PRTM: Supply Chain Flexibility Is New Business Imperative

Supply chain flexibility requires considerable investment, as well as a top-down commitment from C-level execs.

However, that "extra" effort is proving very worthwhile, as companies that implement operational flexibility are now realizing significant business benefits, according to new survey results released last week by PRTM.

Based on interviews with senior executives from 150 companies across industries, the new research identifies five specific "levers" that increase operational flexibility, drive revenues and cut costs. According to PRTM, companies that have implemented the five supply chain flexibility levers have achieved, on average, a 12 to 15 percent revenue increase while reducing supply chain costs by 8 to 10 percent.

Here are a few survey results, grouped around PRTM's supply chain flexibility levers:

Supply Assurance/Proactive Capacity Management. Even though more than 70 percent of respondents said that supply assurance management is the most important lever to boost operational flexibility, nearly half admitted they have not fully implemented partnerships with key suppliers, and one-third said they haven't focused on it at all.

Collaborative End-to-End Demand and Supply Planning. More than half of the companies surveyed are implementing collaborative forecasting, executive sales and operations planning and real-time demand planning. Supply chain leaders have established end-to-end, real-time supply and demand planning with both key customers and suppliers, but more than 20 percent said their companies have not even started to execute these key end-to-end planning initiatives.

Tighter Integration/Partner Supply Chain Architectures. Most (more than 70 percent) of those polled have begun to establish flexible production facilities. However, more than one-third reported issues with key supplier architectures, and nearly the same percentage found major gaps in their customers' architecture.

Tearing Down the Wall. PRTM stresses that eliminating the divide between supply chain management and product development/engineering is essential for accelerating ramp-up and ramp-down of products into diverse customer markets. Half of the companies surveyed understand this and have invested in higher development responsiveness. A "win-win" collaborative set-up includes joint consideration of product development, sales and supply chain requirements.

Superior Collaboration and Flexibility. High volatility, massive swings in customer demand, and challenges in ensuring sufficient supply mean that collaboration and flexibility are now imperative for success. Unfortunately though, PRTM found that only 10 percent of respondents reported that they have developed these capabilities to the point where they can adapt their business models faster than the competition.

Going forward, businesses need to focus more attention on creating operational flexibility within their supplier network.

"Volatility is the new norm for supply chain operations, and continuing economic uncertainty is affecting demand by driving shorter capital investment cycles and tighter inventories," said Dr. Reinhard Geissbauer, director at PRTM and leader of the study. "At the same time, political unrest, growing competition for resources, and a supply base not yet fully recovered from the financial crisis is generating supply shortages. And that outlook does not even include singular events such as Fukushima, Icelandic volcanoes, and other natural events."

You can access PRTM latest supply chain study, which is the 2011 supplement to PRTM's 20102012 Global Supply Chain Trends report, at www.prtm.com/sctrends2011.