Supply Chain Cacophony
Let’s suppose you’ve taken some business associates to the theatre and everyone in your industry is there. Look to your left, and then to your right. If you see one of your suppliers on one side and one of your customers on the other, you’re looking at your supply chain. As trading partners, you’re exchanging material and products, services, information, and of course money. Sound simple? It’s not. Working well? Don’t count on it.

Multiply this analogy by all your customers and all your suppliers, and the whole sea of people in the theatre represents your supply and demand network. You can’t possibly know what all of these companies are babbling about, and without realizing it, everyone is making trouble for everyone else. In a nutshell, most companies aren’t sharing information and working together to the degree necessary for smooth execution of material sourcing, allocation, logistics, and customer order fulfillment.

Yes, a few outstanding companies have transformed their supply chains, often by leveraging the Internet, and the results are stunning. Dell and others have achieved internal efficiencies and customer service accolades that make other companies green with envy.

Most companies and industries, however, are way behind the leaders. In a recent survey of over 2,100 executives conducted by Cap Gemini Ernst & Young and IndustryWeek, 49% of the respondents reported that their companies neither have a formal value chain strategy (“value chain” refers to the combination of the supply and demand chain), nor are they developing one. Among companies that have a strategy, most are not feeling very good about it (see pie chart above).

This is good news for those worried that the U.S. economy has hit the wall in terms of industrial productivity. When you’re talking about the supply chain, most companies have huge opportunities for further performance and profit improvement.