A Systemic Blindness (in the Supply Chain)

One of the presentations at the Fourth Annual International Symposium on Supply Chain Management was by Mark Gallant of Accenture on Supply Chain Management: The Road to High Performance based on yet another global study that they have recently completed on 600 Global 300 companies.

One of the most interesting aspects of this study was, as far as I was concerned, the lack of any new results. It might as well have been Capgemini reporting on their results (which I mentioned in my post on The Need for Supplier Relationship Management Education and which Jason critiques in The Consulting SRM Research Pile-On Continues) or another consulting firm.

This leads me to hypothesize that not only are many companies not spending enough time and money training and educating their procurement team, they are not concentrating enough of their focus on their supply chain and still not attributing the necessary amount of importance to it.

I know I should not find this surprising given the traditional pace of transformation in the corporate world, but I do. After all, I reminded you of Dr. John K. Potter‘s claim that most major initiatives in an organization required 5 to 10 years in The Change Management Myth: Why e-Procurement Initiatives Fail, indicating that many enterprises have just not caught up with the speed of business – even though, as I have pointed out a couple of times now, Aberdeen recently found that your average company experiences two major supply chain disruptions a year.

However, when you consider the direct impact that supply chain performance has on the stock market price of your corporation, and the considerable focus financials have always received, this systemic blindness should be changing as I type this.

After all, SAP’s recent analysis of supply chain glitches (as presented by Al Norrie in the software panel discussion), has found that stock prices drop by an average of 7.5% to 11% after a supply chain disruption.

Glitch Stock Price Delta
Product Development Delays 10%
Rollout Delays 11%
Production Problems 10%
Quality Problems 9%
Material Shortage 7.5%

In addition, Accenture analyzed stock prices of market leaders, transformers, laggards, and decliners over the last decade and found that while leaders maintained a market cap approximately 15% above average for their industry, laggards were roughly 5% below market average and decliners were as much as 15% below market average. In simple terms, bad supply chain performance can result in a stock price 30% less than the market leader under an apples-to-apples comparison!

So what can you do? According to Accenture, you should

  • incorporate supply chain into your core business strategy
  • make strategic in-source vs out-source decisions
  • build effective linkages with trading partners
  • adopt leading edge technology and best practices
  • relentlessly shorten your supply chain
  • flawlessly execute against your capabilities
  • continuously evolve strategies and optimize models
  • have a vision and a strategy
  • adopt the right culture

In other words, just follow all of the good advice that bloggers such as Jason, David, Dave, Tim, and I have been imparting since we started blogging and most importantly, if you truly believe your supply chain is very important or critical (as 44% and 45% of survey respondents, respectively, believe), be sure to commit the appropriate resources to address it.