Sunday, March 2, 2014

SCM and the Challenges Ahead

-          Alan Watts

Rising pressure from globalization and competition, high consumer expectations, and increasingly complex patterns of customer demand are some of the challenges almost every organization face. According to a survey conducted by McKinsey, around 66 % of the organizations expect supply chain risk to increase in the upcoming years. A highlighting issue that has come up as a part of this survey is the kind of rough path and the struggles associated with the processes and capabilities of the supply chain management. An insight to the challenges which will be confronted by the organizations in the world is discussed below:

Emergence from the Economic Downturn

From the history of the market in the past few years, the major concern for all the companies was monetary constraints. The volatility of customer demand as a result of financial crises affected the markets across the globe. However for the upcoming years, globalization and environmental concern remains as one of the top priority for a huge number of organizations. The share that identify environmental concerns as a top challenge in the next five years nearly doubled, to 21 percent. This is also a form of indication that the companies are emerging from the economic downturn and financial affairs are not the only source of concerns. The companies are returning to a normal mode of operation with new types of challenges ahead.

Shifting priority

Majority of the companies are meeting the goals and targets they set for themselves as a result of improved efficiency and performance. Nearly 50 % of the companies who participated in the McKinsey survey assert that their companies’ service levels are higher now than they were three years ago, 39 % say costs as a percentage of sales are lower, and 45 % have better managed inventories.
Even after all these improvements the matter of concern is the amount of supply chain risks. More than 66 % of the companies believe that the risk increased in the past three years, they dealt with it but nearly the same amount of risk will continue to rise. So there is a continuous shift in the priorities of customers which in turn is creating a whole new set of risks for the market.

Managing challenges and trade-offs

While the business conditions in the next few years seem favorable from the strategic goals set by the executives, the company as a whole is not entirely ready to adapt to the challenges. The small and the large companies are on the same page when we talk about readiness to face the challenges. However, one good news is that the three major challenges namely global competition, rising consumer expectations, and complex patterns of customer demand; a majority of the organizations are prepared to meet these challenges. The problem arises due to lesser involvement of the executives. They fail to understand the functional trade-offs related to these challenges and assumes that their companies are ready to face them. 

The Fragmented Processes

Around 31% - 40% of the participating firms face the issue that their operations teams and sales team are never on the same platform or that they never meet to discuss the strategies and issues related to the supply chain. Similarly there are many more processes within the firms which are not collaborated well with the others. 23% of the firms cite problem between their IT and manufacturing, and 21 % between manufacturing and planning. This fragmentation is likely exacerbated by the lower levels of CEO involvement. Majority of the CEOs do not actively develop supply chain strategy or work hands-on to execute it. To avoid cross functional disconnections, a higher level of CEO involvement will turn out to be promising in resolving this issue.

Leveraging the Information

In the world of Big Data and Predictive Analysis, some companies fail to collect and connect enough data in making wise decisions related to supply chain. For example, customer service is becoming a higher priority, and executives say their companies balance service and cost to serve effectively, yet companies are most likely to take a one-size-fits-all approach when defining and managing service-level targets. On the other hand while some of the companies use user data to enhance customer experience, they have mediocre information about incremental costs for raw materials, manufacturing capacity, and personnel.
While it is obvious that the supply chain challenges in future will require companies to keep and use information is more sophisticated ways, only 25% of the participating companies believe that they will invest in IT systems over the next five years, and only 10 % of respondents say their companies currently use social media to identify customers’ service needs.



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