This year’s Global Survey of Supply Chain Progress probed more deeply than in the past into what constitutes true supply chain value. Our earlier surveys tracked supply chain progress against a well-established five-level framework that advanced from Inter-enterpise integration (Level 1) to full network connectivity (Level 5). This year we sought to get a clearer idea of why some firms seemed to make steady supply chain advancement while others appeared to lag chronically behind.

With the help of a new partner in the survey, the supply chain educators at Michigan State University’s Eli Broad Graduate School of Management, a series of questions was developed to reach that objective. These were designed to document how firms differ in terms of their “maturity” along the following eight dimensions of supply chain competence:

• Alignment with Business Strategy
• Strategic Customer Integration
• Strategic Supplier Integration
• Cross-functional Internal Integration
• Supply Chain Responsiveness
• Planning and Execution Process and Technology
• Supply Chain Rationalization/Segmentation
• Risk Management

An analysis of the data against these competencies indicates that companies tend to fit into one of three groups: mature, moderately mature, and immature—more often referred to in this article as leaders, followers and laggards. This grouping better enabled us to compare and contrast the practices and performance of more and less mature firms.

A look at the top-line results from the 2007 survey yields some important insights. First and foremost, companies in the follower and laggard categories need to learn from the traits of the leaders. Those leaders, for example, are more likely to align supply chain initiatives with the business objectives and to have a Chief Supply Chain Officer (CSCO) leading the effort. Having greater strategic alignment, moreover, correlated well with top management involvement across the organization in supply chain efforts. Further, a close working relationship between the supply chain and information technology (IT) functions is a definite mark of the leaders. The leaders also clearly do a better job than the others of documenting their performance results.

One interesting pattern emerged early in the analysis this year: The firms making greater progress have moved from a cost-only perspective to one also incorporating customer needs. This was expressed in an emphasis on faster and more personalized order fulfillment, shorter order fulfillment lead times, execution of perfect orders, and improved cash-to-cash cycle time and asset turns. Leaders also showed a greater correlation between executive involvement and the development of supply chain plans that become an integral part of the corporate strategy and planning system. Conversely, an absence of such involvement characterizes the less mature firms.

Another pattern (evident is past surveys as well) centered on supply chain management spending as a percent of revenue. The 20 percent reported by the leaders is significantly less than for the follower firms (28 percent) and for the laggard (29 percent). More likely though, it’s not a question of how much is spent on supply chain improvement, but how wisely. In terms of self-rating performance, 38 percent of the leader firms consider themselves industry leaders compared to 10 percent of the follower firms and only 2 percent of the laggards. Leaders also seem to be much further along with efforts that include product management design and engineering, something that we had not noticed in previous surveys. (Exhibit 1 shows supply chain spending as a percent of revenue for all respondents.)

The 2007 survey was completed by 179 supply chain management professionals. They represented a range of company sizes (57 percent had sales of $500 million or greater and 43 percent had less than $500 million) across 21 different industries. The companies responding were largely corporations with a heavy emphasis on manufacturing, distribution, and retailing.

To articulate more clearly how supply chain efforts among the respondents related to the eight dimensions of competence listed above, the survey questions were broadly categorized into these areas:

• Supply chain management policies and practices.
• Supply chain continuity and protection.
• Investment and performance.
• Tools and initiatives.

Supply chain management and policies represented the largest area of inquiry. This and the other three categories are discussed in turn below.

Previous surveys have shown a strong correlation between supply chain success and the involvement and support of senior management, which is an important ingredient in most change efforts. To determine how this factor varied across the three levels of supply chain maturity, and how policies and practices affected results, we asked a series of targeted questions across the eight critical dimensions. The analysis yielded many interesting findings—too many to cover all in this article. Below we highlight some that seemed to stand out.

First, we asked if supply chain strategy was aligned with overall business strategy. The responses were less than encouraging. Only 14 percent strongly agreed and 41 percent expressed moderate agreement that the strategies were, in fact, aligned. The disappointment came in the remaining 45 percent who were neutral about or disagreed that the alignment existed. When we probed further to inquire if the firm had clearly defined strategic goals and objectives, we found a similar split. While 58 percent (an improvement from previous surveys) answered positively, a still-too-high 42 percent responded neutrally or negatively.

When we asked whether corporate strategy drove supply chain decisions, however, six out of ten respondents did respond in the affirmative. From the results to these questions, it appears that the companies really driving supply chain are taking their lead from the business plan rather than trying to force fit supply chain activities into the broader business strategies.

As part of our goal to identify the real value that can be derived from supply chain initiatives, we asked if the firm’s strategy exploited unique supply chain capabilities. Forty percent agreed that it did with the remainder expressing neutrality or disagreement. This pattern continued when we asked if the firm’s strategy accommodated for supply chain constraints; only 41 percent responded positively. Moreover, only 35 percent of respondents agreed or strongly agreed that their supply chain strategies and goals are communicated to all employees. (Exhibit 2 gives the full response to that question.)

Once again, we find it hard to reconcile how a firm expects to get the optimum benefit from a supply chain effort unless everyone involved knows where that initiative is heading and how to accomplish it. Previous surveys have documented how the supply chain leaders have a strong connection between the supply chain plan/execution and the overall business strategy and operating plan. This year’s survey shows a significant group of firms that have not made that essential connection. This represents a definite improvement opportunity.

To test our thesis a bit more, we asked how often the organization formally reviews or updates its supply chain strategic plan. Although we had seen some progress in this area in previous surveys, we found 56 percent indicating “only as business conditions dictate” in the 2007 survey. To be truly effective, supply chain progress has to be monitored at least on an annual basis so that necessary adjustments can be made where performance lags. Once more, there is evidence that the majority of supply chain efforts result in high returns on effort, but low on connectivity with the business plan.

Another key policy and procedure finding speaks to the opportunity for top management to play an expanded role in supply chain efforts. While we’ve noticed a steady increase in involvement at this level in recent years, it’s not close to where it should be. Thirty-one percent of respondents rated this involvement as “high”—the same percentage that rated it as “low.” (Notably, the leaders had significantly higher involvement and support from top management than the others.)

Given the overall modest support from top management, the responses to the following question were not surprising: “Does your firm have an executive officer who manages all supply chain functions, for example a Chief Supply Chain Officer?” The responses came in at 61 percent no, 39 percent yes. This result left us wondering as to who makes the important supply chain decisions in the organization.

Similarly, the survey suggested a valuable opportunity for financial people to become more involved in supply chain activities. When asked to rate the current level of involvement of financial managers, only 24 percent of respondents characterized it as “high.”

By adding some selected questions, this year’s survey sought to determine the extent to which companies are linking customer satisfaction with the building of new revenues. Focusing first on policies and practices, the survey asked whether the firm had transformed from a push to a pull supply chain approach—a fundamental step for making advanced progress. To our surprise, only 40 percent indicated they had made that crucial shift in focus. The majority of respondents (69 percent) did, however, report having multiple channels focusing on different market segments. This suggests at least a general acknowledgement of the importance of customer integration.

Respondents overall reacted more positively when asked if they sought to develop customer relationships that extended beyond the individual sales transactions. Fully 82 percent answered in the affirmative. In a similar vein, well over half (57 percent) said that they exchange operational information with suppliers and customers, indicative of a continuing positive trend in that direction. Also encouraging, 72 percent reported having plans in place to address individual customer requirements. The leaders appear to share some of this information with key suppliers to assure that those requirements continue to be met.

The results were not quite as positive when it came to the question of whether internal activities were being synchronized with customers, a measure of supply chain responsiveness. With only 42 percent responding positively, this finding is consistent with previous results that show customer orientation is difficult to sustain when there are pressures that negatively impact operating performance. Firms that produce favorable performance metrics based on throughout, for example, are hard pressed to interrupt schedules or to make changes to be more flexible and responsive to customers.

We delved further in this area by asking if the firm had clearly defined roles and responsibilities for managing customer relationships (62 percent responding positively) and if they had guidelines for acceptable practices for customer cooperation (59 percent positive). Perhaps most encouraging, 69 percent reported that their firm was constantly exploring new working relationships with customers.

Continuing our look at responsiveness, we asked participants to respond to the statement that performance metrics promoted rational trade offs among customer service and operational cost. Forty-six percent agreed, with the remaining 54 percent expressing neutrally or disagreement—not a particularly good result. When we asked if the firm had programs to increase turnover through improved responsiveness, 55 percent replied positively with the balance either neutral or negative. Finally, we looked at whether functional teams have a common prioritization of customers in case of supply shortages; the split was 43/57 percent positive to negative.

Combined, these responses indicate movement toward a customer orientation, but not to the degree demonstrated by the mature companies. These leaders have a much stronger focus on customer satisfaction and are flexible enough to make the changes necessary to accommodate the needs of the most strategic customers. The leaders have taken the time to segment customers by strategic importance and carefully match what they deliver to meet actual needs.

The series of statements on supply chain segmentation overall produced more promising results. For example, an overwhelming 87 percent of respondents recognize that different products contribute to the bottom line differently. Further, 60 percent agreed that their inventory policies differed by product segments. Obviously, as supply chains mature, the idea of segmenting customers and products—coupled with the use of some form of activity based costing to determine the real profitability—will lead to better results.

A recurring theme in the earlier surveys is evident this year as well. Specifically, companies at the lower levels of supply chain maturity have relatively greater difficulty in establishing inter-functional or inter-business collaboration. Indeed, even though the technology to facilitate such collaboration has improved in recent years, many companies still struggle with sharing information across the business or with other supply chain partners.

To probe this area of supply chain competency, we asked respondents to respond to a series of questions on internal integration. First, only 18 percent agreed with the statement that their functional teams are aware of each other’s responsibilities. Next, we asked about operational and tactical information being regularly exchanged between functional teams. About half strongly agreed or agreed that they did, but the other half were neutral to negative on this issue.

Going into more detail, the survey inquired whether purchasing decisions were based on plans agreed upon by all functional teams. Only a disappointing 31 percent responded positively. Probing further, we asked if all functional teams use common product roadmaps and other procedures to guide product launches. Just over one third (36 percent) agreed that their companies did use such common frameworks. What we found was more confirmation that most firms need to spend more time breaking down the stovepipes that separate functional teams and inhibit sharing the kind of knowledge that leads to solid supply chain progress.

Finally, we were curious to see if the general orientation around policies and practices had shifted from managing functions to managing processes. We found that firms were clustered in the middle—that is, they were neutral or in mild agreement or disagreement to the statement, “The orientation of my firm has shifted from managing functions to managing processes.” While there appears to have been some progress overall, especially among the more mature firms, functional collaboration is still a mark of the advanced firms and not the followers and laggards.

Planning and execution process and technology was another key focus area of this year’s survey. Most supply chain professionals acknowledge that planning and execution is a key element in business success. They also recognize the need to involve multiple constituents across the enterprise in this activity to establish a clean and seamless flow from supply through manufacture and delivery. Once the processes are established correctly, technology becomes the enabling ingredient. In an effort to see if there had been as much progress in this area as in some other supply chain competencies, we first asked about the use of a formalized, disciplined planning process in most supply chain areas. As shown in Exhibit 3, 53 percent responded positively, with the remainder neutral to negative.

In a similar vein, we sought a response to the statement, “Our planning processes address both long-term and short-term objectives.” Encouragingly, 71 percent agreed or strongly agreed with this statement. When we examined whether or not the firm typically sees small variances between what is planned and what is actually done, however, the positive response dropped to 40 percent. Drilling down, we found that only 45 percent positively responded to the statement that their planning processes include feedback loops to address reasons for variance between plans and execution.

Our survey results show that effective planning, in general, is a strength only for the handful of leaders. Although planning is a critical element of the Supply Chain Operations Reference-model(SCOR), a popular framework employed in many organizations, most companies simply do not put in the necessary effort needed to truly match supply with demand. Rather, the emphasis typically is on supply chain efficiency in terms of cost. Planning is expected to follow in step with an emphasis on throughput and efficiency.

Risk and vulnerability remain crucial issues for supply chain management. Yet the responses to this year’s survey, as in the previous ones, did not reflect the level of attention expected for such an important subject. Only 46 percent agreed that their planning efforts identified contingencies with a risk analysis and scenario evaluations. Asked if their organizations had sufficient executive visibility and accountability for supply chain continuity, only half responded in the affirmative with the other half neutral to negative. Indeed, only 41 percent of the responding firms said that their organization overall pays sufficient attention to supply chain vulnerability and risk mitigation actions. (Exhibit 4 gives the full responses to this statement.)

In an attempt to get a little closer to the respondents’ thinking on risk management, we asked them to rank the top three issues of concern when it comes to supply chain continuity. Inventory planning and inventory levels topped the list, being mentioned by the great majority of respondents. The lengthening global supply chain was the second most often voiced concern, followed by trading partner vulnerabilities and unstable global sourcing points. Concerns over terrorist attacks, post congestion, and changing European Union regulations brought up the rear of the list. (Exhibit 5 shows how the respondents ranked the various issues.)

With supply chains becoming ever more extended and global in nature, we struggle to comprehend why firms do not pay more attention to risk management. In general, immature firms seem to be more concerned with inventory-related issues, whereas mature companies seem to be more concerned with such matters as port congestion and global sourcing issues.

Moving to another of the four key factors, we looked at the supply chain investments that firms made over the past three years. The questionnaire asked about four specific investment areas: (1) supply chain soft technologies, for example, planning and decision support solutions: (2) supply chain hard technologies such as RFID and material handling equipment; (3) training and workforce development; and (4) other, which the respondents were asked to specify. Overall, there was no statistical difference across the maturity groups in profiles of investment in the three main areas of software, hardware, and training. Also, no notable pattern emerged from responses to the “Other” category.

When asked what is the primary objective driving supply chain investments, the most common answer (not surprisingly) was to lower supply chain operating costs. (See Exhibit 6.) The drivers coming in a distant second and third, respectively, were to achieve faster, more accurate and more personalized order fulfillment and to generate profitable sales growth. Notably, a larger proportion of leader firms listed “faster more accurate more personalized order fulfillment,” “profitable sales growth,” and “streamlining fulfillment across multiple channels” as the primary investment drivers. The followers are more likely to emphasize “minimize supply-demand imbalances.” The laggards tended to stress “lower supply chain operating costs.” This finding suggests that the leaders have addressed tactical cost and imbalance issues and are now concentrating on more strategic matters.

In terms of performance, realized results continued to validate what can be accomplished through a concerted supply chain effort. Those firms reporting that their supply chain initiatives had produced some level of cost savings increased from 75 percent in 2006 to 82 percent in 2007. The savings ranged from 1-5 percent to 16 percent or more, with nearly six of ten respondents indicating that they had achieved cost reductions in the 1-10 percent range. The percentage of firms in this range was comparable across the three maturity groups. However, about one fourth of the leaders and one fifth of the followers showed cost improvements of 16 percent or more. Only 3 percent of the laggards reported supply chain efforts producing this level of cost reduction. (Exhibit 7 summarizes the cost-reduction results.)

The percentage of firms reporting supply-chain related revenue growth showed a similar upward pattern this year. In the early years of our survey, nearly three-quarters of respondents indicated that they saw no progress in terms of revenue or had no understanding of the supply chain-revenue connection. By the current survey, that number had dropped to 36 percent—a strong improvement, but still indicative of a great opportunity to use supply chain advantage to increase sales. More than half of the leader firms showed at least 6 percent gains in revenues attributable to their supply chain initiatives. About one third of the followers and only 23 percent of the laggards reported this level of improvement. (Exhibit 8 shows the revenue numbers for respondents overall.)

In the performance realm, one set of questions on policies and practices asked respondents to rate their level of performance in key areas. In terms of product reliability and product conformance—overall a highly rated area—61 percent of firms put themselves in the top one-third of the industry. We see this as an indication that most companies believe they have a good handle on production performance, which translates to solid product reliability.

At the same time, when we asked respondents to rate sales forecast accuracy, we received a bell-shaped set of replies—28 percent rated themselves in the bottom one-third, 50 percent in the middle, and 22 percent in the top one-third. This balanced finding suggests that the respondents were being honest in their assessment of their forecasting capabilities. But more importantly, it points to a critical gap—particular between the laggards and the top two groups—that needs to be closed. The laggards, in particular, should take note that the higher performing firms use sales and operations planning (S&OP), greater collaboration with suppliers and customers, and greater enterprise interaction to bring much higher reliability to what amounts to the actual demand for products and services. (Exhibit 9 lists the top seven operational areas of self ratings for all respondents.)

Looking at the self-ratings by maturity levels, we found that the leaders outperformed the laggards in every supply chain performance category except one, product design quality (performance and features). In addition, the leaders outperformed followers in 9 out of 17 categories. In terms of the self-ratings, the biggest differences between leaders and followers are in order fulfillment lead time, perfect orders, inventory days of supply, cash–to-cash cycle time, and asset turns. Between the followers and laggards the largest gaps were found in fill rate, supply chain total cost, cost of goods sold, productivity, asset turns, and forecast accuracy. From these results, we can infer that firms moving from laggard to follower status should expect to see improvements in cost control and in the predictability of their operations. Firms that move higher up the ladder to achieve leader status should expect add further gains in lead time, customer service, and overall asset productivity.

With regard to their supply chain competency overall, respondents’ generally felt pretty good about their progress. Four out of five of all respondents, indicated that their overall SCM competence was at or above average for their industry. (See Exhibit 10.)

Our last area of inquiry focused on the differences in levels of usage of supply chain technologies. Leaders are the most experienced users in four out of five of the technology categories surveyed. These are execution systems (WMS, TMS, ERP, for example); relationship management systems (CPFR, CRM, SRM); strategic planning systems (such as business and supply chain intelligence; and supply chain network integration solutions distributed order management, event management, RFID, etc.). Followers tend to be more experienced than the laggards with respect to relationship management systems and planning systems (including demand, inventory, and production planning; scheduling; and distribution systems). These findings suggest that information technologies of multiple sorts are key enablers to achieving the highest levels of supply chain management maturity.

Across all three groups, though, respondents need to do a better job of coordinating their supply chain technology and initiatives with their IT counterparts. Overall, only 28 percent of all respondents indicated a high collaboration rating between supply chain and information technology.

And so we return to the call for action. The abundance of information contained in the 2007 survey could form the basis for many conclusions and recommendations on future courses of action. Below are several that we find especially compelling:

• Supply chain management continues to make overall progress, albeit with mixed results in some instances. The laggards are part of that progress. However, the gap between them and the leaders remains significant, representing several points of profit and strategic advantage. Laggards and followers alike must incorporate more of the practices of the leaders to close that gap.

• Someone needs to be in charge, with full responsibility for what happens within the supply chain across the extended enterprise. This senior officer, moreover, must be a direct report to the CEO and have the full support of the CIO and CFO to optimize results.

• Supply chain management efforts deliver the best results when they are an integral part of an overall business strategy—not a standalone program. Lack of strategic planning and alignment will definitely diminish the results possible.

• Leaders are using supply chain initiatives to increase revenues and reduce costs—something that the other companies should take notice of. Importantly, these initiatives are closely related to customer service, a hallmark of the more advanced firms.

• Information technology must continue its progression from a necessary evil to a critical ingredient of supply chain success. Stovepipes must be destroyed and collaboration supported at the highest levels. The leaders have done this.

• Technology is an absolute necessity for advanced supply chain progress. However, many companies, particularly in the follower and laggard categories, struggle with the enabling technology. Getting the process right must come first, followed by successful application of the appropriate software and technology. This axiom can be effectively applied first in such areas as warehouse management and transportation management systems, followed by network applications that link the end-to-end processes.

Contemplating the findings for this year’s and previous surveys, we see companies across all industries progressing steadily forward by using the supply chain as a business driver. But not everyone is moving at the same speed or with the same level of determination. To reach the highest levels of potential improvement, the followers and the laggards in particular need to get the train on the tracks and move forward with proven techniques. That means collaborating better internally to optimize processes. It means working with key suppliers and customers to identify improvement areas in those relationships. And it means effectively applying technology as an enabler in achieving total supply chain success.