Are you optimistic about both an economic recovery and how well-prepared your global operations are to meet increasing demand?
I’m curious because I’ve been thinking about the results I recently read of a survey conducted by consulting firm PRTM. The firm surveyed nearly 350 participants from Europe, the Americas and Asia, and the survey results are part of PRTM’s Global Supply Chain Trends 2010–2012 Survey—the largest annual survey of global supply chains conducted by the firm. PRTMSurvey
More than half of the respondents expect average gross margins to surpass 10 percent over the next three years, which is good news. However, according to the survey results, three-quarters of the survey participants cited demand and supply volatility, coupled with poor forecast accuracy, to be the biggest roadblocks they face in capturing profits from the economic upturn.
Many of the participants noted that their companies did not strengthen critical capabilities during the recession. Only a small percentage truly improved their supply chain flexibility to capture increased demand and to better manage volatility, says Reinhard Geissbauer, director, PRTM’s Global Supply Chain Innovation practice.
Making the situation more challenging is the realization that supply chain complexity obviously will continue growing. More than 85 percent of the participants expect supply chain complexity to grow significantly by 2012, due to the challenges of serving new global customers—which will be their primary source of revenue growth. That complexity will continue to increase as those companies strive to deliver products and services to new locations, and the growing number of product variations required to meet the expectations of these new customers will further add to supply chain complexity, Geissbauer says.
The survey results illustrate just how vital S&OP is today. The problem with forecasting is that it essentially focuses on creating a statistical forecast based on past shipments. In a stable market with predictable demand—and when it’s possible to maintain finished goods inventories as a buffer against demand fluctuation—that approach works reasonably well.
The problem, of course, has been the increase in demand volatility over the past few years. While there certainly is value in analyzing historic demand patterns, S&OP must focus on the future even though market drivers are uncertain and little—if anything—is known about what your competitors are doing.
A few weeks ago, Trevor Miles posted here, TrevorMiles, that he can think of no better way of evaluating the effect demand uncertainty has on the supply chain than to leverage a robust what-if capability starting from range forecasting. Trevor’s advice, which I think is great, is to determine a best estimate, but then test upside and downside scenarios to evaluate and mitigate risks.
Trevor went on to write that testing those scenarios means determining: Which is worse, to be left with excess and obsolete components or to lose market share because demand is not satisfied? What if you sourced from a more expensive supplier but they provide shorter lead times and more flexibility on volumes? Would this offer you lower overall inventory liability? Those can be tough questions to answer but can you really afford to not use what-if capabilities to test various scenarios?
I’d like to know what you think. Is your supply chain ready to capture increasing demand and better manage volatility?