Amajority of UK companies risk falling behind the competition because they are ignoring the strategic importance of the supply chain, according to Bourton Group, formerly Ingersoll Engineers, the management consultancy firm specialising in manufacturing industry.
In its ninth annual survey, Bourton reveals that supply chain relationships and logistics issues rank far behind the more mainstream areas of manufacturing. And people managing the supply chain are often held in low esteem by colleagues and are frequently not seen as sufficiently important to report to managing director level.
David Pheasey, Bourton Group supply chain practice leader, says: ‘A lot of people see improving supply chain efficiency as the thing to do. But do they really understand how to achieve it? We’re not sure that they do.’
Previous work by Bourton has shown that a large proportion of a typical manufacturer’s costs are bound up in the supply chain, but that small percentage improvements could yield large gains. The key to unlocking those gains, most believe, lies in greater integration between supplier and customer.
This year’s Bourton survey of 344 managing directors, general managers, logistics managers and senior executives has tried to find out how much closer suppliers and customers had really become.
Some experts have suggested that these relationships could not get much cosier. But the reality turns out to be different.
At first sight, the message was positive. Supply chain costs represented on average half the cost of a company’s sales, falling in the range from a third to two thirds in most cases. More than 80% of those who responded said that supply chain issues were either a high priority or top priority.
Pressures to improve supply chain efficiency are coming from globalisation and rationalisation moves to fewer, global suppliers, though these are at present more important factors in the automotive, aerospace and electronic industries than in the engineered products sector.
Two critical factors emerged across all sectors, both dependent on supply chain efficiency. First, companies were experiencing pressure to cut lead times to customers.
Second, improving the speed of new product introduction emerged strongly as the factor companies saw as the key to competitive advantage in the next three years. It even eclipsed the traditional trio of quality, cost and delivery, which are increasingly being taken as given. And an efficient supply chain is necessary to achieve both these aims.
The survey found that most company senior executives seem to understand supply chain issues. Nearly 80% rated it a high priority issue, and all sectors reported major activity under way to address it. Most rated 40 50% of their relationships both with immediate suppliers down the chain and customers up the chain as ‘strategic partnerships’.
There was also a consensus on the most important actions, with more than 70% of companies polled reporting initiatives to improve computer systems, enhance training, introduce formal quality appraisals of suppliers, and improve internal management of the supply chain.
But when the survey looked more closely at what companies were actually doing, a different picture appeared.
‘The reality is that firms are mired in tactical issues. The top-level commitment to partnership is not being translated into action,’ says the report.
Two-thirds are doing nothing about joint risk sharing with suppliers; three quarters reported no significant effort to share risk with customers; fewer than half were making any effort to share responsibilities up or down the supply chain.
Only around one in three reported a significant sharing of responsibility with suppliers of design authority or specification; a similar figure shared forecasts. Manufacturing and process expertise was shared by around one in four companies with their suppliers. Subtract these figures from 100 and it is clear that a majority of firms are doing nothing.
Figures for sharing responsibility with customers were slightly better, with nearly half reporting a sharing of forecasts and of marketing responsibility. But figures for shared design capability and manufacturing or process expertise are still low at under 30% and 20% respectively.
The survey found little evidence of initiatives to create teams with suppliers or customers on strategic or tactical issues, except for quality improvement and cost reduction.
Training and future strategy appear near the bottom of the list of areas where teamworking is taking place, with 20% or less reporting team-based activity in these areas.
‘No one has the trust they need to have in suppliers or customers or confidence that suppliers will be able to do what they ask. There’s a lack of trust in all directions,’ says Pheasey.
So what is going wrong?
First, logistics issues are not given the strategic emphasis they deserve. Although two-thirds of companies reported that responsibility for the supply chain rests with a logistics or a supply specialist, in the remainder supply chain issues were still dealt with by the operations or production function, or by sales.
Again, in less than half the companies responding did the person responsible for the supply chain report to managing director level. For the rest, the senior logistics person reported to the sales or finance director, the operations or production manager or director, or the general manager. This suggests that supply chain issues are still not regarded as important enough to be considered at board level.
Similarly, supplier selection was left, in most companies, to the product design and development and purchasing functions, whereas new product introduction, for example, warranted input from general management, marketing, production, manufacturing and distribution in short, the whole spread of functions across the company.
Nor are logistics specialists highly regarded by their colleagues. Logistics people were more likely to class themselves as ‘professionals’, while their production colleagues tended to view them as clerical and administrative, or just long- experienced.
‘They’re perceived as being time-served rather than commercial or technical people,’ says Pheasey.
Bourton claims this all adds up to evidence that supply chain issues and people are not being accorded the importance they deserve given their potential to affect a company’s performance.
Even worse, there is no consensus over how to tackle this.
Asked what actions were currently under way to improve management of the supply chain, managing directors, logistics managers and production managers all mentioned the same top five: improved computer systems, better training, formal quality appraisal of suppliers, better internal management of the supply chain, and supplier base rationalisation. But there was considerable divergence of opinion between them over which was the most important.
Managing directors put their faith in improved computer systems and training. Logistics managers highlighted quality appraisal of suppliers and rationalisation of the supply base. Production managers focused on better internal management of the supply chain.
All this suggests lack of adequate communication to ensure common understanding and coordination of strategic direction, says the report. Pheasey thinks many managing directors are seeing IT solutions as a panacea, while suppliers down the chain complain of havoc created by orders placed through widely fluctuating orders from MRP II systems.
To unravel all this confusion, the Bourton team urges companies to put together partnership-style teams along the supply chain, and work out training programmes that bring these teams together.
Companies also need to do more to share forecasts with suppliers, the report says, and risk sharing with suppliers or customers needs to be given higher priority.
Above all, the report says, managing directors need to become more actively involved in supply chain issues. They should look at the supply chain as a whole and involve the senior management team in devising an integrated strategy and developing more effective relationships with key suppliers at all levels.
The rewards are potentially great. As one respondent, a managing director, says: ‘Over the past eight years the supply chain has been the biggest single reason for our success and becoming number one in our industry.’