News Summary:

• New survey and report from IBM shows dramatic differences in corporate financial performance relative to supply chain capabilities
• Three areas for focus: predictive demand, action-oriented visibility and collaboration, and leverage global supply chain for new efficiencies

A new report from IBM's Institute for Business Value uses survey data about supply chain practices and technology adoption to segment firms into three categories: Visionaries, Planners and Operators, and finds dramatic differences in the financial performance of each group.

The results of this just released study are based on surveys completed by over 660 supply chain executives from around the globe, and were recently summarized on a videocast presentation on our Supply Chain Television Channel, featuring Karen Butner, lead author of the new report. To watch that broadcast on demand, go to: On-Demand Videocast: New Rules for a New Decade. To download the full report, go to: New Rules for a New Decade - A Vision for Smarter Supply Chain Management.

As shown in the graphic below, the majority of companies fall into the Planners segment, which is characterized by good but not outstanding supply chain capabilities. The next largest block is the Operators, who are well-behind the curve in terms of SCM prowess. Just under 10% of companies merit the leading Visionary designation.

According to IBM's analysis, supply chain Visionaries have such advanced capabilities as the ability to:

• Predict demand and immediately respond across their networks
• Use business intelligence and analytics
• Collaborate with supply chain partners
• Optimize inventory, cost and their global network
• Utilize variable cost structures

New Study Segments Supply Chain Capabilities

Source: New Rules for New Decade, IBM Institute for Business Value

The level of supply chain capabilities, in turn, is highly correlated with a company's financial performance, in what should be an eye opener for many company executives.

(Supply Chain Trends and Issues Article - Continued Below)

"Visionaries, by themselves, have set a lofty bar of performance for others to emulate. Three-year average return on invested capital (ROIC) for this leadership population averaged 27 percent," Butner writes. "But what is also astounding is the three-year average revenue growth rate of nearly 25 percent. Despite the struggles and pressures most have felt during the past several years of global economic recession, this elite group of companies continues to enjoy healthy growth rates as they build smarter supply chain capabilities."

As shown in the graphic below, that financial performance was more than twice that of the Planners, and dwarfed the results of the Operators, who just barely improved either metric over the period.

Supply Chain Capabilities Highly Correlated with Financial Performance

Source: New Rules for New Decade, IBM Institute for Business Valu

Based on this data and its own view of where supply chain must go to be successful in the coming years, IBM suggests three key focus areas:

1. Know the customer as well as yourself. Smooth volatility with predictive demand: Predict demand and be in a position to react to demand variability with rapid response and allocation of all global resources.

2. See what others do not. Unveil visibility with collaborative insight: Collaborate with visibility to events, with suppliers, service providers and customers in an open, action-oriented environment.

3. Exploit global efficiencies. Enhance value with dynamic optimization: Optimize pipeline inventory, the global supply chain network and cost structures. Create cost-efficient sustainable products and practices while hedging risks with partners.

Resources:

New Rules for New Decade Videocast

New Rules for New Decade Report

What are your thoughts on IBM's segmentation into Visionaries, Planners and Operators? Does the level of correlation with financial perfomance surprise you? Let us know your thoughts at the Feedback button below.

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