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Focus: Supply Chain Trends/Issues

Feature Article from Our Supply Chain Trends and Issues Subject Area - See All

From SCDigest's On-Target E-Magazine

Nov. 15 , 2011

Supply Chain News: 2011 Trends and Issues in Logistics and Transportation Finds more Companies Taking Be Everything to Everyone Strategies

Is this Good or Bad? Supply Chain Segmentation Strategies Key to Making it Work?

SCDigest Editorial Staff

Again this year, the annual Trends and Issues in Logistics and Transportation Study was released at the CSCMP conference in Philadelphia, led by Dr. Karl Manrodt of Georgia Southern University and Dr. Mary Holcomb of the University of Tennessee, based on survey results from something like 700 respondents.

SCDigest Says:

with 50.7% of respondents saying they were moving away from a more focused competitive strategy to one that tries to be great at everything (say innovation and cost), up from just 36.8% in 2007, we wonder if this doesn't perhaps overlay directly on segmented supply chain thinking.

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Manrodt has been involved in all 20 years of the study's history. Holcomb is in her 16th year of participation.

The full report should be available soon on Dr. Manrodt's web site; as of this article the link for the 2011 report was not yet working.

The study notes that companies today really are operating in a "new normal," reflecting what appears to be at least in the modern supply chain era (i.e., post-1980) an unprecedented level of volatility and uncertainty. The report says that at a high level, to thrive in this environment companies must focus on three key areas of supply chain performance: efficiency, flexibility and differentiation.

An interesting factoid early in the report notes that despite the recognized need for greater supply chain integration and collaboration, currently companies on average only involve 6.3% of key customers and 7.5% of key suppliers in their Sales and Operations Planning (S&OP) processes. We're frankly surprised it's that high at this stage of S&OP evolution.

For years, the study has looked at some of the survey results by breaking respondents up into smaller companies (this year, under $500 in annual sales), medium ($500 million to $3 billion) and larger firms for analysis purposes. Below are listed several financial supply chain metrics segmented by company size. Note that in the two related areas of inventory performance (turns and days inventory outstanding or DIO), for whatever reason mid-sized companies in the study substantially outperform both larger and smaller ones.

However, larger companies have a significant advantage in terms of managing their cash-to-cash cycles, which are about 8 days shorter than mid-sized firms achieve.

Supply Chain Finance Performance by Size of Company

Source: 2011 Trends and Issues in Logistics and Transportation

There has been a lot of discussion in the past year on supply chain segmentation, or designing different supply chain flows and processes for the unique needs of different customer segments (even if sharing much of the same physical supply chain).

(Supply Chain Trends Story Continued Below)

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The study addresses that topic by asking companies how many unique supply chains they are operating, cross-tabbed by what they said was their primary value proposition (cost leadership, customer service, product/market innovation, or being "all things to all people", which about 50% of respondents said was their company's strategy.)

As can be seen in the chart below, the average number of supply chains was just a little above three for three out of the four segments, but much lower for the product/market innovation segment, for reasons that are unclear.

Source: 2011 Trends and Issues in Logistics and Transportation

The study also looks at transportation spend as a percent of sales for companies. The chart below shows what percent of respondents have different levels of transport spend relative to revenues in their companies. The spread is actually quite wide and balanced, but as can be seen, the largest percent of any one grouping are those companies spending more than 5% of sales on transportation (21.2% of respondents).

Source: 2011 Trends and Issues in Logistics and Transportation

The study has also found a consistent rise on the number of companies that say their strategy is to be "all things to all people," versus a more specific focus on cost, innovation, etc. Of course, in the business literature on this kind of subject, such as the 1997 book The Discipline of Market Leaders by Michael Treacy and Fred Wiersema, has always held that you had to be good at everything, but that a company could only really excel at one thing.

But with 50.7% of respondents saying they were moving away from a more focused competitive strategy to one that tries to be great at everything (say innovation and cost), up from just 36.8% in 2007, we wonder if this doesn't perhaps overlay directly on segmented supply chain thinking. In other words, segmenting supply chains for different needs is a way to "be all things to all people" while still maintaining a focus on say customer service in some segments and cost leadership in others.

The report provides some data on composite scores for what it calls F-E-D (flexibility, efficiency, and differentiation). We think what in this case is more interesting than the data is the idea of a company creating its own definition of these three components, and then measuring itself internally over time.

Any reaction to the data in this year's Trends and Issues report. Do you like the idea of a F-E-D score? Is it good or not good that more companies are trying a be all things to all people strategy - and are segmented supply chains the key to those efforts? Let us know your thoughts in the Feedback section below.

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