Supply Chains Are Bigger Today, But Are They Better?

CIO — As a core competency for businesses, "supply chain automation" seems like a management directive from the bygone eras of "knowledge management" and "reengineering." It harkens to the days of sending and receiving handwritten orders via fax, to lacking a thorough understanding of the true identities of the suppliers that exist in companies' downstream chains.

But even as the technology to connect companies and their suppliers (and their suppliers) has markedly improved since the KM and BPR heydays, and even though companies are certain that supply chains can offer a vital competitive advantage, businesses still struggle to automate supply chain processes and with global partner visibility.

That's according to a new Gatepoint Research survey of more than 4,000 executives, including CIOs, COOs, CFOs and supply chain executives in the second half of 2009. (It was sponsored by E2open, a supply chain software vendor.)

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First, the disconnect: 84 percent of survey respondents consider the supply chain as a "critical competitive differentiator." Yet 80 percent have not or only partially automated their supply chain processes, according to the survey report (pdf).

Why is that? For starters, today's supply chains are more complex, expansive and global than ever before. The reach is impressive: The survey found that 50 percent of respondents deal with more than 500 component suppliers or manufacturing partners. Which makes achieving that visibility more challenging: 44 percent of respondents say they have deficient visibility into their tier one suppliers; 75 percent of respondents have deficient visibility into tier two and three suppliers.

That visibility is key. For instance, as part of Wal-Mart's worldwide "sustainability product index" initiative, its suppliers must gather data on supply chain practices, energy and material efficiency, and more in order to eventually provide information for "green" product rating and labeling on goods sold at Wal-Mart (WMT). (For more on this, see Wal-Mart Orders Suppliers to Go Green, and Some See Red.)

At high-tech companies, where product life-cycles are perilously short and supply chain mistakes with Apple iPhone 3Gs, Cisco networking hardware or Nintendo Wiis are potentially catastrophic to business, the pursuit of supply chain perfection is intense.

A McKinsey Business Technology report on high-tech supply chains notes that while they have become "globe-spinning marvels," these supply chains have become much more difficult to manage.

"The sprawl and complexity of such networks have made it harder to manage end-to-end operations smoothly," notes the report. "In fact, high-tech companies have let complexity undermine collaboration in their supply chains: They aren't working as closely as they could with their supply chain partners— sharing information or streamlining processes—to smooth out volatility and eliminate waste. The failure is surprising."

In other words: As supply chains have gotten bigger, they necessarily haven't gotten any better.

Both the survey and McKinsey reports offer strategies that aim to remedy these systemic problems by increasing visibility into and collaboration with their supply chain partners. In turn, as the survey report points out, companies should be able to better manage inventories and synchronize supply management with customer demand, and make more informed and timely decisions across their entire demand-supply networks.

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