Consultant Deloitte: "Manufacturers say one thing, do another"
By Staff -- Manufacturing Business Technology, 11/1/2003 12:00:00 AM
Most manufacturers fail to effectively deal with growing supply chain complexity, despite having initiatives aimed at just that, concludes a study of more than 600 manufacturing companies by consulting firm Deloitte.
On the other hand, a distinct minority of survey respondents—i.e., 7 percent, which Deloitte refers to as "complexity masters"—generate 73-percent greater profit margins from customer-, product-, and supply chain-related operations that promote collaboration, flexibility, and visibility (see Figure 1).
The report also suggests that the complexity masters have invested to automate customer, product, and supply chain operations—i.e., in customer relationship, product life-cycle, advanced planning, and enterprise business applications.
Douglas A. Engel, Deloitte national industry director, manufacturing, says the Mastering Complexity in Global Manufacturing study focuses less on metrics such as inventory levels than on strategies that manufacturers pursue.
Says Engel, "We discovered the story wasn't near what we thought it would be. Companies are saying one thing and doing another. For example, most supply chain initiatives are suboptimal because they're confined within the enterprise. Companies say they are customer-focused, but find it easier to beat up on suppliers, while only five percent to eight percent have customer-facing initiatives."
All told, the complexity masters did about a dozen things the others didn't.
Says Engel, "A key example would be a focus on customer segmentation and differentiation, and their use of demand planning to link to the customer."
Deloitte surveyed companies based in North America and Europe in major manufacturing industries. For both companies and business units surveyed, about 40 percent have revenues between $200 million and $1 billion, and nearly 20 percent in excess of $1 billion.
The survey report cites poor financial performance as evidence most manufacturers don't manage supply chains properly (see Figure 2). The two major causes of increasing complexity are globalization and accelerating product innovation.
At least 80 percent of companies surveyed sell outside their region, while 53 percent have shifted production, and 59 percent have shifted some engineering to low-labor-cost regions. They do so in light of tremendous margin pressures coming from ever-larger mega-retailers and OEMs.
One of the more startling statistics reveals new products from the last three years generate 29 percent of manufacturers' total revenue in 2003—up from 21 percent in 1998—and that by 2006, manufacturers expect that to rise to 35 percent.
The report points out several ways manufacturers miss the boat. For example, they say new products and services is their No. 1 priority, yet supporting product innovation and improving time-to-market are among their least important supply chain priorities. This despite the fact, as Engel points out, "that supply chain issues such as risk mitigation, obsolescence, and supplier collaboration are key factors impacting product innovation."
In addition to the channel masters, an extra 7 percent of those surveyed had simpler supply chains and high capabilities, and thus were 19-percent more profitable than their peers.
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