Study finds companies reining in supply chain costs

By James A. Cooke -- Logistics Management, 4/1/2005

BARCELONA—Manufacturers and retailers worldwide are holding the line on supply chain costs while improving product availability, the consulting firm Accenture found in a recent study. The firm canvassed 184 executives from Europe, North America, and the Asia-Pacific region about their fulfillment operations.

The study found that overall product availability increased from 87 to 90 percent between 2001 and 2003. "Availability is a particularly potent supply chain measure because ensuring that items are available when a customer wants them directly influences companies' short-term revenues," said Jose Bleda, a partner in Accenture's Supply Chain Practice.

During the same period, average supply chain costs decreased slightly from 10.2 percent of sales to 9.8 percent. The study noted that 69 percent of executives view "improving management of inventory levels" as either a "significant" or "extremely significant" cost-saving opportunity. Respondents viewed "reducing transaction costs" as the second-greatest opportunity for cutting expenses.

Despite those improvements, annual inventory turns deteriorated from 11 to 9.8 from 2001 to 2003. The most significant performance problems were in food and consumer products, where average inventory turns fell from more than 17 to fewer than 13 from 2002 to 2003. "Lower inventory turns and the associated increases in inventory carrying costs are preventing many companies from improving overall supply chain performance," said Bleda.

The highest-ranking fulfillment challenge, noted by 67 percent of respondents, was "collaborating with multiple partners." When asked about the key obstacles to implementing collaborative practices, 44 percent said that "organizational barriers" were "significant" or "extremely significant."

"Increased collaboration with suppliers and external business partners is among the best ways for companies to improve availability without continuing to undermine turns or inflate inventories," said Bleda. "Utilizing collaborative practices can drive down costs across the supply chain. Companies that master this capability have an opportunity to create competitive advantage."