In a recent IDC Manufacturing Insights Supply Chain survey, over 350 U.S.-based manufacturers were asked about the state of their supply chain today, how they are adapting and improving their supply chains, and the role technology is playing in helping manufacturers be more successful.
The majority of the respondents were from organizations over 10,000 employees (58%), with the remainder having no fewer than 1,000 employees. In addition, the typical role of the respondents was in manufacturing operations (47%) but did span across the organization to areas such as IT, supply chain planning, logistics/distribution and supply chain executive. There was equal representation across all four value chains as IDC breaks down the manufacturing industry: asset-oriented, brand-oriented, engineering-oriented and technology-oriented manufacturers.
At the outset of the survey, we wanted to get a sense from manufacturers about how they perceived their supply chain organization—specifically, what was their “first principle”: product quality, cost or service? At IDC Manufacturing Insights, we have made the observation that service-centricity is growing in focus for manufacturers, and that cost control remains a priority; yet, the survey results indicate that manufacturers consider themselves stewards of product quality more frequently than cost or service.
Interestingly the gap between companies considering themselves primarily product quality versus cost is narrowest for the large enterprise manufacturers, suggesting that for the smaller players, it is the product itself that drives competitive success in the marketplace, and as companies move up the revenue range optimization, in the form of cost efficiency, becomes more important.
Yet, how to explain the seeming inconsistency between the survey findings that product centricity is identified as the primary focus for most companies when IDC Manufacturing Insights engagements with manufacturers suggest that cost is more often than not the primary focus? The answer lies, somewhat, in the survey responses to the question of supply chain priority.
Despite the reported centricity, reduce overall supply chain costs was selected overwhelmingly by the majority of the respondent companies (more than 80%), suggesting, as always seems to be the case, that the remit for supply chain organizations remains efficiency and elimination of waste. So, is there inconsistency between the strategic aspiration in the supply chain (what we say we want to be) and the tactical/operational realities (what we do). To a degree, the answer is yes, although one can make the argument that product, cost and service are not mutually exclusive, but in fact all necessary to varying degrees as “table stakes” for the successful manufacturer. Reinforcing this notion is that improve product quality/safety and improve overall customer service, while picked less often than reducing costs, were still selected by 50% or more of respondent companies as one of their top three priorities.
The top three priorities as compared to our surveys in both 2010 and 2007 puts slightly more emphasis on cost—with manufacturers looking for overall cost reductions, as opposed to specific areas such as procurement or transportation.
However, when asking for specific activities that will drive overall cost savings, the focus is on procurement, broader deployment of lean, and transportation. In terms of addressing these priorities more respondents felt this was a business challenge as opposed to a collaboration or IT/technology challenge.
Emerging Technologies: the Four Pillars
In IDC Manufacturing Insights’ predictions for 2012, there is reference to a shift to the IT industry’s third major platform of growth—built on mobile, cloud, social business and Big Data technologies. When asked about the level of importance of these emerging technologies, manufacturers across all of the value chains ranked Big Data as the most important, with mobility in second place. Cloud and social business technologies followed with slightly less importance placed on these technologies.
Although there is a general consensus from manufacturers that all four of these technology areas are important, the priority seems to align with the level of maturity of the technology and the degree to which companies can “see” the implications and benefits. Analytics capability, for example, already exists to various degrees with a typical manufacturing supply chain organization; as the volume and velocity of data continues to grow, it is not difficult for companies to anticipate that the need to be able to better handle these Big Data sources is important.
At the other end, social business is far less mature—and less clear to the typical manufacturing supply chain organization. Certainly, most companies do think that social media is important, but they are less clear about the form of this importance and how specifically it will impact the things that they do.
IDC Manufacturing has discussed the four pillars extensively and feels the emergence of these technologies will help manufacturers deal with increasing complexity and better respond to changes in the marketplace, including:
• Complex and extended global supply networks
• Volatile demand as the new norm
• Growing regulation
• The accelerated pace of business
• The rise of the consumer.
Further, the role of IT will have to evolve as these technologies change the way manufacturers consume and use these services. Currently, manufacturers are satisfied with the level of support IT provides across the supply chain particularly when it comes to KPIs and data quality or management.
Supply Chain Characteristics
Each value chain has certain characteristics that maintain its uniqueness. For example, engineering-oriented value chain manufacturers ranked supply lead times as the key factor that drives agility in the supply chain, whereas asset-oriented, brand-oriented and technology-oriented value chain manufacturers rated demand unpredictability higher.
In terms of sourcing, 45% of U.S. manufacturers are looking at increasing global/low cost country sourcing to serve North American demand, versus 38% that are looking to increase domestic (U.S. and Canada) production. Technology-oriented manufacturers remain the segment most likely to be increasing global/low cost country sourcing, reflecting the inherently higher relative importance of labor costs; balanced by engineering-oriented manufacturers most likely to be increasing domestic sourcing as a consequence of higher shipping and logistics cost. Regional sourcing is least likely to be used by those manufacturers in the asset-oriented value chain category.
In terms of the impact IT applications have on the achievement of key business metrics, production scheduling, and demand planning and forecasting were the two areas that manufacturers felt most significantly affected supply chain performance over the next 12 months. This certainly suggests a service motivation (for KPIs like on-time-in-full and perfect order), but also a cost element through better utilization of working capital and factory assets.
Even with all of the changes in technology delivery, manufacturers are still towing the “old school” line of on-premise delivery for supply chain IT applications. However, the differentiation of “on-premise,” “on-demand” and “on-the-move” are beginning to break through as acceptable ways to both create and consume information from critical supply chain IT applications.
Key Findings
Based on the results of the 2012 Supply Chain Survey, IDC Manufacturing Insights would make the following observations:
• Although most companies identified themselves as product-centric, cost reduction is the top rated supply chain priority suggesting that efficiency and waste reduction remains critical.
• Demand volatility remains a challenge for all the manufacturers we speak with, and is reflected in the high correlation of supply chain planning applications (and production scheduling) with the achievement of critical business goals (KPIs).
• Big Data/Analytics leads among manufacturers in terms of importance – particularly for those value chain segments that have significant consumer-facing businesses (BOVC, TOVC).
• Satisfaction with IT support is higher than in previous surveys, suggesting that there is better alignment with business goals and the role of technology.
Simon Ellis leads the supply chain strategies practice area at IDC Manufacturing Insights, one of IDC’s industry business units that address the current market gap by providing fact-based research and analysis on best practices and the use of information technology to assist clients in improving their capabilities in key process areas. Within the supply chain practice, Ellis specializes in advising clients on low cost sourcing, lean, Six Sigma and more. He also contributes his supply chain expertise to IDC Retail Insights research.
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