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From the pages of Supply Chain Management Review
A Survey of Supply Chain Progress
CHARLES C. POIRIER and FRANCIS J. QUINN -- 9/1/2003
A new survey from CSC and Supply Chain Management Review charts the progress that companies have made to date in advancing their supply chain—and points to the considerable work that still needs to be done. From a competitive standpoint, the good news is that with a handful of exceptions, most companies are at about the same stage of evolution.
Everyone talks about the importance of supply chain management, but how much progress have companies actually made in advancing their supply chain capabilities? Based on extensive research, a review of the literature and case studies, and hands-on application work, we believe that this question can be answered from three perspectives.
From one aspect, leading companies are jumping ahead of their slower rivals and are establishing positions of dominance, based in large part on their ability to work collaboratively with carefully selected trading partners. At this advanced level, the linked partners have achieved online visibility, interenterprise collaboration, and leading-edge application of technology to gain the most benefit from their supply chain initiatives.
Boeing, Colgate-Palmolive, Wal-Mart, Intel, Kraft Foods, and Procter & Gamble are examples of companies in this category.
In contrast, some companies have focused their supply chain efforts entirely inwardly.
They have relied on internally generated process improvements aimed at reducing costs in specific functional areas. Though these efforts have been beneficial, they fall well short of the solid bottom-line gains recorded by the industry leaders. The forest products and construction industries tend to exemplify this second category. In between, we find the majority of companies. They have made considerable progress integrating their internal process activities and may have taken initial steps to extend this integration to a few of their external partners. But they are still struggling to reach the more advanced stage of supply chain management, in which collaboration and the use of digital commerce and other cyber-based communication techniques are applied with external partners.
Background on the
Survey
CSC and Supply Chain
Management Review
(SCMR) conducted the
"Survey of Supply Chain
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In an effort to validate these observations and assess the
Progress" during the true progress of supply chain management (SCM), summer of 2003. The
Computer Sciences Corp. (CSC) and Supply Chain comprehensive, eight-page
Management Review jointly conducted a survey among survey questionnaire was supply chain professionals. Our aim was to chart this sent in print and electronic progress against a framework developed by CSC that forms to readers of SCMR calibrates advancement on five levels of supply chain and clients of CSC with evolution. (Those five levels of evolution are depicted in supply chain management
Exhibit 1.) The survey, completed by representatives from
142 companies, provided key insights into the real state of responsibilities.
SCM in corporations today. (For more on the composition of There were 142 responses to the survey sample, see sidebar .) the survey. Seventy-one came from corporate or
With the information developed from this survey, we hoped independent businesses. to gain additional perspectives on where companies fit
Another 71 came from within the evolutionary framework and to identify what they group, division, strategic are doing to advance that evolution. The survey results business unit, or wholly provide a number of answers, some more definitive than owned subsidiaries. The others. But perhaps most importantly, they point to a world respondents represented a of opportunity that companies need to act on before it's too wide range of industries. late.
These include aerospace and defense, chemicals,
The Five Levels of Evolution consumer goods,
To set the parameters for our study, we presented respondents with a description of the stages of supply chain in the first exhibit. government, health care, high technology, discrete progress. In general terms, a business enterprise moves through five levels of evolution on its way to the most advanced stage of supply chain management, as illustrated manufacturing, process manufacturing, media and entertainment, oil and gas, professional services, retail,
In Level 1, the company focuses on functional and process telecommunications, improvement. These efforts are internal to the organization transportation services, and oriented around enterprise integration—that is, finding utilities, and wholesale the best ways of executing the supply chain process steps distribution. by functional area. To guide their early efforts, many companies use the SCOR (Supply Chain Operations
Reference) model of "plan, source, make, and deliver" developed by the Supply-Chain Council. In virtually every
Data tabulation was done by
DataStar Inc. of Waltham,
Mass. instance of Level 1 activity, the beginning emphasis is placed on two major areas—sourcing and logistics. The benefits of functional integration typically include a dramatic reduction in
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From the pages of Supply Chain Management Review the number of suppliers and logistics services providers, rationalization of product offerings, and a leveraging of buying volume.
Unfortunately, most companies at Level 1 don't leverage scale across the entire enterprise.
Content to find savings on a functional or business-unit basis, they adopt a stovepipe mentality that sees no advantage in centralizing any function or sharing any supply chain improvements. Collaboration between functions or business units is resisted.
Communication systems to facilitate processing throughout the organization are nonexistent.
In Level 2, the supply chain evolution continues on an intraenterprise basis, as the company begins to recognize the savings being generated and strives for corporatewide excellence in its supply chain processing. Companywide assets are evaluated with an eye toward turning over portions of those assets to third-party providers more adept at handling the various supply chain activities. As the focus turns to integrating the organization to best provide end-to-end product and service delivery, the stovepipe mentality begins to disintegrate.
Those in purchasing and procurement transition to strategic sourcing roles and assume responsibility for the total buy at Level 2, achieving overall corporate leverage. These individuals begin to move to a higher level of buyer-seller relationship, as they segregate the supplier base and focus on the most strategic vendors. Electronic purchasing is introduced here to handle the lower-value sourcing categories.
Logistics starts focusing on asset utilization and effectiveness of the delivery system. A key activity here is ensuring that the best provider is responsible for the process steps that assure accurate and timely delivery. Better flow of information through internal automation of transactional activities aids the loaders, shippers, and warehouse personnel in meeting customer demands. Improvements begin to show up in on-time deliveries and fill rates.
Demand management becomes an important factor at Level 2, as the company now realizes that forecast accuracy can be a major inhibitor to accurate planning and manufacturing. Near the completion of Level 2, some form of sales and operation planning
(S&OP) typically goes into effect.
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As illustrated in Exhibit 1, a cultural wall inhibits progress past the second level in most organizations. This wall is built on a series of flawed premises: All good ideas must be generated internally; if we need help from the outside, our people aren't doing their job; and if we can get good information from the outside we'll take it, but we don't share our information with anyone.
Often it takes a visionary business leader to scale the wall and bring the others along.
Once over the wall and into the external environment of Level 3, the company embarks on interenterprise activities and begins to form a business network with the help of a few, carefully selected business allies. The emphasis here is intentional as efforts to move forward with too many suppliers, distributors, and customers invariably bog down. The greatest successes start with a few, one-on-one relationships to build a framework for external partnering.
At Level 3, strategic sourcing reaches out to important suppliers, often inviting them to participate in the S&OP sessions, work on collaborative designs, and come up with solutions to match supply more closely with demand. The logistics, transportation, and warehousing functions establish global relations with qualified logistics services providers.
As part of this effort, they introduce warehouse management systems and transportation management systems that enhance communication and visibility among all supply chain partners.
Marketing and sales enter the supply chain picture at this stage, empowering key customers to self-configure products and services often through an interactive online portal. Design and development take a decided leap forward in the third level.
Leading-edge communication tools—based on Internet technology and a carefully designed communication extranet—are now used to shorten the time from concept to commercial acceptance.
In short, through a variety of tools and collaborative techniques, Level 3 finds business allies working together to discover savings through mutually beneficial initiatives that reduce cycle time, achieve faster time to market, and utilize assets more effectively. At
Level 4, supplier and customer collaboration blossoms, as the organization moves forward with its positions in one or more networks. These collaborative initiatives create what we
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From the pages of Supply Chain Management Review term value chain constellations. In this advanced environment, the company begins working in earnest with a small base of upstream and downstream partners. Now the focus shifts to establishing a position of dominance in an industry for a particular network with the aid of the key end-to-end constituents.
At this level, new metrics appear in such areas as on-time delivery, fill rates, and returns to underscore the importance of satisfying customers. Network partners begin to use activity-based costing and balanced scorecards to turn the supply chain into a value chain of allies working toward the same strategic objectives. With information being shared electronically, network members can more readily identify opportunities to achieve higher performance levels. Joint teams are established to find solutions to specific customer problems.
On the supply side, supplier relationship management (SRM) is emphasized as the company works with key vendors to enhance value for both parties. Collaboratively, they focus on the most important buy categories and look at the total cost of ownership to find any additional, hidden value that may have otherwise eluded them. A similar tactic is taken on the customer side. Customer relationship management (CRM) initiatives involving serious data sharing are launched with the goal of developing joint strategies and business goals that increase revenues for both parties.
Crucial to Level 4 progress, is the application of e-commerce, e-business, and cyber-communication techniques to enable end-to-end visibility across the value chain network. Two special features appear in this level—collaborative design and manufacturing
(CDM) and collaborative planning, forecasting, and replenishment (CPFR).
Level 5, the most advanced stage of supply chain evolution, is more theoretical than actual.
This level is characterized by communication connectivity across the total supply chain network. This is the world of full network collaboration and the use of technology to gain positions of market dominance. Only a few organizations in any given industry have reached this level. But those that do are moving to positions of industry dominance as they achieve unprecedented levels of order accuracy and cycle-time reductions across end-to-end networks that are completely electronically enabled.
A Survey in Search of Answers
With this framework as our guide, we conducted a survey of supply chain professionals representing a range of industries. Among the key questions addressed were:


Where do companies fit within the evolutionary framework?
What types of technology are they acquiring to advance their supply chain
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

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From the pages of Supply Chain Management Review
 competencies?
How aggressively are they pursuing collaborative relationships across their supply chains?
What are the leaders doing?
Are there significant variations across industries?
What should supply chain professionals be doing to move up the evolutionary ladder?
Analysis of the survey findings provides some top-line answers to these questions, which are elaborated upon later in the discussion. In terms of how companies are progressing against the evolutionary framework laid out earlier, the findings are promising—but far from spectacular. The majority of respondents have advanced beyond the initial stage of integrating their internal functional activities and are now either optimizing the internal integration effort (Level 2) or beginning to extend the internal integration to external supply chain partners (Level 3).
Only a handful of respondents (approximately 10 percent) reported progressing beyond
Level 3 for any of the major supply chain applications. Those in high technology stood out, followed by some in chemicals, discrete manufacturing, process manufacturing, and wholesale distribution. The balance of the field seem to be clustered in Levels 2 and 3.
The survey shows that respondents are relying on a wide range of technology to drive supply chain results. The solutions range from enterprise resource planning (ERP) systems, the most commonly used application among respondents, to less frequently utilized applications such as customer relationship management and enterprise application integration software. Notably, the survey results suggest that the expectations for this technology have exceeded actual performance. In response to a question about the factors driving the success of their supply chain initiatives, for example, respondents ranked technology below several other factors.
Collaboration is widely touted as a cornerstone of successful supply chain management.
But with the exception of a few leaders, most of the responding companies have yet to implement collaborative initiatives such as strategic sourcing or CPFR. It's important to note that those few companies that are actively collaborating are doing so only with carefully selected business allies.
Based on our survey results (and supported by our own observations and experience), it's clear that only a comparatively small percentage of companies have evolved to the more advanced stages of supply chain management. The good news in all of this, however, is that in most industries, not being advanced in SCM does not necessarily translate to a
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From the pages of Supply Chain Management Review significant competitive disadvantage ... at least not yet. The recommendations offered in the last section of the article should help supply chain managers identify the actions needed to advance their evolutionary position.
Digging into the Details
To get the most complete picture of their supply chain progress, survey respondents were asked to evaluate their progress on the evolutionary framework in seven key business application areas:
1.
Purchasing, procurement, and sourcing.
2.
Logistics, transportation, and warehousing.
3.
Forecasting, planning, and scheduling.
4.
Inventory and materials management.
5.
Marketing, sales, and customer service.
6.
Supplier/customer collaboration
(SRM/CRM).
7.
Supply chain software and technology.
Exhibit 2 gives the respondents' self-assessment of their progress in each of these areas. The results show a pattern of modest progress. In each of these application areas, roughly half of the respondents placed themselves in Levels 1 and 2—that is, still focused internally. A lesser percentage characterized their progress as reaching Level 3. Even fewer companies, under 20 percent in all but one category, had reached the most advanced stages of Levels 4 and 5. The only companies giving themselves multiple level 4 and 5 ratings were in the chemicals, high technology, manufacturing, telecommunications, and wholesale distribution industries. By comparison, no respondents in defense, consumer goods, government, oil and gas, publication and printing, retail, or utilities industries rated themselves at Level 4 or 5 in any of the application areas.
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The fact that around 80 to 90 percent of the responding companies placed their organizations in Levels 1 through 3 in all categories clearly points to major opportunity for improvement. It also suggests that supply chain managers may not fully understand the concept of improving the supply chain through Internet-enabled solutions and initiatives. There appears to be a great opportunity here for companies to leapfrog the competition by collaboratively leveraging the technology.
When the self-assessments are looked at by application area, software and technology is the only category where a significant number of respondents (22 percent) had advanced to Levels 4 and 5. Given the finding reported earlier that many companies are disappointed with the results of their technology investment, we are left to conclude that the cart was put before the horse in many cases. That is, respondents may well have purchased "state-of-the-art" software before making the process improvements needed to effectively use that technology.
In addition to the self-assessments, we asked the survey respondents about other companies' performance, specifically who they perceived to be "best in class" in supply chain management both inside and outside of their industry. The answers were instructive, though not particularly surprising. Wal-Mart and Dell far and away received the most number of mentions. In fact, both of these leaders were cited nearly four times more often than the next most often mentioned company (General Electric). Automotive companies overall received high marks for their supply chain performance, with companies like
Toyota, Honda, John Deere, and Harley-Davidson receiving multiple mentions.
Technology and Initiatives
In an effort to discover what companies are doing to advance their supply chain evolution and drive results, we inquired about specific technology usage and supply chain initiatives.
Among the technology choices listed, half or more of the respondents reported using ERP, inventory-planning systems, and Web-based applications. Usage levels for the other technologies were lower and ranged widely, as shown in Exhibit 3.
It's hard to draw a specific conclusion from this data. But certainly, companies have tested a lot of solutions, without clear evidence that the results have helped advanced their supply chain. Based on the comments made by the respondents as well as previous studies
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From the pages of Supply Chain Management Review conducted in this area, we believe that companies too often spend money on off-the-shelf packages expecting a silver bullet solution. The more prudent course of action is to make the necessary process changes first—and then bring in technology as the enabler of those processes.
A related question inquired about specific supply chain initiatives put in place to drive progress. As with the technology question, the responses varied considerably. Seventy percent have either completed or are about to complete initiatives for the strategic sourcing of direct materials. The next two most often mentioned initiatives were collaborative planning with customers/suppliers with 59 percent and sales and operations planning with 57 percent. At the other end, only 19 percent of the respondents had completed or had in progress initiatives centering on business intelligence systems.
(Exhibit 4 lists the top five initiatives by frequency of mention.)
Overall, the respondents appeared to be satisfied with those initiatives underway at their companies. For every initiative, at least half indicated that the results to date have been either highly or moderately successful. Asked about the factors that played the greatest role in any success achieved to date, the respondents gave answers that reflected three critical business drivers. Visible and active leadership commitment to the initiatives was the top answer given. This was followed closely by performance measures being aligned to desired outcomes and an awareness of the need to reduce inventory. Notably, technology placed only fifth in the overall rankings, suggesting a recognition (albeit in some cases latent) among supply chain professionals that technology is not the be all and end all.
The complete rank ordering of the top ten supply chain success factors in terms of importance is:
1.
Visible and active senior executive commitment to outcomes.
2.
Performance measures aligned to desired outcomes.
3.
Awareness of need to substantially reduce inventories.
4.
Project management clearly established and executed.
5.
Technology enablers established and operating.
6.
Collaboration with supply chain partner(s).
7.
Awareness of need to increase customer-satisfaction ratings.
8.
High goals set at outset.
9.
Realistic business case established to track results.
10.
Trust between workers and senior management.
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One encouraging, related finding is that three out of four respondents said that their
CEO considered supply chain management to be a source of competitive advantage.
That, coupled with the fact that top management involvement was seen as the most important success factor, bodes well for the success of those supply chain projects planned or in progress at the responding companies.
Impact of the Initiatives
Supply chain initiatives are intended to deliver multiple benefits—lower costs and higher revenues being prominent among them. But how effectively are such initiatives delivering on that promise? In terms of cost reduction, the survey sample shows a modest to significant impact. Where revenue generation is concerned, however, the results are less clear.
To set the context for this line of inquiry, we first asked respondents what costs were included in their supply chain spending. The major cost components, cited by more than three out four respondents were the following: (1) logistics, transportation, and warehousing; (2) purchasing, procurement, and sourcing; and (3) inventory and materials management. Other common components mentioned by at least half of the respondents, were planning and scheduling and supply chain software and technology. (Exhibit 5 gives the complete listing.) These costs ranged widely in terms of percent of total revenues. In just over half of the companies surveyed, supply chain costs represented anywhere from 1 to 10 percent of total revenues. In another 19 percent of the cases, these costs were between 11 and 20 percent of revenues. The remaining 30 percent of the survey respondents reported supply chain costs ranging from 21 percent to more than 50 percent of revenues.
Respondents gave some encouraging numbers about the overall impact of supply chain initiatives on these costs. More than one-third reported cost reductions in the range of 1 to
5 percent. Fully 30 percent said that the cost reductions fell in the 6- to 10-percent range, and another 11 percent reported savings of between 11 and 20 percent. Overall, well over half of the respondents achieved operating costs savings in excess of 5 percent thanks to their supply chain initiatives. (Exhibit 6 summarizes the cost-reduction and revenue impacts.)
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Previous research shows that the percentage of reduction is related to the supply chain cost's percentage of total revenue. This means that the cost reductions reported in
Exhibit 6 will find their way to the bottom line in proportion to the percentage of total revenue. Say that a company saves 5 to 10 percent of its costs through supply chain initiatives, and those costs are 10 to 20 percent of revenues, we can expect the savings to equate to .5 to 1 percent of new profit at the bottom line.
The survey results, however, were still positive but not as clear-cut, when we asked: What has been the overall impact of the supply chain effort on revenues? One out of four respondents indicated that the revenue impact was an increase of between 1 and 5 percent. But the more telling number was that more than half (51 percent) did not know or were unsure of the revenue impact of their supply chain initiatives. (See Exhibit 6.)
Looking at the cost and revenue questions together, the results suggest that the emphasis in supply chain management remains on improving the bottom line through cost reduction.
The much-trumpeted strategy of leveraging the supply chain to boost top-line revenues, remains something that most practitioners either don't understand or are not executing.
We find this conclusion consistent with the relative lack of progress reported with CRM as compared to SRM. Most of the companies we interviewed have been able to drive further cost reductions by working more closely with key suppliers. However, they've been far less successful in boosting sales revenues through improved customer relationship management.
Strategy Matters
One of our hypotheses going into the study was that a direct link exists between having a clearly articulated supply chain strategy and the success of any given supply chain initiative. Yet the survey failed to verify that position. The first surprise was that not all companies had a supply chain strategy fully in place. In fact, close to half of the respondents (46 percent) were in the process of developing their supply chain strategy —and 5 percent had no strategy at all.
On a more encouraging note, the other half of the respondents said that they did have a strategy and most had integrated that strategy into the company business plan. Most of these companies had developed and executed the strategy at the divisional level. Fewer were executing at a departmental level.
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The conventional wisdom today is that every major company has a well thought-out supply chain strategy that is being integrated into the overall business plan. Yet we can't say that our survey results verify that position. There is an obvious opportunity here for companies to get their supply chain strategy right at the beginning by aligning it with their business plan—and then move aggressively forward on that vision.
What are the types of skills required for companies to do that? Part of the answer can be found in the response to the survey question on what capabilities supply chain organizations need to work on most. The ability to build a business case for supply chain investments was ranked at the very top of the list, suggesting that in today's economy, the hurdle for such investments has been raised in most organizations. The next most often mentioned development areas—ability to execute against plan and communicate effectively—reflect a "back to basics" orientation. Understanding new technology came in next, echoing a recurring theme throughout the study: While the respondents felt that technology was important, they did not view it as the only or predominant factor. (Exhibit
7 gives the complete ranking of development areas.)
Hypotheses and Conclusions
In launching this study on the evolution of supply chain management, we established some hypotheses to be proved or disproved by the survey results. For the most part, the survey results provided some answers.
Hypothesis: Companies and industries will vary widely in terms of their evolution against
the supply chain framework.
Survey results did indicate variance in certain business application areas. Companies within such industries as high technology, manufacturing, telecommunications, and wholesale distribution, indicated they had moved into advanced levels in some business application areas. Overall, however, the vast majority of companies clustered around
Levels 2 and 3 of our framework. The survey revealed no definitive pattern to the results achieved by industry. This is largely consistent with our previous research and observations.
Hypothesis: Impacts of supply chain initiatives will be significant and well documented,
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particularly with regard to cost savings and revenue improvements.
Part of this hypothesis was supported. Costs savings from supply chain initiatives were well documented overall, ranging from 1 to 20 percent and averaging between 5 and 8 percent.
The other part of the hypothesis, revenue enhancement, was not fully proven. Most respondents did not know the revenue impact—and those that did pegged the improvements at generally less than 5 percent.
Hypothesis: Companies will adopt technology solutions before improving their related
processes, thereby foreclosing on the full benefits of the technology.
Although responses varied widely, the general indication was that technology solutions were selected before process improvements were made, thereby negating or diluting the payback for these investments. One indication of this was the number of technologies reportedly being used by the respondents. It's highly unlikely that they could have improved all—or even most—of the related processes before acquiring the different software. Another indicator is the finding that only 39 percent of the respondents said that their supply chain leadership worked effectively with IT in introducing new technologies.
Hypothesis: Interenterprise collaboration will be a mark of the advanced firms.
There is evidence that this concept eludes most companies, other than the clear industry leaders. Most companies still concentrate on internal improvement, rather than external collaboration. To illustrate, only slightly better than one third (35 percent) of the survey respondents agreed with the following statement: My organization has the capability to allow key suppliers and customers to view order status online. The majority of respondents either disagreed or expressed neutrality with regard to this important advanced supply chain capability.
Hypothesis: Customers will be the driving force behind many supply chain initiatives.
Customers are a major driver for some companies and for some initiatives, but they are not the dominant driver. The survey findings reveal that other factors, such as cost reduction, play a greater role in driving supply chain initiatives. Corroborating this, most respondents are not investing in CRM solutions.
Hypothesis: Companies are maturing their supply chain strategy as they closely link it to
business strategy.
For the most part, the survey results did not support this hypothesis. Supply chain strategy does not appear to be fully understood or effectively articulated and executed. A
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From the pages of Supply Chain Management Review surprisingly high number of respondents (51 percent) reported either that they were in the process of developing their strategy or did not have a strategy at all. In short, most companies have a long way to go when it comes to strategy development.
The Work Remaining
If the results of our survey are any indication—and based on the survey sample and previous research we believe that they are—much work remains to be done in advancing the art and science of supply chain management. One positive note here is that responding companies seem to understand that reality, which is an important first step toward making progress.
Our advice to any company seeking to make real supply chain progress is simple and basic.
Begin by streamlining and integrating the internal processes, and work aggressively to upgrade any that need improvement. Find a champion who can lead the organization or business unit "over the wall" to integrate external partners into those processes. This effort should begin with a few carefully selected suppliers, distributors, or customers. With these partners, collaboratively identify the total costs across the supply chain network and then focus intensely on those areas offering the greatest potential for improvement for all parties.
At this point—and not before—bring technology into play. Select the advanced
Internet-enabled solutions that will give all partners visibility upstream and downstream and that will enable full network connectivity. Embrace collaborative solutions such as
CPFR, SRM, and CRM to leverage their full operational and revenue-enhancing potential.
Giving advice, of course, is a lot easier than executing on that advice. The reality is that moving up the evolutionary ladder takes work. It also takes a new mindset that embraces, not resists, collaboration. But, as the leaders in every industry have demonstrated, it can be done. The opportunity is there; you just have to act on it.
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