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IBM study homes in on supply chain complexity and future methods to address related issues

By Jeff Berman, Group News Editor
December 01, 2010

While operating a global supply chain network has myriad advantages for shippers, it has its challenges as well. Some of these challenges include things like a lack of visibility into various information sources and varying sources of complexity that can influence daily operations and performance.

This was a major takeaway from a recent study published by the IBM Institute for Business Value, entitled “New rules for a new decade, a vision for smarter supply chain management.”

For this study, IBM surveyed 664 supply chain management executives in 29 countries. The study noted that “complexity exacerbates the host of challenges these executives must manage on a daily basis.”

At the top of the list for complex items impacting supply chains are global economic turmoil and uncertainty. The main related challenges for these issues, according to the study’s findings, are volatility or fluctuation in customer demand for things like increased requirements for sustainable products and services and heightened expectations for responsiveness, uncompromising quality, and low cost. Other notable challenges cited in the study were visibility, or the need for accurate, time-sensitive information, and value, the pressure for supply chain management and operations to create value on an enterprise level.

A poll of shipper executives participating in the study found that other supply chain challenges were: demand variability at 53 percent; cost optimization at 47 percent; increasing customer expectations at 44 percent; inventory optimization at 43 percent; and supply chain visibility at 41 percent.

“Demand variability was…constantly off the charts when analyzing this data,” said Karen Butner, the study’s author and Global Supply Chain Management Leader for the IBM Institute for Business Value. “Getting customer order demand and customer forecasting with all of the volatility in the marketplace, it was clear this was the biggest challenge across the industries we surveyed.”

And due to demand variability, Butner explained that all global logistics constraints, whether it is at ports, rail yards, warehouses and distribution centers and other global multi-channel environments, all tend to revolve around demand management, forecasting, sales and operations planning.

Along with demand planning, the long-familiar term of supply chain visibility registered at a high level with the study’s respondents. One driver for the increased need for supply chain visibility was related to the aforementioned logistics constraints, and the other had to do with not having accurate data and information in a timely manner to make quick decisions for things like bottlenecks or a delayed shipment. Another challenge is having too much information—and the ability to digest the right information quickly enough.

While it is clear that there are various sources of complexity and obstacles for supply chain executives to overcome, IBM points out that there are three new rules, which will be required to topple these hurdles throughout the next decade, including:
1-Know the customer as well as yourself. Smooth volatility with predictive demand;
2-See what others do not. Unveil responsibility with collaborative insight; and
3-Exploit global efficiencies. Enhance value with dynamic optimization.

Butner explained that these rules originated from the various classifications which study respondents identified themselves as being part of, with 187 identifying themselves as “Operators,” whose strategies reflect back to the basics with a focus on cost reduction initiatives, process improvements, and information linkages with key suppliers and logistics providers;  417 as “Planners,” whose strategies and initiatives characterize planning efforts like network analysis, enterprise sales and operations planning, and operational efficiencies like inventory management; and 60 as Visionaries, whom are typically shippers in the high-tech/electronics, telecommunications, consumer products, life sciences/pharmaceuticals, retail and industrial manufacturing sectors operating in multiple parts of the world and a focus on supply chain visibility with partner collaboration, business intelligence and analytics, and risk management, among others.

“Predictive demand and the types of things [shippers] are doing to predict demand now and are planning to do in the next couple of years…focuses on advanced analytics and anything that leverages intelligence,” said Butner. “In the retail industry, there are consumer buying patterns and market intelligence that can be used, as well as the automotive sector or anything else that depends on consumers. This can also help to fine-tune forecasting and collaborate planning efforts with customers to get a better handle on things and then share that data up and down their networks.”

She added that the level of dynamic optimization referenced in the third rule applies to inventory and network optimization, as well as cost structures.

“Anything they can do to find a way in their system to optimize or in their processes to yield optimal [improvements], is being done way beyond that,” said Butner.

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


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