Fulfillment—how a company responds to its sales orders—is a "core" supply chain capability. However, many organizations are now working to make fulfillment a leading-edge marketplace differentiator. They recognize that technology breakthroughs and a global buying environment have changed the competitive landscape, and they've concluded that opportunities now exist to apply old capabilities—like fulfillment—in new ways.

Accenture recently completed a global research effort to determine how the fulfillment function contributes to overall business performance and what companies are doing to improve and leverage their fulfillment acumen.

Querying nearly 200 executives (67 percent from Europe, 20 percent from North America, and 13 percent from Asia), our first mission was to understand corporate priorities. Mindful of their economic realities and constraints, but more concerned about customer relationships, survey respondents identified "ensuring consistent delivery accuracy to customers" as their top fulfillment priority. Close behind was "improving product availability to customers," followed by "reducing working capital by reducing inventories" and "reducing onshore supply chain costs." (See the chart at right.)

Looking more closely at these results reveals a clear hierarchy of fulfillment objectives:

1. Enhance service by ensuring consistent delivery accuracy.
2. Grow revenue by improving product availability.
3. Contain costs by reducing inventories and onshore supply chain expenses.

Accenture's researchers then sought to gauge current fulfillment performance using three benchmarks: product availability, inventory turns, and supply chain costs as a percentage of sales. From this inquiry, we learned that most companies have made solid improvements in product availability. Between 2001 and 2003, availability rates jumped from 87 percent to 90 percent; during the same period, supply chain costs dropped slightly, from 10.2 percent of sales to 9.8 percent.

The major slip in performance occurred in inventory turns, which fell from an annual, cross-industry average of 11 turns in 2001 to 9.8 turns in 2003. In some industries, the deterioration was more dramatic. For example, from 2002 to 2003, average inventory turns in the food and consumer goods industries fell from more than 17 turns to fewer than 13. In the retail industry, inventory turns fell from 14 to fewer than 11.

Several respondents stated that these problems were the inevitable result of higher levels of product availability. A few even admitted to raising availability rates by deliberately overstocking.

However, Accenture often has noted that top supply chain performers do not equate higher product availability with lower turn rates. Instead, they work to improve both turns and availability by better integrating supply chain processes and technologies, as well as by collaborating more effectively with suppliers and external business partners. Improved inventory performance, in turn, gives these companies an advantage with respect to aggressively reducing their overall supply chain costs as a percentage of sales.

When it comes to inventory issues, most survey respondents appeared to understand both the problem and the solution. Seventy percent stated that "improving management of inventory levels" represents a significant cost-saving opportunity. Far less weight was given to other avenues, such as reducing transaction costs or expanding global sourcing. Nearly 70 percent of respondents also stated that "raising inter-enterprise collaboration" is the best way to control inventory levels without compromising product availability or raising costs.

Unfortunately, most of the responding companies do not seem ready to collaborate more fully. According to the survey responses, their integration of processes and technologies is sporadic, organizational barriers (such as inadequate change management) are common, and the operational sophistication needed to manage collaborative practices is low. Moreover, the one- to three-year plans developed by most respondents do not fully address the issues and challenges associated with inter-enterprise collaboration. All in all, culture and organizational structure seem to be undermining companies' collaborative intentions.

Regardless of the barriers, it's clear that fulfillment behaviors must change. The last few years have been unusually tough, of course, with many companies opting to nurture their key relationships by any means possible—even hiking inventories to ensure availability. But as 2005 commences, most markets are reviving. To serve those markets effectively, new fulfillment strategies will be needed—strategies that are not based on sacrificing inventory turns in order to improve product availability.

For most companies, the implementation of high-performance fulfillment strategies will require new initiatives and capabilities. As our survey results show, companies generally have been slow to make comprehensive, fulfillment-related improvements and to build the collaborative relationships that increase global fulfillment effectiveness.

While those companies were hesitating, the nature of fulfillment was changing. New challenges, different competitors, and dynamic technologies emerged. The result is a fast-paced, pressure-laden fulfillment environment that—more than ever before—requires speed, flexibility, responsiveness, and collaboration.