What’s trendy and what’s not
Companies are now taking stronger actions around supply chain risk management. Improved visibility into supply chain events and better control of in-transit inventory have helped the best in class companies gain the data to do better risk assessment, paving the way for better risk management. Viktoriya Sadlovska, Research Analyst on Supply Chain Finance and Global Trade at Aberdeen Group, looks at global trade management trends in 2007.
In May 2007, Aberdeen Group conducted its annual study on global trade management: 214 companies were benchmarked on their key strategies, pressures and capabilities in support of global trade.
The need to manage growing global operations and distribution networks more effectively and the lack of critical supply chain process visibility are the top two factors driving companies to focus on improving their global trade management (GTM) practices in 2007.
The change from 2006 is in the increased speed and the number of layers in global supply chains, which has made the need to manage them more effectively the top factor pressuring companies to improve GTM. This means that enhancing supply chain agility is more important than ever: study respondents agree that improving visibility and trade compliance automation can move a company forward on this path.
Priorities for improvement
Enhancing trade compliance and global supply chain visibility have emerged as the two key themes for GTM improvement initiatives in 2007: about half of all companies across the maturity classes have cited them as high priorities this year.
The third area targeted for improvement is supply chain costing, highly prioritised by 45% of ‘best in class’ and ‘average” companies. Laggards rank supplier enablement above supply chain costing, which shows that they are still at earlier stages of taking real control of their global supply chain operations.
To achieve their goals in GTM, companies are planning a series of actions – both at the strategic level and as formal project plans/ scheduled programmes.
Average and ‘laggard’ companies (identified according to Aberdeen’s standard research methodology based on each respondent’s performance in several selected metrics relevant to the topic being studied. During the ‘maturity classes’s analysis, best in class, average and laggard companies are identified and their respective strategies and capabilities are then examined) are striving to catch up with the best in class in the global supply chain automation, prioritizing the move toward a more paperless GTM process over the formalised programmes to reduce lead times. Laggards are also planning to ask their suppliers and logistics partners to take on more process and inventory responsibility.
Best in class benefits
Cost reduction has been prioritised among the top competitive pressures across Aberdeen’s research studies on physical and financial supply chain management over the past two years.
Leading companies have been successful in containing or even reducing their total landed costs with better strategies and technologies. In this study, best in class, ‘industry average’, and laggard organisations have been identified by their ability to manage total landed costs while maintaining adequate level of customer service.
Best in class companies are more likely to have instituted centralised supply chain process and knowledge management, formalised risk and lead time management programmes, as well as superior technology enablers that provide enhanced visibility and control over global trade transactions. They have shown more improvements in several important metrics over the past two years compared to the rest of respondents:
- Best in class companies are around 1.5 times as likely as their lower-performing peers to report reduced lead times and lead time variability over the past two years, due in part to their superior supply chain automation and visibility as well as their stronger emphasis on having formal lead time reduction initiatives and clear assigned accountability for successes or missed targets.
- Best in class companies are twice as likely as laggards to have increased their customs clearance speed.
- Best in class companies are 1.3 times as likely as their lower-performing peers to have online visibility into international order and supplier events and in-transit shipment status.
Trade compliance initiatives
Companies are now looking at export and import compliance improvement initiatives not only as a way to reduce penalties but as a tool that – if used effectively – can help lower total landed cost by maximising the use of various types of free trade zones and preferential trade agreements.
Improving total landed cost calculations is ranked as a number one initiative around trade compliance across all three maturity classes.
The top three trade compliance initiatives reported by best in class companies are:
- Improve total landed cost calculations – 64%.
- Strengthen C-TPAT compliance – 55%.
- Actively use GTM knowledge to ‘engineer’s lower total landed costs on our products – 41%.
Overall, the following prioritisation of trade compliance initiatives was reported by all study participants:
To engineer lower landed costs, companies are taking advantage of the roughly 200 or so preferential trade agreements now available: many best in class companies have already realised multi-million-dollar savings by optimising their use of such agreements, while average and lagging companies are beginning to understand the missed opportunity, as evidenced by the high level of priority they place on this area in 2007: using preferential trade agreements more effectively is a planned action in 2007 for 47% of average companies and 52% of laggards (compared to 32% among best in class).
Global supply chain visibility initiatives for 2007
The critical factor in the ability to take effective agility actions (make mid-course corrections to shipment routes) is having visibility into the global supply chain processes and events. Best in class companies are 2.7 times as likely as lower performing peers to be currently using a global supply chain visibility platform, which helps them to address this need for critical visibility.
Overall, companies continue to struggle with GTM, with about one third of respondents reporting that their GTM processes are still mostly manual and spreadsheet-driven. It is noteworthy that laggards are twice more likely than average and almost three times as likely as best in class to report that the GTM at their companies is still manual/spreadsheet-driven.
Visibility strategyTo improve GTM, companies should aim to take their global supply chain visibility to the next level. This is an absolutely necessary requirement that will help increase control over global networks of suppliers and customers, as well as help in other areas, such as improved reporting capabilities for better compliance and risk management.The main actions to help improve global supply chain visibility should include:
- Upgrading visibility data quality by including service level agreements in the contracts with suppliers and logistics partners that focus on complete, accurate, and on-time delivery of specified documents and event milestones.
- Pushing visibility upstream to capture status events at suppliers such as raw material arrival, in-process steps, and ready to ship statuses. It is less expensive to make midcourse corrections before goods are shipped.Better visibility into the global goods movement helps companies to manage in-transit inventory more actively, including setting up the ability to reroute and reallocate goods while in-transit based on updated consumer demand signals and logistics bottlenecks.
It also enables companies to move to more drop shipping, cross-docking, and DC bypass to increase the speed of their supply chains.
Benefits of enhanced visibility technology
Based on the survey data, companies that currently use a global supply chain visibility platform are:
- Twice more likely to have reduced total landed costs over the past two years.
- 1.7 times more likely to have the ability to make mid-course changes to their international shipments (eg, reallocate or reroute in-transit shipments), which ensures better supply chain agility.
- Twice more likely to have reduced lead times and lead time variability from international locations in the past two years.
- Almost twice more likely to report increased global supply chain budget accuracy over the past two years.
Best in class companies have already gained many benefits from their global supply chain visibility technology and are planning the following steps to enhance their visibility technology even further:
- Improve data quality and timeliness of status messages: 55%.
- Add warning alerts if actual events deviate from plan: 55%.
- Incorporate resolution advice or workflow (eg, expediting advice): 50%.
- Add escalation policies to help manage alerts: 45%.
Other GTM technology to consider
Companies that use a supply chain network design tool are 1.9 times as likely to have reduced total landed costs over the past two years. Supply chain network design tools are vital for modeling ‘what-if’s scenarios to make sound sourcing, distribution, and risk management decisions. Today, just 15% of all companies report using a network design tool.
In addition, multi-echelon inventory optimisation tools can help companies save millions of dollars in global inventory investments by helping them better understand where and how much inventory to hold across their own global network as well as their logistics and manufacturing partners.
Companies across industries are realising that significant benefits can be achieved by implementing best in class technologies.
Technology plays a critical role in providing the much-needed visibility into international orders and shipments, facilitating the management of all aspects of global trade. Based on this study’s findings, best in class companies have used a variety of technology enablers to support GTM, with most differentiation in the use of global supply chain visibility platforms. These enablers have helped to better plan, execute, and track transactions while keeping global supply chain risks at bay.
According to this year’s benchmark study ‘The Supply Chain Innovator’s Technology Footprint 2007’, supply chain visibility is the No2 priority for companies in 2007 in their overall plans to improve supply chain management. Also, supply chain visibility and transportation management have been reported as the top areas of intention to adopt on-demand applications.
The attention to on-demand supply chain applications has been increasing in the recent years because these technologies have proven to be effective in solving the unique challenges of supply chain professionals, especially at companies with global operations, including:
- The need to have access to data by multiple parties at different geographic locations.
- Real-time updates on supply chain events.
- The existence of networks of pre-connected partners such as carriers and/or suppliers.
- Flexible payment schedules based on usage, and more.
Companies with extensive international operation considering enhancement of their GTM technology capabilities should strongly consider the on-demand solutions for their IT needs.
Best in class organisational strategies
Having a combination of a centralised supply chain management organisation, a formalised global supply chain risk management programme, and a cross-functional approach to GTM strategies has empowered the best in class companies to reduce total landed costs and improve agility of their global supply chains:
A centralised global supply chain organisation has emerged as a best practice across Aberdeen supply chain research studies, once again echoed in the current findings.
Cross-functional team comprised of purchasing, supply chain, and finance professionals has proven to be a clear best practice in Aberdeen prior research on supply chain finance practices of companies whose global supply chains span a variety of emerging markets.
Best in class companies have shown to be twice as likely to have a full-time finance staff member involved in these programmes to help the physical supply chain team develop the most effective strategies (for more information, read ‘New Strategies for Financial Supply Chain Optimization’s on www.aberdeen.com).
By helping better plan financial and operational aspects of global trade transactions, cross-functional teams enhance the GTM strategies and help achieve more end-to-end cost reductions in global supply chains.
Companies are now taking stronger actions around supply chain risk management. Improved visibility into supply chain events and better control of in-transit inventory have helped the best in class companies gain the data to do better risk assessment, paving the way for better risk management.