Study: Supply Chain Management Faces Greater Threats, but Many Companies Don’t React
Where’s your shipment, exactly? When will it reach its destination, exactly? Does your third-party logistics partner have a clue? According to a major new study, shippers don’t think logistics companies are doing nearly enough in the area of visibility and analytics in supply chain management.
The 2013 Third-Party Logistics Study is the latest in a once-a-year series conducted under the auspices of Penn State University researchers. It is a widely referenced index on the state of third-party logistics and this year included more than 2,300 responses.
The bottom line in the latest study – and all you have to do is follow the headlines to know this is true – is that the risk of supply chain disruption is growing. The study cited a Business Continuity Institute estimate that economic losses from disruptions had reached $350 billion – up 465 percent from 2009 to 2011. The number of companies experiencing a disruption grew 15 percent.
Nearly half of study respondents said their organizations are putting more emphasis on supply chain risk and mitigation than five years ago. The top strategies for doing so include partnerships, continuity planning, employee training and investment in supply chain management tools.
“It appears that disruptions are occurring more frequently and making a bigger impact, affecting more companies and customers globally,” the study says. “Globalization means supply chains are more extended, increasing vulnerability. At the same time, companies are reacting to the economic crises by drawing down inventories, meaning less safety stock when a disruption occurs.”
“Companies report taking the biggest hit in productivity, but other significant pain points include higher work costs, lower revenues, and a damaged reputation with customers.”
Among the examples listed was the devastating 2011 earthquake and tsunami in Japan. Caterpillar, the maker of large equipment, was able to quickly determine which shipping containers and inventory had remained in an affected port and which had made it onto a ship and out of harm’s way. Competitors were less prepared and had to shut down production.
Despite the obvious, and growing, hazard to their livelihoods, the study found many companies not moving to mitigate their risk through available technology solutions. One reason: Short memories. “Those who experienced the company’s most recent supply chain disruption first-hand move on, and those who follow do not have the same scars or memories,” the study said.
Another reason: A lack of understanding of the tools now available for supply chain management. They’ve done little to investigate the tools and “in most cases companies depend on partners or business continuity plans for this task.”
That’s where we arrive at a significant disconnect. Whereas 63 percent of third-party logistics companies grade themselves above average or better on information transparency, only 36 percent of shippers agree.
“The good news,” the study says, “is that 3PLs are hearing the call. Just over half of 3PL respondents say they are likely to make large investments in modernizing applications and 65 percent plan on buying solutions to reduce client on-boarding costs, time and effort.”
The authors rightly note, however, that such investments alone won’t do the trick. Logistics firms need visibility of customers’ supply chains through strategic and collaborative IT relationships and, critically, in-transit visibility.
It’s another case where IT solutions are driving business innovation and growth.
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