Essential supply-chain investments to cut costs and boost service levels

Technological advances and changing customer expectations are set to further disrupt the supply chain over the coming years, but investing in the right technologies now can help companies reduce costs and build competitive advantage.

The opportunity offered by developments such as predictive analytics and wearable technology, as well as their impact on the supply chain, is something business leaders must understand and prepare for, according to a report by MHI, the international trade association for the supply-chain and logistics industry. 

For example, leaders in sectors such as aerospace and defence, automotive, health care, consumer products, and retail are already using 3D printing in new product prototyping to create small runs of high-value replacement parts and complex personalised products.

The increasing consumer demand for anytime, anywhere service is one of the main factors driving innovation. “Companies that continue to use traditional supply-chain models will struggle to remain competitive and deliver orders that are accurate and on time,” George Prest, CEO of MHI, said in a news release.

Yet the report found that many organisations are missing out on the opportunities. Barriers to adoption include the perceived lack of a business case for making the investment (cited by 36% of respondents to the MHI survey of US supply-chain leaders). Meanwhile 31% of respondents cited the lack of appropriately skilled personnel to utilise the technology effectively.

Just 24% of companies surveyed had adopted predictive analytics in supply-chain operations, and 23% had adopted wearable and mobile technology. The authors of the report expect these levels to rise to 77% and 64%, respectively, over the next six years. Similarly, the report forecasts that, by 2017, 20% of logistics organisations will be using drones for monitoring, searching, and event management activities.

Integrating these innovations into the supply chain will require significant investment, and 17% of the organisations surveyed plan to spend more than $10 million. In addition to driving strategic advantage, benefits for early adopters include opportunities to reduce costs in the supply chain, as well as improve efficiency and service levels.

For instance, inventory network optimisation tools can help reduce supply-chain costs by about 10%, with more significant savings to be made in total inventory costs, according to the study.

How to remain competitive in the supply chain space

The authors of the report recommend that companies focus on the following areas:

• Target investment. Deciding where and when to invest in these technologies is crucial to survival over the next decade. The study found that 46% of respondents have sought help from partners such as vendors and analysts to build business cases and guide these critical decisions. 
• Align operations with customer needs. Companies are advised to invest in forward-looking technologies that allow them to assess and redesign complex supply-chain networks to satisfy the demands of a constantly changing market place.
• Collaborate with value-chain partners. Technologies such as cloud computing and predictive analytics provide significant opportunities for companies to collaborate with value-chain partners, to gain visibility into the customer experience and drive innovation by providing a more holistic view of the organisation’s product range and supply chain.
• Provide employees with the skills. The operation of leading-edge equipment and systems require a well-trained workforce.

—Samantha White (swhite@aicpa.org) is a CGMA Magazine senior editor.