Keep the Bean Counters Satisfied

Most supply chains are focusing on cutting costs at the expense of customer service.

When it comes to defining the role of logistics within manufacturing circles these days, the main strategic objective can be reduced to two words: cut costs. According to a recent study on logistics and transportation trends co-authored by Karl Manrodt of Georgia Southern University and Mary Holcomb of the University of Tennessee, nearly half (44%) of the 830 respondents say cost-cutting is their primary focus, a significant jump from the previous year's study when 36% said the same thing.

As the emphasis on cost-cutting increases, something's got to give and in this case it's customer service that's slipping in importance. The study indicates that the percent of respondents who named "improved customer service" as a primary objective slid from 27% a year ago to 18% in 2009.

"Given the worldwide recession, it is perhaps not surprising that cost-cutting is dominating the strategic agenda," points out Belinda Griffin, supply chain expert at Capgemini Consulting, one of the sponsors of the study. "However, [companies] need to refocus some effort on the customer as we prepare to emerge from the downturn. The inability, for instance, of many organizations to provide their customers with visibility of orders remains a significant concern."

Indeed, many companies have hit the proverbial wall when it comes to solving the issue of customer visibility. According to the survey, only 41% of the companies can offer their customers visibility of their orders in transit. Equally distressing, only 19% have visibility into their raw materials commitments.

"The findings from this year's study suggest that there are a number of strategic moves that companies should make now to position themselves and their supply chain to outperform the competition, both now and when recovery happens," Griffin observes. "They will need to build cross-enterprise approaches to managing supply chain activities; determine the optimal balance between customer service requirements and the total landed cost of providing that service on an order-by-order basis; and invest in approaches, tools and technologies that enable optimized supply chain decision making."

The study also examines the differences between North American and European manufacturers in their supply chain practices. North American companies, for instance, are more than twice as likely as Europeans to share transactional data with their customers (28% vs. 12%). On the other hand, European companies are less affected by fuel-price volatility compared to North American companies. (Of course, the price of fuel in Europe is generally three to four times as expensive as in the United States.)

For both regions, the top three megatrends influencing their logistics strategies over the past year are:

  1. The global recession
  2. The cost of logistics services
  3. Increasing customer requirements.

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