Recession Impact On Supply Chain Spending - A Capgemini Survey

SUPPLY CHAIN MANAGEMENT

Crisis dominates the supply chain agenda in 2009

Which projects will hold out in these difficult times? March 2009

Crisis dominates supply chain agenda in 2009 The financial crisis leads the list of most influencing factors for the supply chain agenda in 2009. Over 65 percent of the questioned managers engaged in logistics affairs, say that their strategy is affected by the crisis. Another striking finding is that 34 percent of the managers mentioned “sustainability” as a topic on their agenda. These are the results of Capgemini Consulting‘s international study under 300 companies. The study reflects the most important factors that influence the supply chain agenda of 2009 and shows the impact of the economic crisis on that agenda.

300 respondents shared Capgemini

their

supply chain

agenda

with

The study was executed by means of a survey, which has been completed by over 300 respondents in Europe (62%), the US and Canada (16%), Asia (13%) and Latin America (5%). In addition to the survey, several interviews with Supply Chain Managers have taken place. Financial crisis most important motive for 2009 To the question “what are the most influencing factors on the supply chain agenda 2009”, 65% of the respondents answered that the financial crisis is the most important topic. Next to that, meeting (changing) customer requirements and sustainability appear to be important motives for the supply chain manager.

Business Drivers 2009 Economic downturn

65%

Meeting (changing) customer requirements

46%

Sustainability

37%

Globalisation

29%

Introduction of new product-market combinations

26%

Emerging markets

25%

Regulatory compliance

17%

Supply Chain Security

21%

New (type of) competition

12%

Other

10% 0%

20%

40%

60%

80%

(Multiple answers per participant allowed)

Supply Chain Agenda 2009

2

TOP 10 Supply Chain projects 2009 The business drivers have direct influence on the activities and projects that supply chain managers will execute in the coming period. By average, supply chain managers have included seven projects in the 2009 agenda. The study provided insight in the most important projects in the area of supply chain strategy, sourcing of logistics services, transportation, warehousing and supply chain planning and control, per industry. The hereunder shown graph shows the consolidated (all industries) top ten of most occurring projects.

Top 10 Supply Chain Projects 1. Inventory Optimization

48%

2. Supply chain strategy project

45%

3. Improve long term forecasting /planning

44%

4. Network redesign

41%

5. Improve supply chain visibility

39%

6. Sales and Operation Planning

36%

7. Contract renewal strategic logistic partner(s)

35%

8. Warehouse centralisation or decentralisation

31%

9. Sustainability program

30%

10. Outsourcing of logistic services (Multiple answers per participant allowed) 0%

29% 10%

20%

30%

40%

50%

60%

Top of the list shows projects that lead to reduction of inventory and logistic cost. Beside the fact that these are traditional areas of attention, due to the financial crisis supply chain managers will focus even more on realising these projects.

Capgemini Consulting is the strategy and transformation consulting brand of Capgemini Group

Supply Chain Agenda 2009

3

Focus of supply chain managers shifts towards short term results

“……...the crisis has lead to very short-term thinking. Nearly all investments have been suspended and decisions concerning new investments are taken on corporate level ….”

Capgemini asked the respondents to list the projects that were on the supply chain agenda before the financial crisis, and the projects that are (still) on the agenda after the commencement of the financial crisis. The top ten of supply chain projects shows a shift caused by the downturn. Projects that are aimed at the reduction of inventory and the renewal of contracts with current or new logistics service providers, show a clear increase. More ‘long-winded’ projects, such as network redesign and supply chain strategy projects have been removed from the agenda.

Shift in Top 10 Supply Chain Projects due to crisis 1. Inventory Optimization

9%

2. Supply chain strategy project

-14%

3. Improve long term forecasting /planning

-4%

4. Network redesign

-4%

5. Improve supply chain visibility

6%

6. Sales and Operation Planning

5%

7. Contract renewal strategic logistic partner(s)

11%

8. Warehouse centralisation or decentralisation

1%

9. Sustainability program

-4%

10. Outsourcing of logistic services -20%

-3% -15%

-10%

-5%

0%

5%

10%

15%

20%

New IT investments are postponed

“….IT investments have been suspended. This is a shame since in our industry, IT in many cases makes the difference; a difference that we could use….”

The postponement of long-term investments becomes very clear when looking at the projects that were planned for 2009 but suspended since the crisis started. All top five projects on this list concern logistics IT projects. The number of large and complex projects planned (TMS/WMS) deminishes by more than 20 percent. Top suspended Supply Chain Projects Technology based warehouse innovation (e.g. RFID / Voice picking)

-30%

Transport Management System (selection or implementation)

-26%

Design and implementation of logistic software solutions

-26%

Warehouse Management System (selection or implementation)

-23%

Advanced Planning Systems (APS) implementation

-16% -35%

-30%

-25%

-20%

-15%

-10%

-5%

Supply Chain Agenda 2009

0%

4

“…….Sustainability is not explicitly on our agenda anymore. It is however a fact that sustainable logistics go hand-in-hand with cost reduction.....”

Sustainable initiatives remain important Another striking conclusion is that sustainability both populates the agendas before (32%) and after the beginning of the financial crisis (30%). In many projects both sustainability and logisitcs costs reduction are achieved, which most likely explains why companies keep on putting effort in it.

Is 2009 going to be a lost year? The troublesome economical situation asks for proper action on short notice in order to adjust the cost level to the declining demand, caused by the recession. The risk in this is that other business drivers, that may dominate the agenda on longer term, may not be taken into account. Beside some inevitable interventions, the supply chain manager’s challenge is to actualise cost reduction by innovations and optimised supply chain processes. This will not only make a supply chain more cost efficient on short notice, but will also result in a supply chain that provides a significant competitive advantage after the recession.

Capgemini Consulting is the strategy and transformation consulting brand of Capgemini Group

Supply Chain Agenda 2009

5

About Capgemini Capgemini, one of the world's foremost providers of consulting, technology and outsourcing services, enables its clients to transform and perform through technologies. Capgemini provides its clients with insights and capabilities that boost their freedom to achieve superior results through a unique way of working – the Collaborative Business Experience™ – and through a global delivery model called Rightshore®, which aims to offer the right resources in the right location at competitive cost. Present in 36 countries, Capgemini reported 2007 global revenues of EUR 8.7 billion and employs over 88,000 people worldwide. www.capgemini.com

Capgemini Consulting is the strategy and transformation consulting division of the Capgemini Group, with a team of over 4,000 consultants worldwide. Leveraging its deep sector and business expertise, Capgemini Consulting advises and supports organizations in transforming their business, from strategy through to execution. Working side by side with its clients, Capgemini Consulting crafts innovative strategies and transformation roadmaps to deliver sustainable performance improvement. For more information: www.capgemini.com/consulting

Authors Hugo Haarman ([email protected]) Papendorpseweg 100 – P.O.Box 2575 3500 GN Utrecht – the Netherlands Tel.: +31(0)30 689 00 00 · Fax: +31(0)30 689 99 99 www.capgemini.com/consulting

Erwin den Exter ([email protected]) Jasper van der Schaar ([email protected]) Wouter van Heijst ([email protected])

Capgemini Consulting is the strategy and transformation consulting brand of Capgemini Group