc.



SustainableSupply ChainManagementPractice Many of the changes that firms havemade during this recession are notones that will enable them to lead the

competition when the economyrebounds. This is because they havenot built supply chain managementpractices that will be sustainable ingood times as well as bad. Our earlierreport - Drivers of Sustainable SupplyChain Management Practice -presented five drivers that constitutethe core of sustainable practice insupply chain management. Thesedrivers – optimization,synchronization, profitability,adaptability, and velocity – comprisethe engine that will fuel the firm’sgrowth and success. They representcapabilities that will be difficult forthe competition to emulate, and theyare fundamental to creating a supplychain that will outpace thecompetition.

Why are these drivers so critical tosuccessful supply chains? Perhaps itis the unique set of capabilities, bothindividually and collectively, thatthey represent.

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Drivers of Sustainable Supply Chain Management Practice

Synchronization is the

ability to coordinate,

organize and manage end-to-end

supply chain flows – products,

services, information, and financials –

in such a way that the supply chain

functions as a single entity.

S

3

Optimization is the alignment ofglobal supply chain resources –both tangible and intangible, own oroutsourced – to facilitate thesuccess of supply chain members.

Synchronization is the ability tocoordinate, organize and manageend-to-end supply chain flows –products, services, information, andfinancials - in such a way that thesupply chain functions as a singleentity.

Profitability is the result of creatingvalue through supply chainactivities. Asset performance,working capital, returns oninvestment for infrastructure,technology, and people, are someof the critical parts that create valuein a global environment.

Adaptability is the degree to whichrespective supply chain memberscan change practices, processesand/or structures of systems andnetworks in response tounexpected events, their effects orimpacts.

Velocity is the speed at which end-to-end flows occur in the supplychain. It encompasses speed-to-market for new product introductionand execution when conditions arerapidly changing.

The purpose of this report is to take amore in-depth look at the role andpurpose of one of the drivers -synchronization - in creating the typeof supply chain that is needed for the“new normal.” This examinationwould not be complete, however,without an assessment of the currentstate of practice.

Challenges andIssues with The“New Normal” The recession has prompted manyfirms to consider how they canendure during these very difficulttimes. For many firms this has led toa relentless focus on reducing costs.There is an expectation that firmswill be able to generate double digitsavings on an annual basis andenhanced service in response toincreasing customer requirements.The economic slide since 2008 hasplaced tremendous pressure on firmsto become much more efficient andeffective than ever before – with farfewer resources. It is somewhatuncommon, however, for firms toplace a priority on increasing orachieving high levels of customersatisfaction before concentrating onachieving profitability. Whilecustomer satisfaction is a keycomponent of the firm’s success,there is also a great deal of pressureon the firm to achieve short- andlong-term financial results. Theability of the firm to achieve thedesired financial results depends to acertain extent on cost management.

Data from our 2009 study on thetrends and issues in logistics andsupply chain management indicatethat both North American (NA) andEuropean Economic Area (EEA)companies are focusing their effortson improving the efficiency of theirorganizations. The percentage offirms that cited reducing costs astheir primary objective for 2009 hasincreased from the previous year forboth NA and the EEA. The mostdramatic shift occurred in the EEAwhere the number of firms that arefocusing on reducing costs increasedby 56.8 percent from 2008 to 2009.Before 2009, the primary objectivefor EEA firms was increasingcustomer satisfaction, followedclosely by profit maximization and reducing costs.

In North America, however, the shiftfrom focusing on increasing customersatisfaction to reducing costsoccurred in 2006. Interestingly thepercent of companies thatconcentrate on maximizing profitand asset utilization have remainedfairly stable over time.



43.8%

11.4%

17.4%

27.3%

44.4%

8.9%

23.3% 23.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Reduce costs Maximize asset utilization

Increase customer satisfaction

Maximize profitability

NA EEA

Shifting Corporate Objective during Tough Economic Times

4

The data suggest that in times ofeconomic hardship or uncertaintyfirms direct their efforts to efficiencymuch more so than in times ofeconomic growth when effectiveness– or service – becomes moreimportant.

That being said, the firm’s objectivemust support the corporate businessstrategy in order to provide cleardirection for the structure andalignment of resources. How does thefocus on cost reduction support thebusiness strategy? Although thelargest proportion of studyrespondents reported that theirobjective is to reduce costs, otherresults show that only a smallpercentage of North American firmssee themselves as cost leaders – 17percent. Instead, most companiesview their strategy as a hybrid onewhere they must “be all things to allpeople.” That is to say that both costand service form the basis for howthe firm competes. Of the fourstrategic directions, this is one of themost difficult to successfully deploy.Why? It requires that customers andproducts be differentiated to a degreethat distinct, and perhaps unique,service can be delivered in a costeffective manner.

The need to “be all things to allpeople” has been increasing since2006 when it passed customerservice as the top ranked strategy.The balance between cost and service means that tradeoffs must be carefully evaluated for each andevery customer transaction.

Analysis of firms by revenue sizerevealed that large (greater than $3billion) and medium-sized ($500million - $3 billion) firms are muchmore focused on reducing costs thansmall-sized firms (less than $500million). Small firms are placingmore emphasis on increasingcustomer satisfaction.

Cost leadership17.0%

Customer service26.3%

Product/market innovation

7.8%

Mix: Be all things to all people

48.9%

Both Efficiency and Effectiveness Drive the Firm’s Strategy - North America 2009

Corporate Express Europe

How Corporate Express Europe realized improved supply

chain visibility and replenishment processes?

Corporate Express is one of the world’s leading suppliers

of office products to businesses and institutions, serving

as a one-stop shop for office essentials via its e-

commerce and distribution businesses. The company

was acquired by Staples in July 2008, resulting in the

world’s largest office products company, selling a wide

range of office products, including supplies, technology,

furniture and business services. The newly combined

companies serve businesses of all sizes and consumers

with 350 warehouses in 27 countries.

Global companies like Corporate Express typically

operate as a series of independent, geographically

dispersed divisions; often as a result of expanding their

global presence and product portfolios through

acquisitions and mergers. Corporate Express Europe, like

its parent company, grew through a multitude of

acquisitions that resulted in fragmented business

systems as each acquired company maintained its own

Enterprise Resource Planning (ERP) system and

replenishment solutions. In order to optimize supply chain

planning and business performance, Corporate Express

Europe sought technology that would enable it to

improve global supply chain visibility and agility by taking

a synchronized, cross-functional and strategic approach.

“We recognized the need for a slick, uniform system to

maintain and improve our customer service levels,”

explained Jan van Noord, project manager logistics,

Corporate Express Europe. “With that understanding, our

criteria consisted of finding a proven solution that could

be rolled across Europe and serve the needs of every

country, as well as integrated with our enterprise-wide

ERP system.”

“Six months after (the replenishment system) was

implemented, our warehouse in France realized a 14

percent reduction in stock levels. There was also a 25

percent reduction in back-order lines due to better

product availability. In addition, availability has increased

at our U.K.-based warehouses - although volumes remain

the same, our stock levels are more balanced across the

business. It’s now a lot easier to check the number of

products for any particular country and, when required,

move stock from one warehouse to another for improved

availability across Europe.”

-Jan van Noord, Project manager logistics, Corporate

Express Europe

Why SynchronizeThe SupplyChain?Synchronization enables companiesto anticipate demand disruptions andanomalies in a timely manner inorder to mitigate the infamousbullwhip effect. It helps firms moveto a demand-driven environmentthat is better equipped to deal withuncertainty. Typically supply chainmanagers handle uncertainty throughbuffering – i.e., it maintains pools ofinventory at multiple places in thesupply chain. A synchronizedsupply chain operates by separatingbaseline demand from demandsurges and then using strategicpoints in the supply chain for theplacement and use of capacity and inventory.

Firms that aren’t synchronized oftenfind that they have higher costs thanfirms and supply chains that havesome degree of synchronization intheir supply chain. The higher costscan result from inefficiencies ineverything from manufacturingchange orders to expeditedtransportation costs. A cost that isnot often known due to the lack ofsynchronization, however, is the totalcost due to excess inventory carriedby supply chain members in anattempt to cover their exposure to risk.

Simply recognizing that a firm isoperating in a reactive mode does notguarantee that necessary changes willbe made. That is, firms will notnecessarily make the neededinvestment in improvingsynchronization unlessorganizational behavior, managementprocesses and technologicalinfrastructure issues are addressed.Changes to these areas will nothappen unless management isconvinced that doing otherwisewould be detrimental to thewellbeing of the firm. To achieve theideal state of synchronization, a firmmust consider an even broaderperspective. It is not just what isgood for the firm, but rather what isbest for the many members of theentire supply chain.

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The 2009 Drivers of Sustainable Supply Chain Management Practice1


�For small firms(<$500M in annual salesrevenue) communicationis significantly moreimportant to successfulcollaboration than it is tomedium-sized (annualsales revenue of $500M-$3B) or large-sized firms(>$3B in sales revenue).

For medium-sized firms,visibility of demand is significantly moreimportant to their collaboration efforts.

Defining SupplyChainSynchronizationSupply chain synchronization is theability to coordinate, organize andmanage end-to-end supply chainflows – including products, services,information and financials – in sucha way that the supply chain functionsas a single entity. In other words, it isa shared objective for supply chainmembers who are willing to worktogether to determine how best toperform the overall activities andtasks that are required to meetcustomer demand. Visibility andcollaboration are two of the essentialingredients in the synchronizationrecipe. They play a significant role inmanaging demand uncertainties andpositively impacting a firm’sinventory positions and time tomarket. Each of these factors isdiscussed in the following sections.

The Role of Visibility in aSynchronized Supply ChainVisibility is the key to effectiveplanning and efficient operations. It is more than just a tactical supplychain issue; it has profound strategicimplications for the entireorganization. Visibility enables allsupply chain members to easily seeand manage the end-to-end flow ofproducts, services and information inreal time or near real time as needed.True visibility is present when supplychain members can do this in concertacross their existing technologyplatforms. Visibility involves seamlessintegration such that access to alltypes of information enables thesupply chain to execute as if it were a single “virtual” entity. The type ofinformation that is accessible rangesfrom inventory in transit or on hand,work in progress, as well as productavailability all the way through to thestatus of an order.

Improving Supply Chain Responsiveness at a Leading European Grocery Retailer

How does a leading European Grocery Retailer with nearly 1000 stores and over 10 million

SKU/Store combinations respond when the need to cater to rising consumer incomes, expectations

and individualism translates into higher supply chain complexity and costs? The answer: Improve

visibility and enhance collaboration between retail stores and central functions in order to replenish

stores more efficiently while simultaneously lowering logistics costs.

Working with a leading edge supply chain consulting form, the retailer realized that the increasingly

unpredictable nature of consumer behavior makes planning more and more difficult. So, more time

is spent on planning but the results are less valuable because planning involves making

assumptions about what will happen rather than reacting to what customers are actually doing.

Consequently, the retailer determined that the only way to be responsive to increasing consumer

demands was to build processes and define rules that required less day to day planning.

According to the retailer’s VP of Supply Chain: “Ten years ago we made a fundamental choice to

no longer believe in the power of forecasting. We don’t believe in the predictability of customer

behavior. As the offer in products, information and services keeps growing forecasting is getting

more difficult.”

They quickly determined that this required development of a highly automated replenishment

process with a single point of customer demand forecasting and centralized control management.

“Now the supply chain is designed as a pull chain with input from customer behavior and

forecasting models. The base for logistics is what the customer buys supported by other

parameters around when do customers visit.” says the retailer’s VP of Supply Chain.

Decisions and store planning and forecasting needed to be much more reactive which required the

availability of continuous, near real-time information. Traditional processes were typically built

around batch processing cycles, usually one per day. Moving from a batch to a flow system

(continuous operation and continuous decision making) facilitated individualized delivery schedules

based on geography, transport costs, type of merchandise etc. Naturally, some batching still

occurred in the process, such as deliveries to the distribution center from suppliers or the start of a

new promotion but the emphasis is on continuous flow of information, with no artificial barriers to

impede the reaction time.

To determine how much of a particular product to send to a particular store requires knowledge of

the present and historic service levels as well as constraints of both the product and the store.

Each item/store combination has a unique set of parameters. For some products, such as dry

groceries, the parameter is simple- when one full case is sold, one new case is ordered. But for

items like fresh produce, factors like the desire for freshness, an attractive presentation and the

cost of shrinkage must all be taken into account before deciding on an order schedule. Predictive

forecasting is only used for special situations such as promotions and events. Once the promotion

is started, however, ordering is quickly adjusted to reflect actual consumer behavior in the store

(e.g. real time POS data). According to the retailer’s VP of Supply Chain “The replenishment

process is now fully automated. We have a central control room where the switchboard is operated.

Here we monitor the assortment behavior, the effect of the weather, the differences in revenues

compared to that type of local store etc. It is all in one place and there is centrally integrated

responsibility for all DCs, local stores etc. Local stores only have to focus on sales, their store

(clean, products available) and customer attention. The central department decides what products

come in, in what amounts and prescribes how to fill the store. The store just has to execute.“

As a result of these enhancements to their planning and replenishment processes, the retailer was

able to realize some substantial benefits including a 50% reduction in out of stocks. The amount of

time employees spend on store processing has declined significantly and improved availability of

goods, fewer leftovers and less time spent on ordering has translated into more time for employees

to work directly with customers. In addition, supplier investigation into product availability also

proved that availability increased 14% during promotions. Most importantly, however, the net result

of creating a collaborative, automated, real-time event driven system is increased confidence that

on any given day a customer who walks in to any one of the retailer’s stores will leave satisfied.

6



7

NOTE: 1 = very visible; 7 = not very visible

5.6

4.3

4.0 3.7 3.5 4.9

SupplierSupplier’s Supplier

Company CustomerOutboundInbound

2009

2008

Retail Store

5.8 3.33.9 3.2 2.5 4.3

6.1 4.55.0 4.6 4.0 5.1

International Supply Chain Visibility Getting Worse

NOTE: 1 = very visible; 7 = not very visible

5.6

4.3

4.0 3.7 3.5 4.9

SupplierSupplier’s Supplier

Company CustomerOutboundInbound

2009

5.2 3.23.9 3.2 2.3 3.72008

5.4 3.6 3.0 3.0 2.1 3.5

Retail Store

Domestic Supply Chain Visibility Improving

8

Merck Serono

One Synchronized View of Demand Helps Merck Serono Increase Sales, Reduce Inventory and Enhance

Service Levels

Merck Serono International S.A., the Geneva-based division of parent company Merck KGaA of Darmstadt,

Germany, is a global pharmaceutical and biotechnology leader that is committed to bringing therapeutic

innovations to patients. As an industry leader in biotechnology, Merck Serono is focused on developing

specific treatments that provide beneficial therapeutic outcomes in the areas of oncology, neuro-

degenerative diseases, fertility, endocrinology and cardio-metabolic care, as well as autoimmune and

inflammatory diseases.

Even a successful, global corporation like Merck Serono is not immune to the ever increasing demands

and expectations of being a leader in the highly competitive pharmaceutical and biotechnology research

and development industry. Merck Serono’s biggest challenge was the integration of two very different

supply chains for traditional pharmaceuticals and biotechnology-based pharmaceuticals. The traditional

pharmaceutical supply chain was locally driven with more of a pull concept – purchase orders from the

affiliates to the manufacturing sites. The biotechnology supply chain was centrally managed with more of a

push concept – automatic replenishments from the manufacturing sites to affiliates. During the time of

integration, another challenge was to maintain and ensure high customer service levels that were aligned

with Merck Serono’s “no stock-out” philosophy. Additionally, Merck Serono needed to improve sales

forecasting accuracy and manufacturing planning to drive production efficiency, as well as reduce

inventories to release cash flow.

To achieve its strategic business objectives, Merck Serono needed a highly precise sales forecast to

pinpoint and predict consumer demand with the highest level of accuracy, effectively driving the

distribution and the production of its manufacturing sites. Secondly, in order to optimize and reduce the

stock levels at various distribution centers and production facilities, Merck Serono required a highly

efficient distribution planning process. Additionally, increasing customer service levels with better product

availability, from the delivery of raw materials to the final product, was one of the driving forces for the

implementation of Merck Serono’s tactical planning project to improve the efficiency of its supply chain

and achieve one synchronized view of demand. Merck Serono’s innate ability to combine its strong

research and development initiatives with logistics and supply chain opportunities is a testament to this

company’s ongoing success. Key to Merck Serono’s prescription for supply chain excellence was its

proactive and adaptive approach to addressing supply chain challenges, as well as the company’s

strategies to expand its product offering into new specialist areas with significant unmet medical needs.

“As a recognized biotechnology leader, Merck Serono’s expertise in research, development and production

ensures absolutely high-quality manufacturing, a key success factor in the biopharmaceutical industry,”

said Didier Dayen head of supply chain process at Merck Serono.

“Implementing (advanced demand planning and fulfillment solutions provided by a leading demand chain

software firm) provides Merck Serono with one synchronized view of demand. Having only one tool as a

demand data repository in the entire company worldwide allows us to easily follow an aligned process

across the organization. Additionally, having only one-application instance forces us to define clear rules in

terms of forecast data availability and process. We now have timelines for data availability and for forecast

submissions within the whole organization.”

- Didier Dayen, head of supply chain process, Merck Serono

From a tactical perspective, visibilityallows supply chain managers to seethe flow of materials and orders andto better manage capacity andresources. Because supply chainmanagers are immediately alerted towhen, where and why a problem orchange will occur, visibility allowsmanagers to respond in a mannerthat facilitates better, more proactivedecision making rather than a last-minute reaction.

For logistics professionals, visibilityis at the core of supply chain eventmanagement. It is the glue thatbinds the logistics and fulfillmentprocesses from order to delivery, andis thought of as the enabler thatmaximizes a company’s supply chaininvestments. It allows operationalsparks to be extinguished before thefirefighting even begins and enablesmanagers to see opportunities thatwere not evident before.

Data from the 2009 study indicatethat when it comes to domesticvisibility, NA companies of all sizestend to have “high” visibility in fourareas: average customer’s finishedgoods inventory; average customersorder processing data/information;as well as their own firm’s finishedgoods inventory at the plant anddistribution center. The results alsoindicate that visibility fromoutbound to customer is improving.In 2007 it was 4.4 (On a scaleranging from 1 to 7, with 7 beingthe low score) and in 2009 it is 3.5.

The data presented do not show thevarious points that are used tocalculate the aggregated visibilityscores. When these individualpoints are examined the dataindicates that there has also been afair amount of improvement invisibility for the supplier’s finishedgoods inventory as well as thesupplier’s inbound shipments,leading to a 16 percent and 17percent improvement from 2008 to



2009, respectively. What isdismaying, however, is the lack ofprogress in improving domesticvisibility into the extended supplychain. The score for supplier’ssupplier is relatively unchanged forthe past several years.

Instead of posting gains, internationalvisibility is headed in the oppositedirection. This is the thirdconsecutive year that theinternational visibility scores havedeclined. Much like domesticvisibility, the upstream portion of thesupply chain has the worst visibility.Perhaps the most unanticipated resultwas the loss of downstream visibility.The data indicate that visibility ofcustomer information such as POSdata and demand forecasts show asizeable decline from 2008 to 2009.Even more concerning is the declinein visibility that occurred from 2008to 2009 in outbound shipments fromthe firm. This loss of visibility maypossibly be attributed to changes inservice providers who themselvesmight have less capability in thisarea. This is a good example of howthe quest for cost reduction in theshort term can lead to a long-termstrategic disadvantage.

A comparison of NA to EEA firms for2009 shows that overall NA firmshave significantly more visibility thanEEA firms in the following areas:

� Customer demand forecasts;

� Firm’s raw materials inventory;

� Order status information; and

� Supplier’s supplier inboundshipments and finished goodsinventory.

Relative to visibility beyond itscountry’s borders, NA firms rated ashigh to moderately high theirvisibility into customer’s POS data;this score was better compared toscores for EEA firms. On the otherhand, EEA firms rated as high to

moderately high their visibility ofaverage finished goods inventory.Why do these differences matter?Today’s supply chains are globalentities that reach across vastdistances and multiple time zonesand languages. All of this reinforcesthe need to have real-time access todata and information that has noboundaries. The gap in visibilitybetween NA and EEA firms suggeststhat there is still a significant amountof work that remains to be donebefore we have a seamless, end-to-end flow of data and informationbetween these two important tradingblocks.

9

10

Black & Decker Hardware and Home Improvement

With manufacturing and distribution facilities in the

United States, Canada, Mexico and China, Black &

Decker Hardware and Home Improvement (HHI) is

challenged with managing both offshore and onshore

supply chains where various products with complex

product structures are produced, resulting in multi-site

dependencies and lengthening lead times. With a

downturn in the economy and the housing market and an

increase in price for materials, Black & Decker HHI

realized it needed to improve component manufacturing

and inventory management to control operational costs.

Additionally, the company needed to get a better view of

consumer demand as soon as the products were coming

off of the shelves.

Black & Decker HHI sought a consumer-centric planning

system, that enable them to incorporate their major retail

partners’ point-of-sale (POS) data, which gave Black &

Decker HHI the ability to predict and react to fluctuations

in demand faster and more efficiently. The state-of-the-

art supply chain technology allowed Black & Decker HHI

to synchronize the flow of materials and resources for

multi-stage and multi-site production needs. As a result,

Black & Decker HHI’s forecast accuracy has also

improved by 19 percentage points and its finished goods

inventory has decreased by 11.4 percent (against a 2.5

percent target).

“We can now compare forecasts, shipment history, as

well as POS and order history for any of our SKUs at any

given time. At the end of 2007 this resulted in a 10

percent improvement in forecast accuracy. The forecast

development cycle time used to take five days and now it

takes only two days, allowing our planners to focus on

other variations,” said Scott Strickland, vice president of

information systems, Black & Decker HHI.

In conclusion, Black & Decker HHI’s supply chain

operations remain highly flexible and continue to deliver

cost-cutting initiatives, inventory reductions and

productivity improvements despite the economic

downturn and increased price for materials.

Improving Supply ChainVisibility: Where Will FirmsExpend their Effort in theNext Year?The growing importance of visibilityinto the supply chain in order toenable greater efficiency andeffectiveness has propelled firms toinvest in improving this capability.When it comes to investing invisibility improvements, the studyresults indicate that firms will beprimarily expending efforts toimprove visibility with theircustomers. The exception is largefirms whose primary focus will beimproving domestic visibility withtheir suppliers. This effort willhopefully improve the ability to “see”upstream flows in the supply chain.

From an effort standpoint, EEA firmsof all sizes mirror their NAcounterparts in that improvements to visibility will be focused oncustomers – both domestically andinternationally. Also, NA firms will beexpending significantly more efforton increasing visibility withinternational suppliers and serviceproviders as compared to their EEAcounterparts.

How Far Can You See? OrderVisibility for North AmericanFirmsIn addition to measuring the level ofvisibility between supply chainmembers, the study also examinedthe extent to which firms can see acurrent order. The data show thatfirms have the greatest visibility of anorder when it is in transit;approximately 41 percent of allcompanies. These same firms alsohave about the same degree ofvisibility of finished goods inventorycommitment and the scheduling ofproduction when the required levelsof finished goods are not available.As expected, fewer firms (18.5

percent) have visibility into thecommitment of raw materials fortheir specific order.

For large firms, order visibility isbetter than for small- to medium-sized firms. Some 44.8 percent ofthe firms in this category reportedthat they have visibility into orders intransit. When analyzed by size offirm, the data indicates that morelarge firms are able to see thecommitment of finished goodsinventory for their order – 53.7percent. From this point, however,the percentage of all firms –including large size ones - that havevisibility into an order furtherupstream declines steadily. Only35.8 percent of large-sized firms have visibility into the productionschedule, and 23.9 percent have aview of the commitment of rawmaterials for an order.

What the data does not reveal,however, is the disjointed nature ofdata and information visibility. Alack of visibility can occur as productmoves from one supply chain partnerto another. In most cases, shipmenttracking data does not carryoverbetween transportation providers.Often multi-modal moves such asship to rail and/or rail to truck lackdata connectivity. If a problemoccurs, the consignor and theconsignee often don’t know untilafter the fact. This is the situation forbillions of dollars in global inventory.The data needed to efficiently andeffectively manage the flow is notavailable. This results in reactionaryactions rather than anticipatingproblems. The inability to recognizeand respond to events causes costs torise higher than necessary. What islost are key opportunities to findalternate solutions that enable thesupply chain to be flexible andresponsive to changing conditions.



11

The Role of Collaboration in a Synchronized Supply ChainSynchronized, coordinated flows ofmaterials, services and financialsdepend on the willingness and abilityof partners to share information andknowledge flows that are generatedboth upstream and downstream inthe supply chain. Because there aresimply not enough resources or timeto collaborate with every supply

chain partner, it is necessary toidentify the critical and/or keytrading and service partners. Forsuppliers, this involves theassessment and evaluation of theneed for collaboration with second-,third-, and perhaps fourth-tiersuppliers. In many cases the“customer” is not the final consumer,and the same assessment andevaluation should be done ifcustomer tiers exist.

Large Firms>$3 billion annual

sales

Medium Firms$500M - $3 billion

annual sales

Small Firms<$500 million annual sales

Domestic Suppliers Customers Customers

International Customers Customers Customers

Orders in transit 40.7%

Finished goods inventory

commitment 40.1%

Production schedule 39.9%

Commitment of raw

materials 18.5%

How Far Can You See? Order Visibility for North American Firms

Improving Supply Chain Visibility: Where Will Firms Expend their Effort in the Next Year?

12

The data indicates that EEA firms are much more willing to shareinformation about demand for their products than NA firms. As aresult, EEA firms appear to be morecollaborative in terms of managingdemand. There were also differencesbetween the two regions in theranking of important factors forsuccessful collaboration. The data shows that NA firms rankedcommunication, top-managementsupport and visibility of demand asthe top three factors for successfulcollaboration.

EEA firms concur with NA firms thatcommunication is indeed the mostimportant criteria for successfulcollaboration. While EEA firms alsoagree that top management supportand visibility of demand are criticalto collaboration, visibility of demandis more important than top-management support for EEA firms.Beyond this point, the ranking ofother factors varies in importance. Itis interesting to note that EEA firmsplace a higher level of importance onthe use of collaboration softwaretools than do NA companies. Whenanalyzed by size of firm, the datashows that communication issignificantly more important tosuccessful collaboration for smallfirms compared to other firms. Formedium firms, visibility of demand issignificantly more important to theircollaboration efforts than firms ofother size firms. While large firmsalso ranked communication as themost important factor for successfulcollaboration, they have taken this toa much more strategic level. Largesize firms have implemented EDImessaging with their trading partnersand service providers at asignificantly greater rate than firms ofother sizes. This group alsoimproved integration of informationsystems with external supply chainpartners significantly more often thanmedium- or small-sized firms.

Programs such as Vendor ManagedInventory (VMI), ContinuousReplenishment Programs (CRP) andCollaborative Planning, Forecastingand Replenishment (CPFR) areexamples of collaboration effortsamong supply chain members.These programs depend heavily onthe integration of three components– processes, people and technology.The collaborative relationshipsfacilitate the alignment andsubsequent integration of internaland external components that makepossible the flow of information and the subsequent synchronizedflow of materials and goods.

�EEA firms concur with NAfirms that communication isindeed the most importantcriteria for successfulcollaboration.

SustainableSupply ChainManagementPractice throughSynchronization Companies that optimize theirsupply chain networks often do not realize that unless they alsosynchronize the flows they will not be able to reap maximumefficiency and effectiveness benefits.Synchronization of flows – including materials, finished goods,information and data and financials– are critical to becoming a demanddriven supply chain. This reportexamined two elements that formthe core of synchronization –visibility and collaboration.Operations cannot effectively handle uncertainty of demand, meet increasing customer-servicerequirements and control costs with little or no visibility of what is happening upstream and downstream.

Visibility is the doorway to a broadersupply chain horizon. This horizonis characterized by suppliers thathave access to better demand signalsthat enable them to efficiently utilizetheir capacity and other resources. Italso includes customers who receivemore information on their inventorystatus, both at rest and in motion.Customers expect a company toanticipate their needs and developsolutions to address them – at noadditional cost. This combination ofefficiency and effectiveness can beachieved through visibility. Visibilityinvolves people, processes,technology and information flows,which make it an inherentlycomplex issue. The study resultsindicate that a great deal of workremains to be done in this area toachieve the desired end state of

seamless, end-to-end visibility ofdata and information betweensupply chain members.

In addition to visibility, firms alsorealize that collaboration is necessaryfor achieving synchronized supplychain flows. An analysis of datafrom the study shows that highperformers relative to market share,return on assets, overall productquality, overall competitive positionand overall customer-service levelsare significantly different in that they

share capacity forecasts with theircarriers or other service providers.As noted earlier, communication isconsidered the most critical factor insuccessful collaboration. Withoutcommunication, a supply chain will not be able to efficiently oreffectively handle the same supplychain challenges that make visibilityso important, which includeuncertainty of demand, increasingcustomer-service demands andcontrol of costs.



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3.68

3.48

3.40

3.16

3.13

3.12

2.28

1.93

1.43

0 1 2 3 4 5 6 7

Use of collaboration software tools

Systems integration

Cultural fit

Formal objectives

Internal integration of supply chain activities

Aligned supply chain/logistics processes

Visibility of demand

Top management commitment and support

Communication

Mean of Respondents

1(Very Important)

2 3 4(Neutral)

5 6 7(Not Very Important)

Collaboration with a Typical Customer for NA Firms

3.72

3.53

3.01

2.97

2.95

2.72

1.92

1.80

1.72

0 1 2 3 4 5 6 7

Systems integration

Cultural fit

Formal objectives

Internal integration of supply chain activities

Use of collaborative tools

Aligned supply chain/logistics processes

Top management commitment and support

Visibility of demand

Communication

Mean of Respondents

1(Very Important)

2 3 4(Neutral)

5 6 7(Not Very Important)

Collaboration with a Typical Customer for EEA Firms

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Collaboration is needed to increasethe degree of real-time informationsharing, particularly on a global basis. It reduces the complexity in information sharing andcoordination as the number of supply chain members increases.More importantly, collaboration canincrease the reliability of planningand facilitate the execution of“optimized” plans. Why is thisimportant? Most firms havedistribution, sales and/or marketingcenters outside of their homemarkets. Global supply chains createmuch higher information demandsthan domestic movements. Enablingthe exchange of information on areal-time, seamless basis is achallenge for logistics and supply

chain managers not used to dealingwith this level of complexity.

Last, but not least, collaborationis just good business sense.Supply chain members thatalign their planning andexecution processes andcapabilities are able tocollaborate to make the rightdecisions based on highintegrity and highly visible

information. This enables eachsupply chain member to execute

the first time and every time at thehighest degree of efficiency possible

based on optimized plans.

The bottom line is this: firms thathave made progress in synchronizingtheir supply chains have realizedsignificant benefits that include:

� Reduced order cycle times

� Lower inventory levels

� Increased order fill rates thatultimately result in higher in-stocklevels at stores

� Lower transportation costs

� Improved customer-service andsatisfaction levels

� Better management of exceptionevents

� Improved cash-to-cash cycles

The return on investment forachieving a synchronized supplychain is substantial. Now is the timeto make the needed investment invisibility and collaborationcapabilities that will enable your firmto be a part of the coordinated,harmonized flows in the supplychain. Waiting until the economyrebounds will yield the competitiveadvantage to those that heeded thecall to implement synchronizationnow. In essence, only a disciplinedsupply chain management practicewill sustain leading firms during alleconomic times.

For MoreResearch onSustainableSupply ChainManagementPractice This year’s annual study examined avariety of issues and trends rangingfrom supply chain mega trends totransportation managementtechniques and approaches. We aretaking a different approach in thedissemination of the study results thisyear. An earlier report – The Driversof Sustainable Supply ChainManagement Practice - presented anoverview of the fundamentalcapabilities that firms must developin order to build sustainable supplychain management practices. Thisreport is the first in a series of fivethat provides a detailed examinationof a specific driver.

Keep track of upcoming reports Keep track of upcoming reports and analysis by visiting:and analysis by visiting:

www.transportation-trends.comwww.transportation-trends.com

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5.7%0.7%0.5%

1.4%3.2%

5.7%7.4%

14.9%2.7%

5.7%16.6%

18.3%5.0%

12.1%

OtherHealth managed care

UtilitiesCommunicationsAgriculture/food

Energy/chemical/miningLife sciences

Transportation service providerManufacturing - AerospaceManufacturing - AutomotiveManufacturing - Consumer …

Manufacturing - GeneralManufacturing - High tech

Retail

Study Participants by Industry Sector

< $250 million, 40.8%

$250 - $500 million, 10.3%

$500 million -$1 billion,

12.3%

$1 - $2 billion, 7.9%

$2 - $3 billion, 4.2%

$3 - $5 billion, 9.6%

$5 - $9 billion, 3.7%

> $9 billion, 11.3%

Annual Sales Revenue of Study Respondents



Who Participatedin this Research?This year 830 individuals across theglobe participated in the study.Aggregated as a profile group, 63.4percent of the companies thatresponded to the survey have annualrevenues under $1 billion, whilethose with annual sales of $1 billionto $3 billion accounted for 12.1percent of the sample. Those firmswith sales greater than $3 billionaccounted for 24.6 percent. The lattergroup has been defined as theMasters of Logistics.

More than 14 industry sectors fromenergy/chemical/mining to retailingparticipated in this year’s study withthe core group of participants in themanufacturing sector (48.3 percent).Consumer products and generalmanufacturing represented the largestsub-sectors of this group (18.3 and16.6 percent, respectively). The nextlargest sector that participated in thisyear’s study is retail, accounting for12.1 percent of the total participants.

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About theAuthors CapgeminiBelinda Griffin is a senior managerwith Capgemini Consulting. She hasover 15 years experience in logisticsand fulfillment and has developedsupply chain strategies for leadingcompanies worldwide.

Sumit Kumar is a senior consultantwith Capgemini Consulting. In thisrole for over four years, Sumit hashelped global companies improvesupply chain performance andreduce operating costs.

Capgemini, one of the world’sforemost providers of consulting,technology and outsourcing services,enables its clients to transform andperform through technologies.Capgemini provides its clients withinsights and capabilities that boosttheir freedom to achieve superiorresults through a unique way ofworking, the Collaborative BusinessExperienceTM. The Group relies on itsglobal delivery model calledRightshore®, which aims to get theright balance of the best talent frommultiple locations, working as oneteam to create and deliver theoptimum solution for clients. Presentin more than 30 countries,Capgemini reported 2008 globalrevenues of EUR 8.7 billion andemploys 90,000 people worldwide.

More information is available atwww.capgemini.com.

JDA Software Group, Inc.Dawn Salvucci-Favier is seniordirector of product management,transportation for JDA Software. Inthis position, Salvucci-Favier isresponsible for overall productstrategy for JDA’s Transportation &Logistics Management solutions,working very closely with the sales,

marketing and product developmentgroups at JDA. She has been in thisrole since JDA’s 2006 acquisition of Manugistics.

JDA® Software Group, Inc.(NASDAQ: JDAS) is the world’sleading supply chain solutionsprovider, helping companiesoptimize operations and improveprofitability. JDA drives businessefficiency for its global customerbase of more than 5,800 retailers,manufacturers, wholesaler-distributors and services industriescompanies through deep domainexpertise and innovative solutions.JDA’s combination of unmatchedservices, together with its integratedyet modular solutions formerchandising, supply chainplanning and execution and revenuemanagement, leverage the strongheritage and knowledge capital ofmarket leaders includingManugistics, E3, Intactix and Arthur.For further information, please visithttp://www.jda.com.

Georgia SouthernUniversityDr. Karl Manrodt is an associateprofessor in the Department ofManagement, Marketing & Logisticsat Georgia Southern University.Research interests revolve around therole of information in logisticssystems, performance measurement,the role of logistics in health care,and customer value determination ina logistics setting. His publicationshave appeared in such journals asthe Supply Chain Management Review,Transportation Journal, theInternational Journal of PhysicalDistribution and MaterialsManagement, Interfaces, and theJournal of Business Logistics.

Georgia Southern University is agrowing nationally recognizedlogistics program located inStatesboro, Georgia. The Universityis a major teaching and research



institution and offers undergraduateand Ph.D. degrees in logistics andsupply chain management. Thefaculty publishes in a wide range of topics and is invited to speak at events across the globe. TheSouthern Center for IntermodalTransportation offers a wide range of research services and resides inthe College of Business.

For further information, please visithttp://www.GeorgiaSouthern.edu orhttp://www.manrodt.com

University of TennesseeDr. Mary Holcomb is associateprofessor of logistics andtransportation in the College ofBusiness at The University ofTennessee. Her professional careerincludes eighteen years at the OakRidge National Laboratory intransportation research for the U.S.Department of Energy, U.S.Department of Transportation, andthe U.S. Department of Defense. Dr.Holcomb’s background also consistsof varied industry experience withMilliken & Company, the formerBurlington Northern Railroad, andGeneral Motors. Her research hasappeared in the Journal of BusinessLogistics, Transportation Journal, theInternational Journal of LogisticsManagement, and Supply ChainManagement Review.

The internationally recognizedlogistics program at The Universityof Tennessee, Knoxville, is one of themost comprehensive andcontemporary programs in thenation. The faculty publishes widelyon topics of current industryconcern and explores future trendsthrough research and studies.

For further information, please visithttp://mlt.bus.utk.edu

Karl B. Manrodt, Ph.D.Associate Professor of LogisticsDepartment of Management, Marketing & LogisticsP.O. Box 8154Georgia Southern UniversityStatesboro, GA 30460Direct: 912.681.0588Fax: [email protected]://www.manrodt.com

Mary Collins Holcomb, Ph.D.Associate Professor of LogisticsDepartment of Marketing & Logistics316 Stokely Management CenterUniversity of TennesseeKnoxville, TN 37996-0530Direct: 865.974.1658Fax: [email protected]://www.maryholcomb.com

Belinda GriffinSr ManagerCapgemini, U.S. LLC.45 Bartlett StreetMarlborough, MA 01752Direct: [email protected]

Ramon VeldhuijzenPrincipal Consultant Capgemini NetherlandsPapendorpseweg 100P.O. Box 2575 – 3500 GN– Utrecht,The NetherlandsDirect: +31 (0)30 689 00 [email protected]

Dawn Salvucci-FavierJDA Software9713 Key West Ave.Rockville, MD 20850Direct: [email protected]

The authors would like to especiallythank other team members whomade this work possible. At GeorgiaSouthern University, Mark Donatoand Davin Miller played a criticalrole in managing the Web site.Cathy Fitzgerald provided the designand layout of the report. In addition,the following individuals providedcountry specific research supportand analysis in their respectivecountries: Leanny PizzolanteAlbornoz (Spain), Karin Oerlemans(The Netherlands), Simon Mollart(UK), Lieven Loose (Belgium),Kristoffer Arvidsson (Sweden),Giorgio Vigano (Italy) StephenNestor (Australia) and ThiaguMathan (India). Additional thanks toCentro Español de Logística forpartnering with the team inconducting this year’s research. At JDA, Jenni Ottum providedcritical support in copy editing andcase study examples and CarolineProctor for directional support inlaunching and marketing this study.

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18th Annual Trends and Issues in Logistics and Transportation · 18th Annual Trends and Issues in Logistics and Transportation . ... This year’s annual study examines the trends