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Managing Global Supply Chains

August 21, 2008

A recent study by McKinsey confirms that senior executives are increasingly concerned about the risks facing their supply chains. They also feel that supply chain management is failing to deliver adequtely against top strategic goals.

The fact that risks are perceived to be increasing is scarcely a surprise. However, the extent of regional variations in the  areas considered to be influencing supply chains is interesting. For example, in North America the top three concerns are rising energy prices (39%), financial volatility (38%) and increasing complexity of products and services (35%); in Europe, product and service complexity is cited by 60%, followed by rising energy prices (33%) and increasingly global labor markets / rising wage costs (25%). Developing markets select the same three issues as North America, though in different sequence.

Other factors influencing  supply chains show wide disparities. For example, 25% in North America see the adoption of increasingly scientific, data-driven management techniques as significant, against just 4% in Europe (and 16% in developing markets). Similarly, 20% of North American and Developing Market participants are concerend about exposure to differing regulatory environments in overseas markets, versus 9% in Europe.

The strategic goals for supply chains reflect the findings of a recent IACCM survey. Reducing costs is the number one priority, followed by improving customer service and getting products to market faster. For suppliers, assisting with these goals woudl represent a source of competiive advantage, since executives are far from satisfied with current progress.

To improve performance, they are focused on increasing the efficiency of supply chain processes (71%), actively managing supply chain risks (56%) and increasing inputs from low cost countries (47%).

The survey also reveals a continuing trend towards centralizing the management of supply chains. In part, this is to address talent and knowledge issues – indeed, ensuring that different locations share knowledge emerges as the number one challenge in global talent management (again a finding in common with the wider IACCM membership).   Other major challenges are managing communications and cultural differences and attracting and retaining entry level talent. The issues of communications and knowledge sharing are to some extent attributed to the (lack of) integration of IT sytems and vendors on a global level (these pre-requisites were highlighted in a recent story about P&G’s success in developing global shared services).

Executives do not identify any one’big issue’ in globalizing the supply chain. However, the importance of increased cross-functional collaboration is highlighted as a dependency in meeting strategic goals. This suggests that organizations adopting the IACCM ‘best practice’ service delivery model will gain a competitive edge on their more traditional rivals.

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