Energizing the

SUPPLY CHAIN
Trends and Issues in
Supply Chain Management
ENERGIZING THE SUPPLY CHAIN: THE KEY TO SUCCESS

Traditionally, supply chain management was synonymous with WHAT EXACTLY IS INVOLVED?
“logistics”—the movement of materials. Today it carries a broader Managing complex supply chain environments requires timely

definition, encompassing the management of materials, information, access to information that helps facilitate rapid and effective

and funds from the initial raw material supplier to the ultimate decision making. Production must be optimized to achieve

consumer. maximum efficiency, responsiveness, and throughput. Inventories

Coordinating all three components—materials, information, and must be reduced to minimum levels while still supporting customer

funds—results in a much smoother operation and achieves greater service objectives. Distribution must be carefully planned to ensure

efficiency while improving customer satisfaction. With this more that the right product is at the right place, at the right time, at the

inclusive responsibility, today’s supply chain manager must right cost.

proactively manage every aspect of the supply chain, from the In addition, effective supply chain management requires a

supplier’s supplier to the customer’s customer. universal perspective. The supply chain manager must be able to

In many companies, however, the supply chain has not yet been see everything, to change anything, and to consider all aspects of

redefined to encompass this broader perspective. Companies that the supply chain when making major decisions.

do not coordinate their management of materials, information, and

funds find themselves at a distinct disadvantage.

The 1999 Deloitte Consulting Energizing the Supply Chain: Survey

of Trends and Issues in Supply Chain Management reveals the growing

importance of the redefined supply chain to overall performance.

With its end-to-end perspective, the supply chain has become the

focal point for major industries, such as aerospace and defense,

automotive, chemicals, consumer products, high tech, and

pharmaceutical and medical devices.

This study shows that the capabilities and performance of the

supply chain are often key factors in a company’s overall business

success. For example, by freeing up the cash required to fund

acquisitions and internal growth strategies, by supporting marketing

and sales campaigns, and by providing excellent customer service,

the supply chain is a key enabler of growth. Supply chain

management is also critical to a company’s financial success in terms

of cost and asset productivity.

As we transition into the twenty-first century, building a “world

class” supply chain with this more comprehensive role has become

a top priority for companies in every industry.

TABLE OF CONTENTS
CONTENTS

About This Survey 2

Survey Highlights 3

Supply Chain Strategy 6

Supply Chain Operations 12

Supply Chain Technology 18

Supply Chain Organization 26

Implications 30

1
 ABOUT THIS SURVEY
Conducted in the winter of 1998/99 by Deloitte Consulting, RESPONDENT FACILITY LOCATIONS
Energizing the Supply Chain: Trends and Issues in Supply Chain Distribution
Manufacturing
Management consisted of detailed written survey responses from
85
more than 200 companies. USA - Northeast 67
These companies represented a cross section of industries
87
USA - Midwest 70
throughout the United States and Canada. Included are

manufacturers and distributors in industries such as: aerospace and 79

USA - West
60
defense, automotive, chemicals, consumer products, high tech, and
77
USA - Southeast 66
pharmaceutical and medical devices.

The respondent companies varied in terms of annual revenues, Eastern Canada

42
28
number of employees, and geographic coverage. Additional
49
Quebec
profiling of the companies surveyed reveals these details: 40

• 37% have revenues in excess of $1 billion; 60% have

Ontario
95
77
revenues exceeding $500,000
61
• 42% have more than 2,500 employees Western Canada 46

• The majority have a North American-wide presence 61

Europe
64
• One-third have ten or more manufacturingfacilities
50
• One-third have ten or more distribution centers Asia-Pacific 39
The objective of this survey was to understand the broad trends
36
2 Latin America
25
and issues facing supply chain management. Special attention was
0 20 40 60 80 100
given to supply chain strategy, operations, information technology, % OF RESPONDENTS

and organization. Note: Based on Multiple Answers per Respondent

RESPONDENT INDUSTRY CLASSIFICATIONS CURRENT SALES VOLUME OF RESPONDENTS

IN U.S.DOLLARS

Aerospace & Defense 4

Automotive/Transportation 11 Less than $250 million 26

Chemical 13 $250 million to $500 million 14

Consumer Products 20 $500 million to $1 billion 23

High Tech 5 $1 billion to $2 billion 13

Pharmaceuticals 9 Over $2 billion 24

Primary Industries 17 0 5 10 15 20 25 30
Other 20 % OF RESPONDENTS
0 5 10 15 20 25
% OF RESPONDENTS
 Survey
HIGHLIGHTS

3
 1. SUPPLY CHAIN EXCELLENCE IS A STRATEGIC IMPERATIVE.
While supply chain management has received considerable
attention in recent years, more companies have become increasingly
aware of the importance of an effective supply chain to corporate
success and, ultimately, to survival. Two forces driving this
recognition are the desire to improve customer satisfaction and the
need to cut costs.
Companies are investing resources, in both time and capital, to
improve their supply chain capabilities, but only a relatively small
percentage rated their supply chain performance as better than
average for their industry. One reason may be that, despite the heavy
investment and recognition of its importance, many companies have
2. BREAKTHROUGH PERFORMANCE IS DIFFICULT TO ATTAIN.
Over the past few years, companies have made significant
investments to improve their supply chain processes and systems.
However, 42% of companies are not happy with the results that they
achieved, and only 26% of companies believe they have elevated
4
their performance beyond the industry average.
There are a number of obstacles to achieving breakthrough
performance for the supply chain. First, few companies have
established a management environment that supports the
integration required for effective supply chain management.
Instead, they remain functionally oriented with limited cross-
functional teamwork and a lack of trust and credibility among the
supply chain and sales organizations.
Second, new skills are required to effectively manage the flow
of materials, information, and funds across the supply chain.
not developed a formal strategy covering their supply chain
development. As a result, companies often launch isolated initiatives
that lead to incremental improvement but never reach worldclass
performance levels.
Redefining the supply chain is no longer a risky, cutting-edge
activity. Companies in many industries successfully rebuilt their
supply chains and restructured the way in which they deliver
products and services to their customers. As more companies
redefine their supply chains and alter the competitive landscape,
an effective and efficient supply chain will become critical to
industry survival.
Strategic planning and financial literacy are the skills most lacking
in supply chain management today. As a result, most supply chain
initiatives are strictly cost-focused. Very few organizations take a
value-based management perspective of supply chain performance
that assesses the impact of initiatives on revenues, costs,
investments, and cash flows to ultimately drive shareholder value.
Third, another troubling operational issue is the need for a
better way to measure supply chain performance. In a significant
percentage of companies, measurement metrics are not aligned
with corporate objectives. Furthermore, companies are not using
the most dynamic tools available for planning and controlling
activities along the supply chain.
 3. SUPPLY CHAIN TECHNOLOGY MUST BE ENHANCED.
As is the case with the supply chain overall, many companies have execution. In addition, almost all stated that the flow of information

no strategic plan for their supply chain information systems. They must be improved to achieve long-term supply chain and business

have installed a variety of systems to accomplish a range of objectives. Those companies that chose to ride the technology risk

objectives, but in many instances there has been little coordination curve and implement supply chain optimization systems (a.k.a.

of these efforts. Without an overarching strategy for the information advanced planning systems) have achieved significant benefits.

systems facilitating the supply chain, the benefits of such systems However, the vast majority of companies have not moved beyond

investments are bound to be isolated and will not have a profound traditional Enterprise Resource Planning (ERP) systems, and they are

effect on the supply chain overall. very dissatisfied with the support they currently have for the supply

Less than half of the respondents were satisfied with their chain. They are finding out that the “go-live” of an ERP system is not

current level of systems support for supply chain planning and the final step for the supply chain, but a necessary first step.

THE EMERGENCE OF THE SUPPLY CHAIN IS FORCING A REVISION OF THE

4. ORGANIZATIONAL STRUCTURE.
With the supply chain taking on greater significance, the leading lack the broad organizational powers needed to fully align the cross-

executive in this area is becoming more visible and assuming functional areas required to deliver an optimized supply chain

greater responsibility in some companies. With the appointment environment.

of a supply chain executive, many companies are developing supply Critical to the success of the supply chain is effective

chain organizations whose sole focus is on the deployment of new performance measurement. The survey shows that many companies

supply chain processes and systems capable of providing new levels are not satisfied with the way they measure performance of the

of service at a reduced cost. However, many supply chain executives executive and the supply chain overall.

MANAGING THE EXTENDED SUPPLY CHAIN WILL BE CRITICAL TO MEET

5. CUSTOMER REQUIREMENTS.
No longer will companies compete against other companies, but chain partnerships with key customers as critical to their success.

total supply chains will compete against other supply chains. Each To support these partnerships and build new collaborative

link in the supply chain must be as strong as possible. This requires processes, many companies plan to utilize the Internet to enable

selecting and partnering with the best companies at each stage of efficient and timely sharing of information. While the majority of

the supply chain and building business systems and processes that Internet usage today is focused on selling products to customers,

enable rapid and efficient flow of products, information, and funds. e-procurement applications that support the “buy side” of the

After getting their internal supply chain in order, the respondents business is a very fast growing area. While the benefits of integrating

will move rapidly to build strong partnerships with key customers the internal supply chain are significant, the benefits of effectively

and suppliers. In fact, almost all respondents rated strong supply integrating the extended supply chain are enormous.

5
 Supply Chain
STRATEGY

S U R V E Y F I N D I N G S
SUPPLY CHAIN STRATEGY
CONTINUED FOCUS ON GROWTH STRONG PROJECTED INCREASES IN SALES AND PROFITS FOR 1999
Despite global economic turbulence, a significant number of the Profits
Sales
respondents continue to expect growth in both sales and profits
20
over the next year. Profitability is expected to grow more than More than 20%
10

sales, reflecting a strong focus on cost reduction. 2

16%-20% 6
Effective management of the supply chain will be essential
11%-15% 13
to achieve these growth expectations. The supply chain will 12

support sales growth by enabling rapid new product 22

6%-10 27
introduction, supporting sales and marketing campaigns,
20
reducing customer order cycle times, and reducing lost sales 0%-5% 27

through improved order fill rates. The supply chain will also be 7
Remain the Same
4
a contributor to increased profitability by minimizing the costs
7
(0-5%)
and investments required to support sales. 8

1
(6%-10%) 2

1
(11%-15%)
1

2
(16%-20%)
1

6
More than (20%)
3
0 5 10 15 20 25 30
% OF RESPONDENTS

SUPPLY CHAIN IS CRITICAL TO SURVIVAL SUPPLY CHAIN MANAGEMENT IS INCREASINGLY IMPORTANT

As the competitive landscape changes in almost all industries, TO A COMPANY'S SUCCESS

building and managing an efficient and effective supply chain will

Past Importance 25
be critical to survival. More than nine out of ten survey respondents (1995-1998)

rate supply chain management a five (on a 1-to-5 scale) in terms of Present Importance 70
(1990)
its being critical to a company’s success going forward. Future Importance
(2000+) 91
0 20 40 60 80 100

% OF RESPONDENTS WHO REPLIED CRITICAL OR VERY IMPORTANT

7
 FORGING AHEAD WITHOUT A STRATEGY ALMOST HALF OF THE RESPONDENTS DO NOT HAVE A
FORMAL SUPPLY CHAIN STRATEGY
Given all the focus on the improving management of the supply

chain to achieve the desired growth in revenues and profitability, it

is surprising that almost half (47%) of respondents do not have a Formal Supply
Chain Strategy
No Formal Supply 53%
formalized supply chain strategy. Chain Strategy
47%
A supply chain strategy is critical for success. It provides a

framework to define and prioritize initiatives related to business

process redesign, systems enhancements, and organizational

restructuring. Ironically, many companies forge ahead with projects

% OF RESPONDENTS
to become more customer-focused and efficient without a solid

understanding of their customers’ service expectations. As a result,

many initiatives become simply cost-cutting exercises that rarely

deliver the expected benefits.

A comprehensive supply chain strategy should include

customer service requirements, plant and distribution center

network design, inventory management, outsourcing and third-

party logistics relationships, key customer and supplier relationships,

business processes, information systems, organizational design and

training requirements, performance metrics, and performance goals.

8
AIMING TO PLEASE THE CUSTOMER AND CUT COSTS CUSTOMER SERVICE AND COST REDUCTION
ARE KEY TO ACHIEVING CORPORATE GOALS
The survey identified customer service and satisfaction as the key to

achieving corporate objectives. To enhance customer satisfaction,

Customer Service and 4.6
Satisfaction
companies are creating customer-focused organizations with business
Cost Reduction Initiatives 4.3
processes that leverage technology to improve supply chain planning
Facility Rationalization and
and execution. Over the past few years, many of these projects were Optimization 3.9

Introduce New Products to

conducted in parallel with the implementation of an ERP system. Existing Markets 3.9

Today, companies are looking to leverage their ERP investment and Employee Recruiting and 3.8
Retention
the integrated information that it provides to reduce costs and assets Inventory Reduction 3.8
across the supply chain. Business Process
Reengineering 3.7
Cost reduction is the focus of many supply chain initiatives.
Implementing/Enhancing 3.7
ERP systems
However, the attention has been refocused from traditional
0.0 1.0 2.0 3.0 4.0 5.0
functional and labor cost reduction to total supply chain cost
Not Important Very Important
reduction. These initiatives range from strategic supply

management to lean manufacturing to streamlined distribution

operations.
 73% OF COMPANIES RATE THEIR SUPPLY CHAIN PERFORMANCE MORE WORK IS NEEDED TO MEET SUPPLY CHAIN OBJECTIVES
AS AVERAGE OR BELOW
Despite recognizing how critical the supply chain is to overall

success, many companies continue to fall short of their desired

Below Industry Average Poor World Class
3% Above Average supply chain performance. In fact, satisfaction with supply chain
13% 2%
25%
performance is declining, down seven percent from last year. Only

27% of respondents feel their supply chain capabilities are above

their industry’s average.

The primary industry had the largest range of supply chain

performance, with self-assessments ranging from “poor” to “world

Average class.” Each industry supply chain is dealing with its own unique
57%
issues. As a result, no single industry appears to be “world class.”
% OF RESPONDENTS
This decline in satisfaction arrives at the same time top

executives are expecting more from their supply chains. Forty-two

percent of the respondents indicated they were not satisfied with

the results of their past supply chain improvement efforts. Clearly,

there is much more to be done to improve performance. Admittedly,

however, there are a number of stumbling blocks to doing so, as

survey respondents have pointed out.

The pharmaceutical industry ranked the lowest in terms of

overall satisfaction with two-thirds of respondents less than satisfied

with the results of their improvement initiatives.

INFORMATION SYSTEMS AND COMPETING INITIATIVES ARE THE GREATEST STUMBLING BLOCKS TO IMPROVED PERFORMANCE
BARRIERS TO ACHIEVING WORLD-CLASS PERFORMANCE
Companies continue to grapple with the need to leverage and

integrate technology to facilitate supply chain decisions. Competing

Lack of Systems 3.6
Integration
“higher priorities,” the magnitude of process changes, and cross-
Lack of Functionality in 3.5
Supply Chain Systems functional barriers, are also perceived to be inhibitors to supply
Competing "Higher
Priority" Initiatives 3.4 chain performance.
Magnitude of Change
Required 3.4 On a positive note, supply chain initiatives have the support of

Cross-Functional Barriers 3.4 top-level management acknowledging the importance given to the

Conflicting Performance 3.3

supply chain, noted previously by respondents with 91% stating the
Metrics
0.0 1.0 2.0 3.0 4.0 5.0 supply chain is critical to future success.

Not a Barrier Significant Barrier

9
 COMPANIES ARE TAKING ACTION 72% OF COMPANIES ARE COMPLETING OR WILL ENGAGE
IN SUPPLY CHAIN INITIATIVES IN 1999
A trend that was seen in previous studies continues with this year’s

survey—namely that a significant number of companies are

No Formal
engaged in supply chain initiatives. Six percent have recently Planned for in Initiatives Already
Next 3-5 Years Planned Complete Currently
2% 10% 6% Under Way
completed supply chain projects. In addition, almost three out of Planned for in 59%
Next 2 Years
10%
four either have initiatives in progress or slated for 1999.
Planned for
in 1999
The automotive industry is leading the way with 9% completed 13%

and 87% in progress or slated to be completed in 1999.

% OF RESPONDENTS

CUTTING COST IS A MAJOR GOAL ALMOST TWO-THIRDS OF COMPANIES ARE EXPECTING DECREASES IN
SUPPLY CHAIN COSTS
A primary benefit companies expect from their initiatives in this area

is a reduction in supply chain cost. This expectation matches closely

More than 20% 1
the expectations of companies that responded to a recent Deloitte
16%-20% 2
Consulting study on ERP (ERP’s Second Wave1). The study showed
11%-15% 2
that companies expect ERP improvements to reduce costs in
6%-10 5
personnel, information technology, and other areas.
0%-5% 23
Of the companies expecting to reduce their overall supply chain
Remain the Same 9
cost, relative to sales, 87% plan to increase or maintain their current
(0-5%) 33
10 information technology investment. These numbers suggest that
(6%-10%) 19
companies expect a high return on their technology investments
(11%-15%) 4
almost immediately. As we have seen from the Second Wave study,
(16%-20%) 2
after go-live there is normally a drop in performance due to changes
More than (20%) 2
in process and technology. Once these issues are resolved,
0 5 10 15 20 25 30 35
performance metrics are realized. Without a well-thought-out % OF RESPONDENTS
strategy or business case, this performance drop is often more

severe.

1ERP’s Second Wave: Maximizing the Value of ERP-Enabled Processes, Deloitte Consulting , 1998.
INDUSTRY SNAPSHOTS

CONSUMER PRODUCTS
Traditional recipes for success,

such as new-product introduc-

tion, are no longer effective. In

fact, rapid product proliferation

in recent times has put an

enormous strain on the industry

supply chain, making it difficult

for manufacturers to contain costs and expedite delivery.

Manufacturers are also under pressure from retailers to reduce costs

and improve responsiveness, further compelling Manufacturers to

focus on the supply chain. This study highlights that consumer

products manufacturers are behind other industries in systems

investments and plan to increase their investment dollars.

HIGH TECH
Companies report moderate

success in improving internal

integration across functions and

getting their internal supply

chain in order. However, they

believe that they have not been

effective in establishing close ties

with suppliers, distributors, and retailers. To compensate for these

weaknesses, they are strengthening their internal integration and

building electronic links to tighten the chain. This study highlights

that high tech is at the forefront of Internet supply chain linkages.

11
 Supply Chain
OPERATIONS

12

S U R V E Y F I N D I N G S
SUPPLY CHAIN OPERATIONS
EXTENDING THE SUPPLY CHAIN PARTNERING WITH CUSTOMERS AND SUPPLIERS IS SEEN AS AN IMPORTANT
FACTOR IN IMPROVING COMPETITIVE ADVANTAGE
Respondents believe that competitive advantage depends most on

extending the supply chain to include both customers and suppliers.

Customers 4.5
The survey shows that respondents consider partnering with
Suppliers 4.3
customers and suppliers at the upper end of the scale in terms of
Distributors 3.6
importance.
Other Manufacturers 3.2
Extending the supply chain is key in helping a company make
Third-Party Service 3.1
decisions around procurement, production, inventory, and order Providers

fulfillment. A company’s commitment to optimizing strategic Brokers 2.2

relationships is paramount. Consultants 2.1

0.0 1.0 2.0 3.0 4.0 5.0

Not Important Very Important

A RELUCTANCE BY PARTNERS TO SHARE KNOWLEDGE CUSTOMERS ARE GENERALLY MORE WILLING TO COLLABORATE IN SUPPLY CHAIN
MANAGEMENT THAN SUPPLIERS
AND RISK
Customers
As the graph shows, while some customers and suppliers are Suppliers

committed to pursuing higher levels of performance, they are less Collaborative Use of Decision 4.1
Support Tools 3.5
willing to share knowledge and risk. This reluctance to partner may
Committed to Pursuing Higher 3.6
result from the inability of many companies to establish satisfactory Levels of Performance 3.4

and well-defined relationships that serve the business objectives 3.3 3.3
Embrace Electronic Commerce 3.1
of all parties involved. The perception among survey respondents

is that customers and suppliers, generally, are ready to collaborate End-Consumer Focused 3.2 3.2
3.0

in supply chain management, though customers are slightly more Inter-Enterprise Knowledge 3.1
& Skills Are Valued 3.0
willing to develop collaborative partnerships than suppliers are.
Transaction Systems Support 3.0
Collaborative Processes 2.9

Willingness to Share 2.9

Knowledge 2.8

2.4
Willingness to Share Risk 2.7

0.0 1.0 2.0 3.0 4.0 5.0

Not Ready Very Ready

13
 MEASURING PERFORMANCE IS TROUBLESOME ONLY 1% OF RESPONDENTS ARE VERY SATISFIED WITH THEIR SUPPLY CHAIN
PERFORMANCE MEASUREMENT PROCESS
The majority of companies (almost two out of three) are less than

satisfied with the process they use to measure their supply chain
Very Satisfied 1
performance. Only one percent are very satisfied with their
7
measurement performance process. Perhaps this dissatisfaction
Satisfied 30
stems from the fact that many companies do not have a strategic
42
plan for their supply chains. Without knowing exactly what they
Not Satisfied 20
expect to accomplish overall, companies may find it difficult to
0 10 20 30 40 50
devise the right performance measurement tools. A look at specific
% OF RESPONDENTS
objectives in the next graph shows this type of inconsistency.

14
 ASSET FOCUSED METRICS DOMINATE CURRENT MEASUREMENT METRICS ARE NOT ALIGNED WITH CORPORATE
SUPPLY CHAIN PERFORMANCE SYSTEMS
OBJECTIVES
Asset Focused
Customer Focused A review of the type of performance measures used revealed that
Financial Focused
Other the current performance metrics may not be aligned with
Inventory Turns 92 corporate objectives. The percentage of companies tracking
Manufacturing Cost
Gross Margin 90 individual metrics in general is high, especially measures such
Lost Time Accidents 89 as inventory turns or manufacturing cost/gross margin.
Return on Assets 86 Unfortunately, not many companies use performance measures,
Labor Productivity 84
such as lost sales or cash-to-cash cycle time, that tie to corporate
On-Time Shipment 84
objectives. Once again, this lack of integration of performance
Plant Capacity 83
Utilization metrics to corporate objectives seems to reflect the need in many
Inventory Obsolescence 82
companies to redefine their supply chains.
Employee Turnover 80
Despite corporate focus on profitability and customer service
On-Time Delivery 79
and satisfaction, financial measures and customer-focused measures
Customer Satisfaction 78

Forecast Accuracy 71 tend to be used less often than asset-based measures such as
Production Plan 69 inventory turns. Overall, therefore, most companies do not have a
Achievement
Transportation Costs 68 strong set of performance metrics for assessing and monitoring their
as % Sales
Order Fill Rate 67
Line Fill Rate supply chain. For organizations to improve their customer
Invoice Accuracy 67 satisfaction levels, they must have a means for measuring
Order Cycle Time 61 performance in that area.
Cash-to-Cash
Cycle Time 48
Internal Supply Chain 45
Costs as a % Sales
Fleet Utilization 43
New-Product 43
Introduction Cycle Time
Economic Value Added 42
Total Intercompany 36
Supply Chain Costs
Lost Sales ($) 32

0 10 20 30 40 50 60 70 80 90 100
% OF RESPONDENTS

Note: Based on Multiple Answers per Respondent

15
 COMPANIES ARE NOT USING THE BEST TOOLS FOR VALUE STANDARD COSTING IS THE MOST WIDELY USED SUPPLY CHAIN FINANCIAL
MANAGEMENT TOOL
CREATION
To plan and control supply chain activities, organizations employ
Standard Costing 3.7
financial management tools. Of these, standard costing and
Performance Variance
Analysis 3.1
performance variance analysis are the only two used to any
Zero-Based Budgeting 2.1
significant extent. Other powerful tools, such as the balanced
Activity-Based Costing 2.0
scorecard and EVA measures, are not being used.
Supply Chain Impact on
Corporate RONA/EVA 2.0
This pattern suggests that companies are using relatively static
Consolidated Supply
Chain Balanced 1.8
measures in their supply chain planning and are not leveraging the Scorecard
0.0 1.0 2.0 3.0 4.0 5.0
more dynamic tools that link the supply chain to value creation.
No Use Significant Use

PLANNING ACTIVITIES, SYSTEMS MANAGEMENT NEED THE PLANNING ELEMENTS OF THE SUPPLY CHAIN
REQUIRE THE MOST IMPROVEMENT
IMPROVEMENT
Companies identified planning activities as those needing the most
Demand Planning
& Forecasting 3.8
improvement. Demand planning and forecasting, as well as supply Supply Chain Planning
& Optimization 3.7
chain planning and optimization, were identified as high-
Systems Management 3.6
improvement areas. Inventory
Management 3.6
Not surprisingly, systems management, which enables supply Order Management 3.2
chain planning activities, was among the leaders on the needs- Sourcing/Purchasing 3.2
16 Distribution Network
improvement list. Conversely, transportation management and labor Management 3.1

management seem to require little improvement. Customer Service 3.1

Warehouse
Management 3.0
Reverse
Logistics/Returns 3.0

Manufacturing 2.9

Labor Management 2.8

Transportation/Fleet
Management 2.7
0.0 1.0 2.0 3.0 4.0 5.0

No Improvement Significant Improvement

Required Required
INDUSTRY SNAPSHOTS

CHEMICALS
Companies are striving to extend

their supply chain integration

beyond internal processes to

include customers and suppliers.

Partnering has become a more

prevalent strategy in the

industry, and it appears to be

working. Leading chemical companies and their respective

customers and suppliers are pooling resources for everything from

new-product development to warehouse management. This linkage

not only reduces costs for both parties, it also raises the barriers to

entry for other chemical suppliers.

PHARMACEUTICAL & MEDICAL DEVICES

Companies are questioning promoted as information systems allow for linkages between

whether the old ways of looking physicians, hospitals, patients, pharmacists, insurers, governments,

at their supply chains are and pharmaceutical companies. This study highlights the magnitude
adequate to meet the challenges of change needed within supply chain management for the

of today’s competitive pharmaceutical and medical devices industry. Executives in this

environment. Senior manage- industry have been dissatisfied with supply chain outcomes.

ment is now coming to grips with

solving the notorious problems

of letting stocks lie unused, ordering supplies in piecemeal, and

being unaware of their inventories and resources. Today, these

companies are investing in a wide variety of strategies and programs

for linking supply chain components both domestically and globally.

Through these initiatives, they hope to achieve internal supply chain

efficiency as competition and access to technology increase around

the world. In addition, external supply chain integration will be

17
 Supply Chain
TECHNOLOGY

18

S U R V E Y F I N D I N G S
SUPPLY CHAIN TECHNOLOGY IMPROVING INFORMATION FLOW IS CRITICAL TO
ACHIEVING A WORLD-CLASS SUPPLY CHAIN

THE STRUGGLE FOR ACCURACY, TIMELINESS, AND FLOW OF

Critical 43
INFORMATION
Very Important 37
Improving information accuracy, timeliness, and flow across the
Important 18
supply chain is viewed as necessary to optimize supply chain Somewhat
Important 2
operations. There are, however, barriers to achieving the desired
Not Important 0
accuracy, timeliness, and flow. Among these barriers are the inability 0 10 20 30 40 50
to fully integrate information systems and the lack of functionality
% OF RESPONDENTS
and capabilities in existing supply chain systems.

ROLE OF INFORMATION SYSTEMS IS CLEARLY RECOGNIZED A MAJORITY OF COMPANIES ARE INCREASING THEIR SUPPLY CHAIN
TECHNOLOGY BUDGET
The implementation of information systems and technologies to

facilitate information sharing ranked as “critical” or “very important.”

More than 20% 14
Almost all respondents intend to either increase or maintain their
16%-20% 2
technology budgets to support required system changes.
11%-15% 4
The consumer products industry is planning the most 6%-10% 13
aggressive increases with 63% of respondents planning to increase 0%-5% 23

their supply chain technology budget and 21% of those planning Remain 32
the Same
increases greater than 20%. (0-5%) 6

(6%-10%) 3
(11%-15%) 0

(16%-20%) 1
More 2
than (20%)
0 5 10 15 20 25 30 35

% OF RESPONDENTS

DESPITE IMPORTANCE OF INFORMATION SYSTEMS, THERE IS NO LESS THAN ONE-THIRD OF COMPANIES HAVE A
FORMAL STRATEGIC INFORMATION SYSTEMS PLAN
STRATEGIC PLAN
Despite the emphasis placed on information systems integration
Yes 27
and implementation, and the level of investment by most
Yes,Limited in Scope 33
companies, less than one-third of the respondents have a formal
No,Some Tactical IT
Improvements Planned 26
strategic information systems plan to support their investment in
No Strategic
Information 14
systems and technologies. Systems Plan
0 10 20 30 40 50
The aerospace industry was least likely to have any type of

strategic plan (only 33%) despite being the industry most likely to % OF RESPONDENTS

have an initiative currently underway (78%).

19
 BRIDGING THE GAP BETWEEN ANTICIPATED AND REALIZED ERP ROUGHLY TWO-THIRDS OF COMPANIES HAVE IMPLEMENTED AN ERP SYSTEM
BENEFITS
Most Fortune 500 companies have implemented an ERP system or Implement an ERP
System as a Transaction 41
are in the process of implementing one. The effectiveness of ERP Backbone With Bolt-Ons
Implement & Integrate
"Best-of-Breed" Applications 17
systems in supporting overall business processes ranked low in the
Implement an ERP
System Only 17
survey. Most respondents expressed dissatisfaction with the systems
Not Yet Determined 15
they have implemented for their supply chain processes. ERP
Build Internally
Custom Develop 11
systems seemed most effective in the areas of financial management
0 10 20 30 40 50
and accounting.

It has become apparent that achieving results goes beyond % OF RESPONDENTS

system selection. To achieve maximum benefits, the organization

must be able to align its people and processes with the new

technology.

Clearly, significant gaps exist between the expected benefits

and the actual results of ERP implementation. Companies, therefore,

EFFECTIVENESS OF ERP SYSTEMS IN MANAGING THE SUPPLY CHAIN
need to revisit and redesign their technology initiatives. Second- PROCESSES IS LESS THAN EFFECTIVE

wave initiatives promise companies the ability to realize these

Financial Management
expectations and plan for the future. By securing the existing ERP & Accounting 3.3
Customer Order
base, expanding the ERP backbone, and integrating people and Processing 3.1
Revenue Chain
processes, organizations will be able to maximize the return on their Management 2.9

ERP investments and leverage new opportunities. As required, Supply Chain Execution 2.7
20
companies will add specific applications to support supply chain Supply Chain Planning 2.4

planning and execution. Human Resource

Management 2.4
0.0 1.0 2.0 3.0 4.0 5.0
The automotive industry appears to be leading the way in

going beyond just an ERP system. Of the automotive responses, Not Effective Very Effective

78% are using their ERP system as a backbone while bolting on

other applications. The emphasis is on integrating “best-of-

breed” applications. Further, the automotive industry is planning

this second wave with minor increases in their supply chain

technology budgets.
 PLANS TO IMPLEMENT SUPPLY CHAIN SPECIFIC APPLICATIONS ARE UNDERWAY IMPLEMENTING SUPPLY CHAIN-SPECIFIC APPLICATIONS
Being Implemented Supply chain planning activities were identified earlier in the report
Planned
as the top improvement area for achieving optimal supply chain
Material Planning 17 16
performance. It is not surprising, then, that the questionable
Order Processing/
Management 17 17
effectiveness of ERP systems for supply chain planning and
Manufacturing Execution 16 16
Production execution has led companies to look elsewhere for applications that
Scheduling/Sequencing 16 15
will support these functions. Two-thirds of the respondents are
Inventory Planning 11 19
currently using a supply chain solution, and planned
Production Planning 15 15
Demand implementations in the near future will bring that number up to a
Planning/Forecasting 12 17

Master Planning
staggering 91%.
15 13
Carrier Bidding The most commonly mentioned areas where non-ERP solutions
& Optimization 19 5

Distribution Planning 13 11
will be used include materials planning, order processing and
0 10 20 30 40 50 management, and manufacturing execution.

% OF RESPONDENTS

Note: Based on Multiple Answers per Respondent

IMPROVE CUSTOMER SERVICE AND REDUCE INVENTORY TOP OF THE LIST THREE PRIMARY BENEFITS EXPECTED
OF EXPECTED BENEFITS OF IMPLEMENTING SUPPLY CHAIN SYSTEMS
Tangible benefits are expected in customer service levels, total

inventory levels, and total supply chain costs as a result of

Improve Customer 4.0
Service Levels expenditures on supply chain-specific applications. Improving
Reduce Total Inventory 4.0
customer service levels and reducing costs continue to be the focus
Decrease Total
Supply Chain Costs 3.9
Improve Delivery Date of many companies in this fiercely competitive environment.
Promise Accuracy 3.8
Enhance Management
Control of Supply Chain 3.8
Decrease Order
Fulfillment Cycle Time 3.6
Throughput
Optimization 3.6
Strengthen Relationships
with Trading Partners 3.5
RealTime Analysis 3.4
and Simulation
Improve Utilization 3.3
of Fixed Assets
Sales Growth 3.1
Attract/Retain
High-Quality People 3.0

Attract New Customers 2.7

0.0 1.0 2.0 3.0 4.0 5.0

No Benefit Significant Benefit

21
 CLEARING THE HURDLES
Implementing a supply chain system is a significant undertaking,

with several hurdles to clear. Beyond the initial cost of the system,

challenges identified by respondents include addressing issues of

people and change, and integrating the new system effectively into

existing legacy systems.

These hurdles may be overcome with implementation plans

that focus on effective change management and the alignment of

processes with technology to realize the maximum return on

investment and an ultimate reduction in supply chain costs.

CHANGE MANAGEMENT CHALLENGES, COST, AND INTEGRATION ARE SEEN AS

THE TOP HURDLES TO SUPPLY CHAIN SYSTEMS IMPLEMENTATIONS

Change Management Challenges 3.4

Cost 3.4

Difficulty in Integrating to Current Systems Environment 3.4

Lack of Available Internal Project Resources 3.3

Time Frame to Develop or Implement Supply Chain Solutions 3.2

Complexity of Multivendor Environment 3.1

Difficulty Quantifying Benefits and Developing a Business Case 3.1

Supply Chain Systems Lower Priority Than Other Areas 3.0

22 Lack of Functionality in Available Supply Chain Software Packages 2.8
Employee Capability to Use the Technology 2.8

Concern for Security 2.8

Scope Management 2.7

Quality of Vendor Resources and External Consultants 2.7

Lack of Senior Management Commitment/Support 2.7

Short Product Life Cycles Make New Technologies Obsolete 2.5

0.0 1.0 2.0 3.0 4.0 5.0

No Hurdle Significant Hurdle

 A MAJORITY OF COMPANIES USE OR PLAN TO USE THE INTERNET WITH THEIR USING THE INTERNET TO SHARE INFORMATION
CUSTOMERS, SUPPLIERS, OR OTHER PARTNERS
A growing number of companies are exploring the use of the
Other Partners
Suppliers Internet in supply chain management. One-third of respondents
Customers
currently use the Internet to share information with strategic supply
29
Currently 32 chain partners. This number can be expected to double as the
in Use
40
Internet becomes recognized as a valuable communication tool not
Planned 38
Within 42
only with customers but also suppliers and other strategic supply
the Next
2 Years 41
chain partners. Supply chain vocabulary has expanded to include
Planned 4
for 2 Years 5 buzzwords like e-commerce, e-procurement, and e-business.
and Beyond 3
The high-tech industry is clearly practicing what they preach
30
No Plans 22 by leading the way with Internet usage. Almost two-thirds currently
16
use the Internet to exchange information with both customers and
0 10 20 30 40 50
suppliers. Within two years, that number is expected to rise to 90%.
% OF RESPONDENTS
The consumer products industry had the lowest current usage with

both customers and suppliers.

Deloitte & Touche and Deloitte Consulting’s Vision in

Manufacturing2 study cites electronic commerce as a significant

trend, as companies move toward transparent communications

between business partners and recognize that speed to market and

fast delivery determine success.

THE INTERNET IS RECOGNIZED AS A KEY MARKETING AND COMMUNICATIONS TOOL HOW THE INTERNET IS BEING USED ALONG THE SUPPLY CHAIN
Currently Use The most popular applications for Internet technology are
Plan to Use Within 2 Years
Plan to Use Beyond 2 Years marketing, customer service, and electronic funds transfer (EFT).

Marketing 46 23 3 Investment in the area of customer service is expected to be the

Customer Service 27 36 5 strongest. Other growing Internet initiatives include purchasing,

Electronic Funds 30 26 6 order entry/tracking, and inventory replenishment. Such initiatives
Transfer (EFT)
Purchasing 14 42 4 are expanding the use of the Internet beyond just marketing into a
Sales 25 31 4 fully integrated supply chain tool.
Order Entry
and Tracking 14 38 4
Inventory
Replenishment 10 34 6

Human Resources 21 20 3
Research and
Development 25 11 3
Collaborative
Forecasting 7 24 6
0 10 20 30 40 50 60 70 80

% OF RESPONDENTS

Note: Based on Multiple Answers per Respondent

2Vision in Manufacturing, Deloitte & Touche and Deloitte Consulting , 1998.

23
 BARRIERS TO USING THE INTERNET SECURITY LIMITATIONS ARE A BARRIER TO WIDESPREAD INTERNET USAGE
Among the respondents, the issue of security continues to be the

largest single barrier to widespread use of the Internet. The second

Security Limitations 3.7
barrier is the integration of the Internet with other systems and Integration With
Other Systems 3.3
Applications
applications. Lack of Industry 3.2
Wide Standards
With information and technology so intertwined with the Lack of Proven 3.2
Business Benefits
supply chain, the organization structure of the company will, no Lack of Business
Usage/Acceptance 3.2
Internal Systems 2.9
doubt, be affected. Some of that impact is shown in the next section. Limitation
Lack of 2.9
Qualified Users
Performance,Speed,
and Reliability 2.7
Complexity 2.4

Cost 2.3
0.0 1.0 2.0 3.0 4.0 5.0

No Barrier Significant Barrier

24
INDUSTRY SNAPSHOTS

AEROSPACE & DEFENSE

Companies are seeking to

improve supply chain integration

to optimize the results of

consolidation. While supply

chain integration has been an

area of emphasis for the past five

years, executives are even more

focused on tightening the links today. Cycle time and the need to

improve product development are driving the new heightened

emphasis. Increasing demand and quicker turnaround times are

pressuring companies to focus on reducing procurement costs,

product cycle time, time-to-market, and bottlenecks. Effective

supplier integration, reduced lead times, and reliable delivery

standards are necessary to achieve these objectives.

AUTOMOTIVE
Managing the total supply chain

is essential, as the “Big 3” OEMs

develop closer relationships with

their tier-1 suppliers to improve

operational efficiency, reduce

new-product introduction time,

and enter new markets. In many

cases, the OEMs are working with

tier-1 suppliers to provide complete systems and subassemblies,

essentially outsourcing many manufacturing and assembly activities

traditionally performed in-house. Based on this study, the

automotive industry appears to be the furthest along with their

supply chain integration with suppliers.

25
 Supply Chain
ORGANIZATION

26

S U R V E Y F I N D I N G S
SUPPLY CHAIN ORGANIZATION
STATUS OF SUPPLY CHAIN EXECUTIVE IS BEING RAISED SUPPLY CHAIN EXECUTIVES HAVE THE EAR OF THE CEO
In the past few years, responsibility for the supply chain has been

elevated to senior management levels, with 52% of the top supply

1 Level
(Direct Report) 52
chain executives reporting directly to the CEO. Corresponding to
2 Levels 35
this senior level, we are seeing new titles emerging, such as vice
3 Levels 9
president supply chain, and supply chain director.
4 Levels 3

5 Levels 1
0 10 20 30 40 50 60

% OF RESPONDENTS

RESPONSIBILITIES OF SUPPLY CHAIN EXECUTIVE MOST SUPPLY CHAIN EXECUTIVES HAVE BROAD
SUPPLY CHAIN RESPONSIBILITIES
Despite the elevated profile, the supply chain executive in many

companies does not have full responsibility for all functional areas Purchasing/
Sourcing 79
or processes that impact supply chain performance. The supply Inventory
Management 77
chain executive holds traditional responsibilities, such as Demand
Planning/Forecasting 66
procurement and inventory management; but we see little Warehouse 65
Management
movement toward incorporating responsibilities for the full supply Transportation/Fleet
Management 65

chain, including reverse logistics, customer service, and production Distribution Network
Management 59
International/Logistics
planning. These other supply chain responsibilities are scattered (Importing/Exporting) 58
Reverse Logistics 56
throughout the organization. True success will require a more
Supply Chain
Information Systems 54
holistic, fully integrated approach. Management
Production Planning 54
& Scheduling
Customer Service 53
Customer Order
Management 52

Freight Bill Payment 49

Manufacturing 41
0 10 20 30 40 50 60 70 80 90

% OF RESPONDENTS

Note: Based on Multiple Answers per Respondent

27
 MEASURING THE SUPPLY CHAIN PERFORMANCE INVENTORY PERFORMANCE AND PURCHASE COST ARE THE TWO KEY
MEASURES FOR SUPPLY CHAIN EXECUTIVES
Considering the supply chain executive’s responsibilities, it is not

surprising that the performance metrics most commonly used to

Inventory 85
measure their performance relate to inventory turns and Turns/Performance
Purchase Cost
(Requisition to 81
procurement costs. Very few companies have implemented a Supplier Payment)
Customer 77
balanced scorecard that measures all aspects of supply chain Satisfaction

performance. The changes in the organization, of course, must Order Fill Rates 75

Supply Chain
reflect, not dictate, the way the company defines its supply chain to Performance 72
Forecast
meet its corporate objectives. Accuracy 72

Return on 70
Fixed Assets
0 10 20 30 40 50 60 70 80 90

% OF RESPONDENTS
Note:Based on Multiple Answers per Respondent

28
HIGHLIGHTS FROM THE VISION IN MANUFACTURING STUDY

OUR VISION IN MANUFACTURING STUDY CONFIRMS THAT THE

EXTENDED SUPPLY CHAIN IS A CRITICAL FACTOR MOVING INTO
THE 21ST CENTURY.

• Regionally, executives in North America and Europe emphasize manufacturing lead times and even fewer rate themselves as

integration with raw material suppliers and vendors far more world-class in distribution lead times. However, the majority

than those in Asia-Pacific. The complex distribution channels have set ambitious goals to improve their delivery performance

in industrialized markets, coupled with the intense pressure to which, in turn, necessitates outstanding supply chain

reduce cycle time, is forcing executives to prioritize vendor performance.

integration. Latin America is moving rapidly ahead of all other

regions in improving their relationships with distributors. Over • In seeking innovative ways to squeeze costs out of the supply

two-thirds of Latin American executives will place high chain, manufacturers turn to outsourcing, which allows them

emphasis on retailer integration, reflecting the rapid to trim costs and focus on core competencies. Market leaders

proliferation and growing complexities of distribution channels and followers3 alike intend to outsource support functions such

in this region. as information services management and software

development. About half of the respondents say they will

• While nearly half of the executives describe their organization outsource technology-related functions in the coming years.

as well integrated, only one-third feel they are well integrated Functions most affected by such outsourcing will be billing,

with their distributors and retailers. Roughly 40% indicate a high accounting, human resources management, logistics and

level of cohesiveness with their suppliers and customers. In the customer service.

future, executives will place a much higher emphasis on

integration with all their supply chain partners.

• The need for reliable and expeditious delivery to customers is

one of the key drivers of supply chain integration. Most

manufacturers are admittedly weak in this function. Only half

of them rate their companies at or approaching world-class in

3The “Leaders” are firms whose sales growth over the past three years has been higher than the industry average. The “Followers” are those whose growth has

been average or lower. 29

 IMPLICATIONS
30
IMPLICATIONS
Readers whose supply chain status is similar to that of

companies represented in this study may want to consider the

following actions:

Review, or if necessary, begin to develop a Don’t be afraid to “pilot” new supply chain

1 strategic plan for your supply chain. Begin

with your company’s definition of the supply

chain, and determine if this definition is

4 programs that can help to better clarify your

strategy and provide valuable experience and

skills for managing the new more complicated

limited and outdated and will no longer work in today’s competitive supply chains of the future.

environment. Be sure the plan aligns supply chain activities with

corporate goals and includes process, organization, and system

requirements for meeting overall supply chain objectives.

Review or develop your information systems Evaluate the tools you use for measuring

2 plan to support your supply chain goals and

activities. In doing so, consider the need for

supply managers to have visibility across the

5 supply chain performance. To ensure you are

looking at the big picture, try to develop a

supply chain scorecard that measures the

entire supply chain process and the ability to enact change at any overall performance of the supply chain and links to corporate goals

point in the process. Today’s supply chain systems must be capable and objectives.

of optimizing the performance of the supply chain across multiple

dimensions: customer service, costs, profits, and speed.

Examine your collaborative alliances with Evaluate your organizational structure.

3 suppliers and partners. Determine if they are

as advantageous as you would like them to be

in terms of providing benefits to your

6 Determine if the top supply chain executive

has the proper breadth of responsibility to

truly manage the supply chain. Try to envision

organization and customers. If not, ask yourself whether you need a process-oriented structure that will minimize potential functional

to change your definition of partnership to include new ways of barriers and improve communications across your company.

sharing information, process, and responsibility for delivering goods

across the supply chain.

Learn the particulars in alliances formed by others in your

industry as well as by companies in other industries. Determine the

areas within your supply chain that can be positively impacted by

partnerships and begin to explore ways to undertake “pilot”

initiatives.

31
 About Deloitte Consulting
Deloitte Consulting is one of the world’s top management consulting firms, providing services to transform your entire enterprise — your

strategy, processes, information technology, and people.

We offer our clients a very different approach, because our highly respectful, flexible, and collaborative working style gives us an

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Deloitte Consulting is an integral part of Deloitte Touche Tohmatsu, a global leader in professional services, offering consulting, audit,

tax, and related services to clients worldwide.

A very different approach. For very different results.

32

About the Manufacturing Practice About the Consumer Business

Practice
Operating in a global arena requires an understanding of how to The Consumer Business practice focuses on consumer product

do business in other parts of the world. At Deloitte Consulting, we manufacturers, distributors, and retailers throughout the world.

have a global manufacturing network ready to assist you in Recognized leaders in strategy, technology, operations, and change

developing your structure and strategies, analyzing and initiating leadership services, we take a Source-To-Consumer perspective in

ventures in new markets, and managing the challenges associated assisting our clients. By understanding the interrelation of these

with global growth. Our Manufacturing network of specialists elements across the Supply and Revenue Chain, we assist our clients

includes over 2,000 professionals in more than 100 cities. Globally, in lowering cost, streamlining operations, improving customer

we serve clients as one firm through Deloitte Touche Tohmatsu, with service, and improving profitability to maximize shareholder value.

more than 625 offices providing the resources of a unified and

cohesive worldwide organization.

For More Information

CONTACT INFORMATION:

Jim Schuetz Michael Deering Jim Kilpatrick Bob Derocher

Partner, Chicago Partner, Cleveland Senior Manager, Toronto Senior Manager, Stamford

Tel: 312.946.3225 Tel: 216.830.6624 Tel: 416.601.5831 Tel: 203.708.4127

jschuetz@dttus.com mdeering@dttus.com jikilpatrick@dttus.com rderocher@dttus.com

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1998 Vision in Manufacturing

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