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In this report we look at supply chain disruptions and examine
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The Chief Supply Chain Officer’s View of Supply Chain Disruptions: How
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Aberdeen_SupplyChainDisruptionsHowTheBestInClassRespond

  1. 1. In this report we look at supply chain disruptions and examine the areas targeted for improvement by Best-in-Class companies to offset or mitigate these unplanned events. Try as they might, Chief Supply Officers (CSCO’s) know there is no such thing as a perfect plan. Why, you may ask? The answer is THE CHIEF SUPPLY CHAIN OFFICER’S VIEW OF SUPPLY CHAIN DISRUPTIONS: HOW THE BEST-IN-CLASS RESPOND March, 2014  Bryan Ball, Vice President and Group Director, Supply Chain Management Report Highlights Best-in-Class companies are 153% more likely to identify raw material volatility as the #1 disruptive force in 2013. The scope of the Chief Supply Chain Officer is 23% more likely to have a broader view for the Best-in-Class. Best-in-Class are 50% more likely to target visibility as a supply chain process for improvement. Sustainability initiatives provide hidden support for Best-in-Class companies. p2 p4 p6 p7
  2. 2. www.aberdeen.com The Chief Supply Chain Officer’s View of Supply Chain Disruptions: How the Best-in-Class Respond 2 simple but the remedies are complex. As soon as a plan is finalized, something, somewhere in the supply chain will have changed. It could be anywhere, from the long tail supplier all the way to the customer, or even something as simple as someone calling in sick or a machine going down that causes a delay. Typically, these types of disruptions can be offset without any real damage to the plan. But what about those events or conditions that stretch or go beyond the boundaries of normal responsiveness and cause supply chain leaders to lose sleep at night? Business Pressures and Disruptive Events In our December 2013 report, CSCO 2014: Top Three Supply Chain Execution Priorities, we identified the top business pressures as follows:  Rising supply chain management costs  Escalating demand for service from customers  Growing complexity from global operations Figure 1 shows the events or conditions that were most disruptive to supply chain management processes over the last 12 months and there are clearly links between the business pressures and disruptive events. Increasing supply chain costs were deemed a pressure by all companies, but the Best-in-Class are significantly more concerned with raw material cost volatility than All Others, 59% vs. 23% respectively, a factor generally outside their immediate control. This would suggest that the Best-in-Class are less concerned with internal costs and a review of their capabilities reflects that these functions are already under control. Clearly, the other maturity levels are also affected by the same volatility of raw material, since it is an external force, but they are less “Chief Supply Officers (CSCO’s) know there is no such thing as a perfect plan and disruptions will always occur. Identifying them and taking action to offset or mitigate them are what set the Best-in-Class apart from their competition.”
  3. 3. www.aberdeen.com The Chief Supply Chain Officer’s View of Supply Chain Disruptions: How the Best-in-Class Respond 3 The Best-in-Class Defined In September through November 2013, Aberdeen surveyed 151 end- user organizations to understand the Chief Supply Chain Officers priorities and best practices. The performance metrics used to define the Best-in-Class (top 20%), Industry Average (middle 50%), and Laggards (bottom 30%) across these organizations are: • Average Customer Service Level was 97% for the Best- in-Class vs. 84% for All Others • Average cash conversion cycle was less for Best-in- Class, 30 days, compared All Others at 59 days • Total Logistics Cost as a % of Revenue was less at 12% vs. 25% for All Others. • Average Forecast Accuracy at the product family level was 85% for the Best-in- Class vs. All Others than half as likely to be focused on raw material volatility and more concerned by other disruptions. Related to the pressure of escalating demand for service from customers, the Best-in-Class are much less concerned with increasing demand from customers as a disruptive force compared to the others, 31% vs. 43%. This suggests that Best-in- Class are well prepared for upside scenarios and ready to take on incremental business compared to the other maturity levels. Figure I: Disruptive Supply Chain Events Source: Aberdeen Group, December 2013 However, reduction in customer demand, also felt by all maturity levels, is prioritized as a close second to raw material volatility for the Best-in-Class in terms of a disruptive force. Loss of business is always a concern for all companies but, interestingly, it is considered less disruptive (41%) to the other maturity levels than an increase in customer demand (43%), which suggests that they are much more reactive to their customers and not prepared for growth at all. 43% 41% 23% 31% 55% 59% 0% 20% 40% 60% 80% Increase in customer demand Reduction in customer demand Raw materials price volatility Percentage of Respondents, n=151 Best-in-Class All Others
  4. 4. www.aberdeen.com The Chief Supply Chain Officer’s View of Supply Chain Disruptions: How the Best-in-Class Respond 4 The Scope of the CSCO for Best-in-Class Given the challenges faced as a result of these supply chain disruptions, the next question is, what steps are companies taking to offset, mitigate or create alternatives to these disruptions, and do the Best-in-Class have an advantage? One factor that will influence all others is the scope of the CSCO’s role in the organization. As shown in Figure 2, the CSCO is more likely to have responsibility for all of the core supply chain functions in Best-in- Class companies, as indicated by a range of 77% likelihood or greater compared to other maturity levels that are in the 60%– 67% range. This emphasizes a broader role for the CSCO in Best- in-Class companies. Figure 2: Scope of CSCO Source: Aberdeen Group, December 2013 This enables a more holistic view to address supply disruptions. The demand planning and transportation functions, which are not listed, are more than 50% more likely to be within the CSCO scope for the Best-in-Class as well. This breadth in scope 60% 63% 67% 77% 77% 83% 0% 50% 100% Distribution / warehousing or logistics Procurement Supply chain planning Percentage of Respondents, n=151 Best-in-Class All Others “The CSCO is more likely to have a broader role in nearly every case for the Best- in-Class companies, at a range greater than 75% compared to All Others in the 60%-67% range.”  Read the full report, “CSCO 2014: Top Three Supply Chain Execution Priorities”
  5. 5. www.aberdeen.com The Chief Supply Chain Officer’s View of Supply Chain Disruptions: How the Best-in-Class Respond 5 advantage for the Best-in-Class allows the CSCO more levers to pull to solve a problem, whether it is related to a supply, manufacturing and operations, distribution or customer service issue. This broad span of control across many functions further enables the CSCO to influence the direction of continuous improvement initiatives for Best-in-Class organizations, as we shall see later in the report. Supply Chain Areas Targeted for 2014 Improvement Figure 3 shows the priorities for areas of improvement for all respondents. The Best-in-Class are more likely to tackle these areas than All Others across the board. They are also 50% more likely to focus on visibility, 37% more likely to address collaboration, 23% more likely to tackle procurement and 56% more likely to upgrade or improve suppliers. Visibility is important to understanding the customer and having insight into their plans, and is absolutely essential to planning. Knowing where the customer is going can certainly reduce the volatility in demand and provide advance warning of any potential loss of volume, thus limiting the impact. Increases in volume can also be better planned in advance, which would explain why the Best-in-Class are much less concerned than All Others about increases in demand. Conversely, lack of visibility may well be the cause behind the All Other’s fear of increases. If a surprise, even growth can be disruptive. Visibility also plays a part in supplier management. Having insight into raw material suppliers can allow strategies to be put in place to offset or allow for contingencies. Our 2012 report, CSCO Priorities to Address Rising Supply Chain Costs: Understanding the Tradeoffs in Performance Metrics, addresses this in detail as far as strategies for supply costs. “The scope and reach of the CSCO, to be able to go after improvements across the board from the customer all the way to suppliers, are organizational enablers and advantages for the Best-in-Class.”
  6. 6. www.aberdeen.com The Chief Supply Chain Officer’s View of Supply Chain Disruptions: How the Best-in-Class Respond 6 Collaboration goes hand in hand with visibility and our research indicates that collaboration significantly improves time to decision and problem resolution. Having a closer connection to customers and suppliers improves the sensitivity to changes in direction. The advantages gained by a collaboration initiative are outlined in our May 2012 report, B2B Collaboration: No Longer Optional. Also directly related to raw material volatility is the emphasis on procurement and suppliers, which addresses procurement processes and any supplier issues. Figure 3: Targeted for Improvement Source: Aberdeen Group, December 2013 The scope and reach of the CSCO, to be able to go after improvements across the board, from the customer all the way to suppliers, are organizational enablers and advantages for the Best-in-Class. It fosters a comprehensive approach across the entire supply suite of processes. Hidden Actions It is important to realize that the Best-in-Class are working in all areas for improvement. As part of the survey, we captured the 63% 63% 53% 50% 42% 46% 43% 32% 0% 10% 20% 30% 40% 50% 60% 70% Supply chain visibility Supply chain collaboration Sourcing / procurement Supply chain suppliers PercentageofRespondents Best-in-Class All Others
  7. 7. www.aberdeen.com The Chief Supply Chain Officer’s View of Supply Chain Disruptions: How the Best-in-Class Respond 7 actions being taken in the areas of sustainability. Although not 100% supply chain driven processes in all cases, (where more of a supporting role is required), supply chain is nonetheless heavily involved. Figure 4 shows the responses and they specifically target areas that are related to the disruptions identified. Arguably, energy is a raw material unto itself, however, improving energy efficiency lessens the impact of any raw material volatility by reducing dependence overall. The Best-in- Class are more than twice as likely to be engaged in this type of initiative. Changing the way products are manufactured is a priority for the entire business and is cross functional in nature. It involves virtually all disciplines, such as product engineering, manufacturing, supply chain, distribution, marketing and even sales. It influences whether products are made to stock, made to order, assembled to order or any possible combination or configuration. It may only be manufacturing process related, but could also involve packaging and distribution and cases where product might be stocked for fulfillment. The Best-in-Class are 139% more likely to tackle this challenge (43% for Best-in-Class vs. 18% for All Others). Using alternate fuels or sources of energy does relate directly back to raw materials. If it involves sourcing or dealing with suppliers, then procurement would be involved. Regardless, this initiative is indicative of organizations with a continuous improvement attitude, and exemplifies the meaning of Best-in- Class.
  8. 8. www.aberdeen.com The Chief Supply Chain Officer’s View of Supply Chain Disruptions: How the Best-in-Class Respond 8 Figure 4: Hidden Actions – Sustainability Source: Aberdeen Group, December 2013 Key Takeaways There is no such thing as the perfect plan and there are always disruptions. Understanding the root cause behind them is only part of the solution. Taking steps to offset, mitigate, or provide alternatives is what distinguishes the better companies. And the attitude of continuous improvement to constantly advance is what exemplifies the Best-in-Class. The Best-in-Class:  Rank raw material volatility as the most disruptive event to their supply chain processes over the last 12 months (59% vs. 23% for All Others).  Have a 97% service level vs. 84% for All Others.  Have total logistics costs that are more than 50% less as a percent of total revenue than All Others.  Are 23% more likely to have a CSCO with a broader scope over their supply chain.  Are 50% more likely to target visibility as an area for improvement (63% vs. 42% for All Others). 9% 18% 26% 39% 43% 57% 0% 20% 40% 60% Using alternate fuels / sources of energy Changing the way we manufacture our products Improving energy use efficiency Percentage of Respondents Best-in-Class All Others
  9. 9. www.aberdeen.com The Chief Supply Chain Officer’s View of Supply Chain Disruptions: How the Best-in-Class Respond 9  Are 37% more likely to engage in collaboration improvement (63% vs. 46% for All Others).  Are more than twice as likely to have sustainability initiatives that support improvement of energy efficiency or alternate use of fuels.  Are more than twice as likely to re-evaluate and change how they manufacture their products. Best-in-Class companies consider all disruptions as an area to be addressed, whether it is within their immediate control or not, such as raw material volatility. They understand the need for a holistic view of their supply chain and empower the CSCO with a broader scope than other maturity levels. A continuous improvement attitude prevails and they are more likely to target any area for improvement that might offset or limit exposure to the disruptions they have encountered over the last 12 months. The influence across the organization to mitigate or seek alternatives to supply chain disruptions through continuous improvement is what exemplifies the attitude and meaning behind the Best-in-Class companies.
  10. 10. www.aberdeen.com The Chief Supply Chain Officer’s View of Supply Chain Disruptions: How the Best-in-Class Respond 10 For more information on this or other research topics, please visit www.aberdeen.com. Related Research CSCO Priorities to Address Rising Supply Chain Costs: Understanding the Tradeoffs in Performance Metrics; March 2012 CSCO View of Resilient Supply Chains; October 2012 B2B Collaboration: No Longer Optional; May 2012 CSCO 2014: Top Three Supply Chain Execution Priorities; December 2013 Author: Bryan Ball, Vice President and Group Director, Supply Chain and Operations (bryan.ball@aberdeen.com) About Aberdeen Group Aberdeen Group conducts research focused on helping business leaders across sixteen different B2B technology disciplines improve their performance. Our process is simple – we conduct thousands of surveys every year to identify top performing organizations and uncover what makes them different. We share these insights back with the market in the form of in-depth research reports and content assets to help our readers build business plans capable of driving better results with the right set of tools to help them get there. This document is the result of primary research performed by Aberdeen Group. Aberdeen Group’s methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

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