Top Execs Say Supply Chains Must Improve For Global Expansion

NEW YORK CITY, May 3, 2004 – U.S. business executives recognize today’s corporate supply chains are not working very efficiently, but they also know how to fix the problem, a new survey has found.

By a 2-to-1 margin, executives attending a conference here last week identified the “next frontier” for supply chain advancements as the task of synchronizing vendors, customers and suppliers. Companies cannot improve their operation – much less expand globally – by trying to optimize individual pieces of the process, they agreed.

“Business executives obviously see the promise that a more synchronized, collaborative supply chain can bring to their companies,” said Mike Eskew, UPS chairman and CEO. “Most of the firms represented by these executives see their future as a global operation, and so they know they’ve got to better coordinate the flow of goods, information and funds.”

The survey was conducted last week by WirthlinWorldwide among top executives attending Longitudes 04, a symposium sponsored by UPS (NYSE:UPS) and Harvard Business School Publishing. The two-day symposium here featured such speakers as former U.S. Treasury Secretary Robert Rubin; Carla Hills, former U.S. trade representative, and F.W. de Klerk, the former president of South Africa and winner of the Nobel Peace Prize, along with a number of leading academic and corporate logistics experts.

More than three-quarters of the attendees worked for companies with revenues of US$500 million or more and identified themselves as vice presidents or higher. Almost all of the executives said their companies had begun expanding beyond the U.S., and 40% added the most important issue facing their businesses over the next two years was expanding to new markets.

The vast majority of corporate leaders believe an effective supply chain will allow them to reduce operating costs, improve customer service and increase sales. But even with that understanding, some 57% of the executives concede that right now, their “corporate strategy and operating plans are not very integrated.” Only 2% said they were “very integrated” today.

In describing their supply chains today, the executives said their biggest problems were accurately forecasting demand, blurred lines of responsibility and incomplete information about inventory levels. They identified the “biggest challenges” at the root of those problems as “internal silos (38%);” “technology (28%),” and “collaboration with suppliers and partners (25%).”

When asked, then, to look into the future and identify “the next frontier of supply chain improvements,” 38% of the corporate leaders cited “collaborative practices with vendors, customers and suppliers.” That emphasis on better synchronizing the participants in any commercial transaction was selected by a 2-to-1 margin over the next most significant issue, which was improving supply chain connectivity via technology.

“As commerce becomes more complex, there is a greater need for solutions that allow businesses to optimize supply and demand cycles,” Eskew concluded. “It has become a strategic imperative. It is no longer possible to separate your supply chain strategy from your business strategy.”

The corporate executives also were asked to discuss the geographic effectiveness of their existing supply chains. Those whose companies were competing in North America and Western Europe generally rated their supply chains as “effective.” Among those executives whose companies already compete in Asia, more than 40% acknowledged their supply chains in that region were not very effective right now.

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