Cost of Supply Chain Disruptions in Six- to Seven-Figure Range

Company recovery costs from supply chain disruptions have serious financial impact, ranging from six to seven figures on the average, according to Aberdeen Group in its recently issued research report “Supplier Performance Management: What Leaders Do Differently.”

As part of the report, Aberdeen Group examined how supply chain disruptions affect customer service, productivity and revenue and examined best-in-class strategies that companies can employ to improve supplier management.

Key findings from the research indicate that:

• Buyers, material managers and purchasing agents routinely spend a third to half their time trying to resolve supply chain disruptions.

• 40 percent of managers resolve last-minute supply issues based on habit and gut feel rather than through local or corporate-level business objectives.

• Companies that employ technologies to minimize the frequency and cost of supply disruptions are two to three times more likely to achieve supplier on-time delivery and first-time fill rates above market average.

“The good news is that supply chain leaders are succeeding in reducing this liability by changing the way they measure and control their suppliers, and by rethinking the way they identify and resolve supply disruptions internally,” said Beth Enslow, VP of enterprise research for Aberdeen and author of the research. She continued, “Best-in-class companies re-examine their process, measurement and technology approaches and implement strategies to resolve last-minute supply chain disruptions based on cross-functional business goals.”

In its report, Aberdeen featured Volex as a company succeeding in supplier management. Volex, a cable manufacturer, implemented an automated decision management tool that would allow it to see inventory mismatches faster than its standard ERP system. The tool implemented from Timogen Systems (http://www.timogen.com/), provided Volex buyers a new way to identify and resolve supply disruptions, resulting in an increase in inventory turns from nine turns a year to 12, as well as significantly reducing the value of inventory write-offs, producing an estimated savings of $750,000 in the first year of operation.

“The methods manufacturers have implemented to compete -- whether lean production strategies, outsourcing services or using third-party logistics providers -- have sabotaged the efficiency, customer satisfaction and profitability goals that manufacturers set out to achieve,” said Steve DeFrancesco, VP of industry marketing for Timogen Systems. “Solutions like Timogen help companies respond quickly and intelligently to supply and demand imbalances, automatically generating resolutions based on a company’s business objectives -- whether customer service, revenue or cost.”

“With the shift to global sourcing and the pressure for low inventory levels but faster order fulfillment cycles, supply chains are now more fragile, more extended and more time-sensitive than ever before,” said Enslow. “As a result, supplier failures can ripple through a supply chain, creating havoc. Successful companies know supply chain disruptions are inevitable, and implement processes and systems to resolve the issues quickly.”

For more information, see Aberdeen Research, “Supplier Performance Management: What Leaders Do Differently.” Beth Enslow, VP of enterprise research, September 30, 2004. http://www.aberdeen.com/summary/report/other/SuppPerf_093004a.asp.

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