Study: Supply Chain Investments Often Disappoint

Management consulting firm Booz Allen Hamilton has found that two keys to successful supply-chain investments are CEO involvement and a willingness to make changes. Unfortunately, many companies are more IT focused and are disappointed in their investments. Booz Allen received nearly 200 survey responses from manufacturing and industrial companies with assets or annual sales over $1 billion in North America, Europe, Asia and Latin America. Respondents included COOs, CFOs, chief administrative officers, manufacturing/operations vice presidents and directors and logistical/shipping directors. The study found widespread unhappiness in IT-focused efforts to improve supply-chain effectiveness. Despite a $19 billion worldwide market for supply-chain systems solutions, nearly half (45%) of the respondents were dissatisfied with the level of performance of their IT systems against expectations. The most common reason for disappointment: an inability to forecast effectively (56%). Other reasons include implementation issues and delays (48%), and unrealistic expectations about the impact of technology (44%). "Despite major advances in technology, supply chains still cost more than they should and tie up more inventory, and the underlying reasons haven't changed in 20 years," says Booz Allen Vice President Dermot Shorten. "The message is clear -- companies looking for improvements must break the mold, not just polish the mold." Booz Allen found that companies achieved a higher level of supply-chain efficiency when they were willing to break the constraints limiting performance by relocating factories, outsourcing non-core functions or making other fundamental changes. Efforts to improve performance within existing constraints, such as installing a new IT system, were less effective. Also effective was CEO participation. Companies that treat supply-chain management as a CEO-level item achieved annual savings improvements of 8.0% in their cost to serve customers, nearly double the 4.4% savings of firms where responsibility for the supply chain resided lower in the organization.