Forecasting Is the Biggest Problem for the Supply Chain

Forecasting, also known as demand variability, tops the list of biggest challenges for the supply chain this year, according to a new report from eyefortransport (eft). Other top business challenges include inventory management/optimization, and cost containment and reduction.

The 2015 Chief Supply Chain Officer (CSCO) Report also finds the supply chain’s forecasting challenge is its biggest area for cost reduction. When eft analysts looked at results by company size, they found that companies with revenues in the range of $500 million to more than $1 billion selected demand variability as their biggest challenge, which is in line with the overall results. However, companies with revenues of less than $50 million to $500 million said cost containment and reduction was their biggest challenge.

The most effective method for cutting supply chain costs over the past 12 months is improving internal efficiencies, according to respondents, which is in line with last year’s results. This was followed by improved forecasting, which moved to the second position, up from number three last year, and is the only method that increased in effectiveness in 2015. Other top cost-cutting methods include re-negotiating existing transport contracts and cheaper/better sourcing of materials/new suppliers.

Analysts takeaway: The “marked drop in investment in technologies that cut costs, suggesting that companies are perhaps looking more towards internal methods in order to reduce costs.”

So how did respondents rate their overall supply chains? Most were satisfied (48%) by their supply chain programs. However, a very small percentage of respondents rated their supply chain as poor (1%) and only a small percentage (3%) rated their supply chain as excellent. In addition, 37 percent think their supply chains are above average, while 11 percent rate their supply chains as below average.

In the area of sales and operations planning (S&OP), more than two-thirds of respondents agreed that ‘the S&OP process is a cross-functional team effort’ and that ‘senior executives contribute to final S&OP decision making’ within their organization. However, the survey finds that key suppliers do not regularly contribute to the S&OP process, and risk mitigation and assessment is not often integrated into the S&OP process.

In terms of supply chain contingency planning, satisfactory was the most popular answer. However, analysis of the results based on company revenue indicate that about 35 percent of companies with revenues of more than $1 billion rated their supply chain contingency planning as above average, compared to 14 to 15 percent of respondent companies with revenue below $1 billion.

The report also finds that CSCOs are getting more clout at their companies. In one year, 10 percent more supply chain executives now sit on the operational board. The percentage rose from 62.5 percent in 2014 to 68.6 percent in 2015.

The survey also looks at the future of the supply chain around emerging technologies such as the impact of big data, the Internet of Things, 3D printing, and omni-channel developments. In the area of big data, a very low percentage (3%) of respondents expects big data to be a game changer, but up to 82 percent of respondents expects big data to have a moderate to significant impact on the supply chain.

While expansion of omni-channel capabilities is typically expected of retailers – 75 percent of retailer respondents expect to expand their capabilities in the next 12 months, the survey finds that 40 percent of manufacturer respondents are investigating the possibility. The biggest obstacle among all respondents: the integration of IT systems between multiple channels, according to 33 percent of respondents.

The survey also finds that 3D printing is growing in importance for supply chain executives compared to 2014. More respondents – up to 50 percent – said 3D printing will have a significant or small impact on manufacturing processes in the next three years. The remaining 50 percent said “no, not at all.” Nearly 20 percent of respondent companies are currently using 3D printing to some degree. The greatest impact that 3D printing is expected to have on a company’s business is increased customization, although spare parts logistics garnered the biggest proportion of “significant impact” responses, said eft.

Lastly, respondents were asked to weigh in on the Internet of Things and its expected impact on the supply chain. Analysts said the most significant takeaway is that only seven percent of supply chain executives see no impact. More than one-third see a significant impact.

Sustainability also plays a role in the future of the supply chain. Although discussions with global supply chain executives indicate that sustainability is a key area in the future agenda of the supply chain, said eft, it is surprising to analysts that the importance of sustainability has decreased since 2014, according to survey respondents.

However, one-third of respondents rated sustainability as extremely important to their business. The biggest obstacle to achieving supply chain sustainability is a lack of resources, according to 29.9 percent of respondents. This was followed by a lack of knowledge (15.5%), implementation costs (13.7%), lack of shared values (13.6%), and not important to the management board (13.6%).

Survey respondents are supply chain or logistics executives working for a retailer (17%) or a manufacturer (83%). The majority of respondents (67%) represents a company with an annual revenue of more than $1 billion. Eft is holding its next Chief Supply Chain Officer Forum, November 4-5 at The Novotel Clarke Quay, Singapore.