Managers look to supply chains to curb costs

By Staff -- Logistics Management, 1/1/1999

Driven by intense pressures on pricing, manufacturers are turning to their supply chains to protect margins. A recent survey of more than 300 supply-management executives by the National Association of Purchasing Management (NAPM) revealed that 92 percent of those surveyed planned to implement one or more supply chain initiatives this year.

The initiative most commonly cited was an effort to consolidate volumes with fewer suppliers. Other techniques mentioned included implementing or expanding EDI (electronic data interchange) capabilities, initiating electronic commerce and Internet purchasing, and forming stronger supplier partnerships. Outsourcing and supplier certification also were mentioned by respondents to NAPM's 56th Semiannual Economic Forecast for the Manufacturing Sector. Survey results are released in May and December each year.

In addition to these specific supply chain programs, manufacturers will continue their inventory-reduction efforts, the findings showed. For the 10th consecutive year, manufacturers overwhelmingly reported that they would decrease or maintain inventory levels for the coming year.

"These supply chain initiatives are driven by intense cost pressures," says Norbert J. Ore, director of corporate purchasing at Chesapeake Corp. and chair of the NAPM survey. "The manufacturers can't cut prices any lower so they're turning to supply chain management as a way of improving--or at least maintaining--their margins."

Those price pressures show no signs of abating. More than 80 percent of the survey respondents said they expected that the prices charged by their suppliers either would drop or remain steady in 1999.

The NAPM survey found that respondents overall were less optimistic about this year than they were about last year. Their responses to production and capacity questions suggest a manufacturing slowdown during the first half of 1999 that will bottom out in mid-year.

The main concern among supply management professionals for this year was the economy, mentioned by one out of five survey respondents. Labor and benefits costs were the issue mentioned next most often. The accompanying table shows the five concerns mentioned most frequently in the current survey compared with the survey taken in May of 1998.

The complete results of the survey are posted on NAPM's home page (www.napm.org).

Five Top Supply Chain Concerns

(Percentage mentioning)

May '98 Dec. '98

The economy 6.8 20.3

Labor and benefits costs 12.2 9.0

Asian economies 5.6 8.5

Rising interest rates 5.6 6.1

Inflation 6.0 4.6

Source: National Association of Purchasing Management, 56th Semiannual Economic Forecast