Supply Chain Inefficiencies

68% of global executives responding to a 2011 McKinsey survey stated supply chain risk will increase in the next five years.

Supply Chain:

The supply chain consists of everybody involved in getting a product to the hands of a customer. It includes raw material gatherers, manufacturers, transportation companies, wholesale warehouses, in-house staff, stock rooms and the teenager at the register. It also includes the tasks and functions that contribute to moving that product, such as quality control, marketing, procurement and sourcing. Using the above analogy, the supply chain can be considered the entire chair, while procurement and sourcing are parts of the chair.

The five most common supply chain challenges: 

Customer Service: delivering the right product in the right quantity at the right place at the right price.
Cost Control: extreme pricing pressures due to increasing freight costs, more global customers, fluctuations in global pricing, increase in technology transfers, healthcare costs, regulatory changes and rising commodity prices.
Future Planning: redesigning supply chains due to changes in the actual supply line(s), new product introductions, requirements to sourcing globally, increasing costs of financing inventories.
Partnerships: developing suppliers who understand that business.
Developing Supply Chain Talent: replacing existing management as they retire becomes exceeding difficult.  Hiring the right candidates, experienced in the market, with core supply chain competencies is extremely challenging. 

Procurement also experiences short-comings that can affect overall management of the supply chain.

Four common reasons procurement improvement efforts typically fall short for the organization:

- Lack of detailed planning and focus when reducing costs. 
- Too many initiatives taking place at the same time.
- Procurement Department often not involved with decision making.
- Poor change management and implementation methodologies result in poor long-term success. 

How does all of this affect the supply chain?

A.T. Kearney’s 2011 Procurement Study revealed some startling insights into the current state of procurement. They found that 90% of study participants say procurement has a larger role in developing and executing the company’s business strategy, while still being held accountable for bottom-line efficiencies. Furthermore, leaders are twice as likely to affect the bottom line in a positive way. and top procurement leaders understand the procurement strategy must align with overall business goals. These leaders attain 85% alignment on average, compared to 37% for the followers. Only 20% of the followers use risk management activities in procurement — meaning about 80% of companies are one natural disaster away from a major disruption. Followers are not adapting as quickly as leaders to emerging technologies. 75% of leaders have standardized item codes for direct products and services, compared with 45% of followers. Leading procurement companies are three to four times more forward-looking and bold in their approaches to recruiting and retaining top talent than lagging procurement companies.

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