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Supply chain visibility and transparency continue to dominate 2012 agenda, says Manhattan Associates

Global supply chain optimisation provider, Manhattan Associates, Inc., is forecasting that supply chains will continue to be exposed to a growing set of unpredictable influences in the next 12 months. Cost will remain a core issue for most organisations, along with increased supply chain risk, which calls for better contingency planning, greater agility in the supply chain and wider use of technology.

"An organisation’s supply chain operates within an increasingly complex and dynamic world, but can become a key source of competitive advantage, as well as an enabler for business growth if managed correctly," said Jeff Baum, SVP International Operations (APAC) at Manhattan Associates. "Supply chains are required to be increasingly flexible, scalable and agile to address more and more specific market requirements across a wider number of channels and geographies. This is essential to ensure companies can maximise sales at every opportunity, make their extended supply chains as efficient as possible and protect the organisation’s brand equity."

Manhattan Associates has identified nine top trends that are set to influence the supply chain scene in China in the next 12 months:

1. Attention to cost continues
In a recent IDC Manufacturing Insights survey , Asian high-tech companies identified cost management as a key concern in the supply chain. Almost half the high-tech companies in Asia selected reducing total supply chain costs as the top supply chain priority in the past two years. Japanese companies were found to be especially cost-conscious, with 69 percent selecting it as the top priority.

In 2012 companies will be looking for greater visibility of supply chain costs and activities so they can plan resources more efficiently. Companies will be finding ways to optimise productivity through improved task management, advanced labour management and use of voice technologies.

IDC analysts suggest that the ‘lean manufacturing’ approach will help companies to respond better to the current volatile environment and take costs out of the system rather than transferring it between companies. Retailers will make better use of real-time information about customer needs and buying behaviour and feed this information to their suppliers to increase order frequency, and better match supply and demand.

2 . Need for better understanding of how costs are incurred and allocated
Most companies know that an individual customer’s behaviour and their specific demands drive many aspects of cost and, therefore, the profitability of their company. Most companies also know that a small percentage of their customers drive most of the profits. Despite this, most businesses still don’t really know what it costs them to serve each individual customer on a customer-by-customer basis. In order to calculate the total cost-to-serve (TCS), companies need to start getting much better at being able to capture direct and indirect costs across departments and allocate those costs down to individual SKUs, customers, and/or brands. Part of the art of calculating TCS is knowing which cost elements to include – those costs within your control that reflect the true variability in cost-to-serve for various sourcing, fulfilment and ordering patterns. Luckily, there are some powerful off-the-shelf solutions now available in the market-place that are enabling companies to understand the ‘true cost to serve’.

3 . Need for contingency plans
The BCI Supply Chain Resilience 2011 report, which questioned 559 businesses from 62 countries, found that levels of supply chain disruption remain undiminished with 85 percent of respondents experiencing at least one incident in 2011. Only 8 percent of respondents confirmed that all of their key suppliers had business continuity programmes in place to deal with any problems and less than half of those companies check that their programmes are likely to be effective in practice.

"Companies without such plans are often left telephoning around suppliers to cope with any incidents and this can lead to supply shortages and empty shelves," said Baum. "Retailers need to take action to ensure their supply chains don’t become affected by harsh weather conditions, strikes or other disasters, leaving customers disappointed and without the items they have paid for. In the era of multi-channel purchasing, suppliers and retailers must ensure they are properly prepared to deliver on customer promises."

4. Wider procurement networks
Last year proved that there are numerous unforeseen events including earthquakes, flooding and tsunamis that can affect the supply chain. To mitigate the risks for their business, both manufacturers and retailers will look to source from more suppliers and implement supply chain tools that will allow them to be more agile and be able to respond more quickly to unforeseen events.

5. Improve visibility with technology
Supply chain analysts almost unanimously agree that the best supply chains in the future will be those that have the best visibility in both directions. Technology will play a greater role in providing real-time visibility of sales and stocks to support the agility required in the current environment. Adoption of technology-led solutions will accelerate. Retailers will continue to invest in centralised planning and forecasting processes that take into account a larger number of local factors. Suppliers who can keep pace, and indeed stay ahead, will win. It is expected that more companies will be looking for not just Total Cost to Serve (TCS) Solutions as they seek to evaluate the costs of supplying specific customer groups from different sourcing points but Extended Enterprise Management (EEM) solutions as they seek to gain control of their supply chain from source through to consumption. Distributed Order Management tools, in concert with EEM and TCS type solutions will enable orders to be fulfilled from wherever it makes most sense to fulfil an order from, balancing the need on the one hand to maximise customer satisfaction, and on the other to maximise profitability for the company in fulfilling that order. Increased visibility in the supply chain will enable greater control over activities within the chain, aiding agility while maximising profits and reducing risk.

6. Coping better with business expansion
Forecasting and order management tools should be used to ensure that enough of the fastest selling products are re-ordered and routed to wherever demand is being detected and registered, thereby enabling the balancing, prioritising and streamlining of stock levels across the business. Bringing vital information to supply chain partners’ fingertips via sophisticated supply chain intelligence tools means the whole enterprise network can make smarter and faster decisions with regards to warehouse and distribution management. All of this is paramount, particularly as a supply chain elongates as a result of business expansion be it through organic growth or following the acquisition of another business.

A great example of transforming a supply chain infrastructure to support rapid business growth is Jockey, a leading supplier of underwear, which increased its scope to 120 countries and into online retailing, without compromising its existing services. The deployment of more flexible supply chain technology has helped Jockey meet its multi-channel needs and accelerated the delivery of goods from suppliers, lowering lead times by as much as 80 percent.

7. Labour deployment methods to respond to changing buying patterns
As the speed and agility of supply chains evolves, the way in which labour resources are optimised also needs to evolve in order to keep pace with the changing buying behaviours of consumers. When retailers add the ability to change where and how products are fulfilled, they also need the ability to flex resources up or down to ensure they have the right number of people to support the real-time changes taking place at the store, in the distribution centres (DCs) and across their fleets.

Labour, as a key resource and cost within the distribution centre, must be optimised to the demand. To ensure the proper level of labour, companies must address the following:

  • Plan and forecast annual workforce budget.
  • Establish appropriate level of regular workforce for projected work.
  • Optimise the mix of Regular, Overtime and Temporary.
  • Plan for seasonal changes, new product introductions and promotions.
  • Continually optimise staffing levels by day, shift job and zone.

8. Improving the industry standard
China is still at the starting point of standardising hardware (container, pallet, forklift etc.) and software (supply chain system, logistics management). In 2012 and beyond it will be critical to set up industry standards and improve logistics performance.

9. China’s critical role
China has dominated supply chain thinking over the past few years – first as companies sought to source products from the region, and more recently as a market for those products. But the business environment is changing. Weakening export demand means that many Chinese exporters have begun to focus on the country’s lucrative domestic market. However, selling in China is no easy task and is fraught with obstacles, particularly for the traditional processing trade factories. A recent report by the China General Chamber of Commerce  points out that retail sales of consumer goods will grow at a slower pace which will make stabilising the economy by expanding domestic consumption more challenging. On the positive side, there are plans for tax reforms designed to reduce the double taxation and increasing supply of government backed wholesale and logistics facilities could lower distribution costs.

"Some of these trends are not new – we’ve seen them influencing corporate strategy for several years now, but a number are more immediate and require close attention. Those organisations that are prepared for change will stand the best chance of making the most from 2012," said Baum.