Next-generation Supply Chains Efficient, Fast And Tailored
Global Supply Chain Survey 2013This year’s global supply chain survey byPwC shows how Leaders are moving aheadof the pack. They’re tailoring their supplychains to customer needs and investing innext-generation capabilities while keepingthe focus on supply chains that are both fastand efficient.Next-generationsupply chainsEfficient, fast andtailoredwww.pwc.com/GlobalSupplyChainSurvey2013
ContentsExecutive summaryIntroductionDetailed survey findingsIndustry-specific dashboardsAbout the surveyAcknowledgementsRelated readingMore than 500participants frommanufacturingand service industriescontributed tothis year’s survey,with data collectedfrom May toJuly 2012.2Next-generation supply chains: Efficient, fast and tailoredExecutive summary36820323334Macroeconomic cyclesof growth, contractionand recovery havebecome erratic. Togetherwith natural disastersthat affect bothoperations and sales,they have made reliableend-to-end supply anddemand planningincreasingly challenging.Successful management of extrememarket and demand volatility hasbecome the new mantra of supplychain managers around the globe.Macroeconomic cycles of growth,contraction and recovery have becomeerratic, making reliable end-to-endsupply and demand planningincreasingly challenging. Disruptionscaused by recent natural disastershave added to supply chain volatility.In business-to-business relationships,long-term loyalty and predictable orderflow seem to have become relics of thepast. At the same time, customers aretightening their requirements in termsof throughput time and perfect-orderdelivery while demanding continuousreductions in supply chain cost.The increasing use of online channelsis driving the reduction of responsetimes and forcing supply chainmanagers to find new answers forglobal micro-delivery of multiplesmall-customer orders, instead ofthe large-batch movements.Maximising supply chain flexibilityand managing multiple supply chainconfigurations have become the newimperatives for today’s supply chainexecutives. In addition, radiofrequency identification (RFID) andother digital technologies lead to newfrontiers in supply chain transparencyand process automation. Thosetechnologies enable multiple supplychain partners along the value chainto seamlessly interact in the jointdesign, manufacture, delivery andservice of complex customer orders.But even with this kind of innovationavailable to enhance efficiency, supplychain executives everywhere facesome tough challenges. So, how arethey handling them? In this report weshare the findings from our ninth andlargest-ever global supply chain survey.We’ve drawn on the insights of morethan 500 supply chain experts inEurope, North America and Asia, fromcompanies of all sizes and across awide range of industries. We’ve alsopicked out two groups of companiesand compared their performance.The Leaders, as we’ve called them,have consistently outperformed theirpeers, while the Laggards haveconsistently underperformed —both financially and operationally.The Leaders in our survey point tothe future. They have supply chainsthat are efficient, fast and tailored —a model that lets companies serve theircustomers reliably in turbulent marketconditions and that differentiatesbetween the needs of different sets ofcustomers. We’ve come up with six keyfindings that point the way towardshow they do it.Next-generation supply chains: Efficient, fast and tailored3
Figure 1: 45% of the participants acknowledge that supply chain is seenas a strategic asset in their company [% of participants]9%Six key findings from PwC’sGlobal Supply Chain Survey 20139%46%36%Technology and Telecom56Automotive50Industrial Products46Chemicals and Process43Pharmaceuticalsand Life SciencesRetail and Consumer Goods41Other2640Our supply chain supports the company in constantly outperforming the market is at an advantage to peers is at parity with industry peers is at a disadvantage to industry peers164You can have it all:companies thatacknowledge supplychain as a strategicasset achieve 70%higher performanceInterest innext-generationtechnologies andsustainable supplychains is growing25Source: PwC, Global Supply Chain Survey 2013Leaders focus onbest-in-class delivery,cost and flexibility to meetincreasingly demandingcustomer requirementsLeaders in mature andemerging marketsinvest more heavily indifferentiating supplychain capabilities34One size does not fit all:Leaders tailor theirsupply chains to theneeds of differentcustomer segmentsLeaders outsourceproduction and deliverybut retain global controlof core strategicfunctionsFinding 1: You can have it all:companies that acknowledge supplychain as a strategic asset achieve70% higher performanceline; the Leaders in our survey enjoyaverage earnings before interest andtaxes (EBIT) margins of 15.6%, whereasthe Laggards can manage only 7.3%.Finding 2: Leaders focus onbest-in-class delivery, cost andflexibility to meet increasinglydemanding customer requirementsCompanies that beat the competition onsupply chain performance also achievesignificantly better financial results.Supply chain Leaders deliver on time infull (OTIF) on 95.7% of occasions andhave an impressive 15.3 inventoryturns, while the Laggards achieve only3.8 turns. That means greater efficiencyand customer satisfaction withoutdriving up working capital —essentially, having it all. Those aremetrics that really impact the bottomBut, surprisingly, only 45% ofrespondents say their companies viewthe supply chain as a strategic asset, andjust 9% say the supply chain is helpingthem outperform their peers. Thatneeds to change, because better supplychain efficiency has a measurableimpact. Supply chain managers acrossthe globe need to step up to their topmanagement and claim their rightfulplace as one of the major elements inthe success — or failure — oftheir company.Supply chain executives are copingwith a wide range of challenges,with profitability and cost managementtopping the list, followed by supplychain flexibility and the need tomeet customer requirements. Butthose represent just the tip of theiceberg — adapting to competitivepressures, volatility, skills gaps,sustainability — because the range ofincreasingly important trends thataffect supply chain success is wide.Next-generation supply chains: Efficient, fast and tailoredThe Leaders have succeeded in copingwith those challenges by focusing onthree key drivers: perfect orderdelivery, cost reductions and supplychain flexibility. They’ve invested innew tools and technologies, builtextensive supply chain networksto maximise the flexibility andresponsiveness of their supply chainsand simplified their processeswherever possible. That’s helpingthem respond to customers, whoserequirements are becomingincreasingly demanding.Finding 3: One size does not fitall: Leaders tailor their supplychains to the needs of differentcustomer segmentsThe Leaders recognise that one sizedoes not fit all. They’ve createddifferent supply chain configurationsfor different customer segments byusing distinct processes and supplynetworks to offer different levels ofservice at different prices. They’re alsomore focused in the ways they go tomarket: 35% use only one channel,whereas 80% of the Laggards havemore than one. Clear channel focus,while configuring the supply chainto meet the needs of individualcustomers, has proved to be awinning formula.Finding 4: Leaders outsourceproduction and delivery butretain global control of corestrategic functionsThe Leaders typically outsource about60% of their warehousing and logisticsactivities and nearly 50% of theirmanufacturing and assembly activities.But they keep core strategic functionssuch as sales and operations planning(S&OP), strategic procurement andresearch and development (R&D)in-house.They also manage most core strategicfunctions centrally while steering morethan three-quarters of their manufacturing and logistics activities regionally.Regional manufacturing and distribution give them greater flexibility andmake it easier for them to respond tolocal customer requirements.Finding 5: Leaders in matureand emerging markets invest moreheavily in differentiating supplychain capabilitiesMost companies have implemented thebasic capabilities required to deliverefficiently and cost-effectively. Leadershave gone much further than onlymastering the basics. They’ve alsointroduced differentiating processes,such as integrated real-time demandand-supply planning with key suppliersand customers, effective supplier andpartner management or tax-efficientsupply chains.That includes supply chain Leadersfrom the emerging markets. They haverapidly adopted best-in-class practicesand avoided the painfully slowdevelopment process used by manyof the traditional-market companies.And many emerging-market Leadersare now leading the way by introducingnew and innovative supply chainpractices to the global supply chaincommunity, especially in the areasof supply chain flexibility andcost efficiency.Finding 6: Interest in nextgeneration technologies andsustainable supply chains is growingThe existing suite of innovative supplychain technologies includes RFID andother digital capabilities, new visibilityand statistical decision tools andtechnology to facilitate further processautomation and efficiency. Manycompanies aren’t yet taking advantageof all those possibilities. But that looksset to change: more than half of allrespondents say they’re implementing,or they plan to implement, new tools toimprove visibility and provide moreprocess automation. Those in thePharmaceuticals and Life Sciences,Technology and Telecom and Retailand Consumer Goods industries planto make particularly significantinvestments in those areas over thenext couple of years.More than two-thirds of allrespondents also say sustainability willplay a more important role in thesupply chains of the future. A numberof companies have already started(1) investing in technologies to reducetheir carbon dioxide emissions and(2) excluding any supply chainpartners that don’t adhere to thehighest ethical standards.But such examples are not yetwidespread — aspirations tend toexceed action unless there is a clearcost reduction benefit or regulatoryrequirement being met.Next-generation supply chains: Efficient, fast and tailored5
IntroductionIn our ninth — and largest-ever — global supplychain survey, we heard from over 500 executivesaround the world which key trends they seereshaping the supply chain.The need to cope with a whole rangeof supply chain challenges is puttinggreater pressure than ever on supplychain executives. In our ninth — andlargest-ever — global supply chainsurvey, we heard from over 500executives around the world which keytrends they see reshaping the supplychain. Coming from companies largeand small, across a wide range ofindustries, our respondents shareddetails of their operating models andthe practices their companies areusing, outlined the ways they’reorganising their supply chains anddescribed the levers they’re pullingto maximise the value of thosesupply chains.We’ve supplemented this research witha comparison of two distinct cohortsof companies: those in the top quintileand those in the bottom quintile (perindustry sector), measured in terms offinancial and operational performance.The differences between those Leaders6Next-generation supply chains: Efficient, fast and tailoredand the Laggards are illuminating.The most-successful companies haveconfigured their supply chains forspecific customer segments, adopteddifferentiating practices such ascollaborative planning with customersand suppliers and reduced complexity.The Leaders in our survey point tothe future. They have next-generationsupply chains that are fast, flexibleand responsive — a model thatenables companies to serve theircustomers accurately and efficientlyin turbulent market conditions anddifferentiates between the needs ofdifferent sets of customers.We’ve discussed our main findings inthe following pages. We’ve also includedsix dashboards with details of howwell the supply chains of companies indifferent industries perform, how thosesupply chains are typically organisedand the value drivers that matter most.Next-generation supply chains: Efficient, fast and tailored7
Detailed survey findingsCompanies that focus on improvingtheir supply chain performance achievemuch better financial and operationalresults than their peers do. The topcompanies we surveyed deliverOTIF at 96% compared with 89% onaverage. In addition, they have 87%more inventory turns per year thancompanies with average results do.That doesn’t just mean more satisfiedcustomers. It directly affects thebottom line: Leaders also enjoy 30%higher EBIT margins than the average(see Figure 2).Perhaps more important, Leaders showthat it’s possible to deliver orders veryefficiently without driving uptheir working capital, which refutesthe still widely held belief thatdelivery performance is a function ofinventory. More than half of themdeliver OTIF more than 95% of thetime and have more than 15 inventoryturns a year — evidence that deliveryperformance is the product of amature supply chain set-up, processesand systems. By contrast, 96% of theLaggards in our survey are supplychain rookies. Their deliveryperformance, inventory turns and EBITmargins are much lower than those ofthe Leaders (see Figure 3).Our analysis suggests that theimportance of the supply chain isstill insufficiently recognised in theboardroom. In fact, even supply chainexecutives themselves usually don’trealise the full value they bring to theirorganisations, or they don’t promotethat value sufficiently to the C-suite.That’s because most supply chainexecutives are focusing on theday-to-day aspects of establishing andmanaging an end-to-end supply chainand fostering collaboration both withother functions and within the supplychain itself. But taking the time topromote the importance of the supplychain can have significant benefits.Once the C-suite recognises that amature supply chain is truly a source ofimportant competitive advantage, itwill be easier to persuade executives tomake the investments needed to bringsupply chains up to the next level.Figure 2: Companies that focus on improving their supply chain performanceconsistently outperform their peers financiallyAverage EBIT margin (%)OpportunityAverage deliveryperformance (OTIF) (%)Opportunity 30%Average inventoryturns per year (#)Opportunity 8% erageLeadersLaggardsAverageLeadersSource: PwC, Global Supply Chain Survey 2013Figure 3: Leaders deliver on time in full more frequently and simultaneously optimisetheir working capital 98Delivery performance (%)Finding 1:You can have it all:companies that acknowledgesupply chain as a strategicasset achieve 70%higher performanceDelivery heroes 95Supply chain top ly chain rookies 75963LaggardsLeaders1Working capital optimisers326LaggardsLeaders15 20Inventory turns (#)% of Laggards% of LeadersSource: PwC, Global Supply Chain Survey 20138Next-generation supply chains: Efficient, fast and tailoredNext-generation supply chains: Efficient, fast and tailored9
Supply chainvalue driverFigure 5: Leaders pull seven levers to maximise the value of their supply chainsMaximum deliveryperformanceComplexity managementMaximum volumeflexibility andresponsivenessMinimised costsMinimised risksTax optimisationand efficiencySustainabilityValue creationPATH TO SUPPLY CHAIN VALUE CREATIONActivated value driversSource: PwC, Global Supply Chain Survey 2013Finding 2:Leaders focus on best-in-classdelivery, cost and flexibility tomeet increasingly demandingcustomer requirementsSupply chain executives see increasingthe profitability of their companies’supply chain and reducing total supplychains costs as their top priorities(see Figure 4). In addition, more thantwo-thirds say it’s vital to meet therequirements of customers, who arebecoming more demanding about thedelivery performance, flexibilityand service levels they expect. Andawareness of the need to keep up withcustomer demands is increasing;that number will jump to 78% by2015. As one respondent put it, “We’rejuggling multiple supply chain ballsfaster and faster and just hope thatnone of the efficiency or customersatisfaction balls drops to the ground.”Staying resilient is one way to copewith customer requirements. Nearlytwo-thirds of supply chain executivessay they’ll need to build in greaterflexibility to respond to shiftsin volume. Here, too, the importancewill increase by 2015, which isconsistent with the shift we notedin our 2010-2012 trends report.That’s only the beginning of thechallenges supply chain executives face.Respondents see a whole range of trendsas increasing in importance, from theneed to respond to competitivepressures and ensuring supplierperformance through to concerns overrisk and skills (see Figure 4).Figure 4: Costs, profitability and increasingly demanding customers top the agendaSignificant1 supply chain trends in 2013 [%]Managing profitability of total supply chain79In 2013-20152 [%]8% increase by2015 vs. 2013 10% 6%Reducing total supply chain cost80Meeting increasing customer requirements69Preparing supply chain for up/downwards volume flexibility64Responding to competitive pressures61Acquiring and developing supply chain talent and skills5811 19%Ensuring supply and supplier performance609 15%Implementing techniques to automate and increase transparency52Supporting demand growth in emerging markets52Managing supply chain security and risk46Making the supply chain more sustainable42Responding to changing regulatory requirements36Top 4 supply chain trendsSource: PwC, Global Supply Chain Survey 2013510911 14% 14% 18% 26%14 19%10 31%14 34%14 12%4Importance increase by: 20%10% and 20% 10%Remaining supply chain trendsNotes1 % participants who judge trend as critical or significant in 2013.2 % participants who say that trend is significant, critical or moderately important in 2013 and who say it will increaseby 2015, or who think that trend is critical or significant in 2013 and believe it will stay the same for the next two years10Next-generation supply chains: Efficient, fast and tailoredIndeed, the war for talent is already infull swing. Nearly three-fifths of oursurvey respondents see the acquisitionor development of supply chain talentand skills as essential to their currentsuccess. Even more rate it as importantfor 2013-2015. Some companies haveresponded by establishing dedicatedsupply chain academies to train theirown staffs. They’re also offeringattractive compensation and benefitspackages to acquire and retainsuccessful supply chain managers.Respondents say supply chains alsoneed to support demand growth inemerging markets and be moresustainable. Most companies have sofar devoted relatively little effort to theidea of the sustainable supply chain,largely because their customers seemunwilling to pay for it. But theimportance is now rising sharply —one-third more respondents saysustainability will play a major rolein 2013-2015 compared with now.All of these challenges present a lotto deal with at one time, but theintroduction of digital technologies suchas RFID and process automation toolsis likewise rising up the agenda.Such technologies require massiveinvestment and typically take severalyears to implement. But they providemuch greater transparency andprocess automation throughout theentire supply chain, so they can helpreduce costs and increase efficiency.Hence the fact that many supply chainexecutives now regard them as vital.So, in light of all these challenges,what priorities are Leaders setting tomaximise the value of their supplychains? As Figure 5 shows, many ofthem have focused on the same valuesdrivers, and it’s the first levers thatprovide the highest impact.The two levers that create the highestvalue are maximising deliveryperformance and minimising supplychain costs:
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reshaping the supply chain. The need to cope with a whole range of supply chain challenges is putting greater pressure than ever on supply chain executives. In our ninth — and largest-ever — global supply chain survey, we heard from over 500 executives around the world which key trends they see reshaping the supply chain.
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