Dealing with supply chain challenges

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Now is the time to make supply chain investments.” –Dwight Klappich, research vice president, the Gartner Group

While the global economic recession wreaked untold havoc on transportation and logistics providers near and far, in another respect, it’s been a boon to shippers by significantly reduced many supply chain costs and concerns. Freight capacity became plentiful, inventory carrying costs dropped, etc. – all great news to long-stressed supply chain professionals (those that found they still had jobs, of course.)

Yet that’s all at best temporary, warned Dwight Klappich, research vice president for global information technology research firm the Gartner Group. In a presentation here at software provider Manhattan Associates annual user group meeting (dubbed Momentum 2010) Klappich said for all intents in purposes we’re in the “eye of the hurricane” when it comes to supply chain stresses – meaning difficult challenges lay ahead.

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“In our ongoing surveys, we still find a high percentage of companies regard the supply chain as a ‘necessary evil’ of sorts to their business,” he said – and he believes that attitude thus gives short shrift not only to a huge bottom line costs but to a potential “competitive advantage” of sorts as well.

Gartner’s done a detailed survey over the last three years to get some insight into how shippers and logistics providers deal with supply chain issues. Its 2009 study garnered responses from 340 supply chain professionals in the U.S. across a wide range of business – CPG (17%), logistics providers (15%), high tech (10%), retail (10%), etc.

On balance, Gartner found that 55% tend to be “mainstream” and 32% “conservative” when it comes to trying new supply chain strategies or deploying new technologies, with another 24% saying supply chains themselves – while important – are not a key differentiator from their competitors.

[You can watch Klappich discuss some of these findings below – sorry for the video quality; low light levels play havoc with video!]

That being said, the group’s study also found something else – increasing productivity is new watchword among supply chain professionals, replacing costs reduction as the top concern.

“This says to us that costs have been cut probably as much as they can – now everyone is trying to realign their supply chains to maintain those low costs,” Klappich said. That also backs the theory of a “jobless” economic theory, he noted, as it means shippers in particular are indicating they don’t want to hire staff in order to beef up their supply chains as growth returns.

“They don’t want to have to hire 20 people or build up inventory to accommodate increased demand,” Klappich explained. “That’s a focus heading out to 2012 and it’s why we think this is another indicator of a ‘people-less’ recovery.”

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Some other interesting issues – forecasting ability remains a huge concern, with 58.53% of respondents making it number one on the worry list, followed by growing supply chain complexity (41.76%) and lack of internal cross-functionality (38.53%)

Klappich said this is surprising, as much of the last 20 years of supply chain work has focused on dealing with those three areas – and so, by extension, if they remain top concerns, has any of that investment been worth it?

Going forward, Klappich thinks 2010 will be a “transitional year” for supply chain managers as a turbulent economy starts to stabilize and grow again. Fuel prices are already rising – diesel hitting an 18-month high this week – and freight capacity is tightening fast.

[Klappich talks more about that caapcity issue in the clip below.]

“There are no trucks parked along the fences waiting to roll like in the aftermath of most recessions,” he noted. “A lot of that excess capacity is permanently gone. That creates new challenges supply chain professionals must manage.”

As a result, Klappich thinks more shippers are going to continue to streamline their supply chains, looking for ways to boost productivity and efficiency without adding infrastructure and assets. That means using more technology to manage the process as well as searching for new ways to connect with logistics providers.

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For example, he said many shippers that outsource are not necessarily going to bring supply chain control all back in house, but want to move away from pure third party logistics (3PL) reliance. “There’s a view that continuous process improvement on the part of 3PLs benefits the 3PLs bottom line and not the customer,” he explained. “That’s why many shippers are looking more for an ‘agent’ relationship when more of those savings are shared.”

Finally, more risks will need to be taken, stressed Klappich, in terms of trying new methods and technologies if shippers expect to derive productivity gains and other benefits from their supply chains. “Many industries are reluctant to change, but it’s happening,” he said, pointing in one instance to a group of hospitals forming a joint supply chain company to help lower all of their costs.

“Even universities are exploring new supply chain ventures, to better manage the costs of furniture being delivered to dormitories, for example,” he said. “There’s a lot of innovation going on in supply chain management from ‘non-traditional’ areas.”

That’s what he thinks will be necessary in order to deal with the challenges that will arise on the other side of this “eye” of the global economic storm.

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