Service levels on the decline across all transportation modes, says report

Oct. 11, 2004
In an era of global supply chains, companies will effectively compete for survival with their competitors through achieving higher levels of visibility

In an era of global supply chains, companies will effectively compete for survival with their competitors through achieving higher levels of visibility into their supply chains and the actionable information that come out of it, according to a report on trends and issues in logistics and transportation issued jointly by Capgemini U.S. LLC and Dr. Karl Manrodt of Georgia Southern University, and sponsored by Oracle.

More than 500 supply chain executives participated in the 2004 study, with 32% of respondents representing firms with more than $1 billion in revenue. Respondents are responsible for more than $43 billion in annual spending on transportation and half of them (50%) hailed from manufacturing companies.

For the first time in the 13-year history of the study, across all modes of transportation (truckload, national & regional less than truckload, rail & express package), service levels decreased in terms of average billing error rates, average freight loss and damage and average on-time delivery performance. This is due to tight capacity, driver shortage, rising fuel costs, frequent deliveries of smaller lot sizes, and Hours of Service rules and regulations.

In terms of supply chain visibility, the top two software applications that companies were decreasing the number of applications or adding capability to service were ERP (75%) and RFID (66%), with global logistics software, network planning, point of sales data, TMS and WMS systems tied for last with only 50%.

"The primary reasons for the need for visibility, as reflected in this year's responses, are first an extended supply chain that demands extending data collection globally in inbound and outbound movements and second, the increasing role that regulations and customer requirements play in the re-design of the technology and process of order fulfillment," says Peter Moore, vice president of supply chain and RFID at Capgemini. "Just getting it there is not sufficient. Shippers must demonstrate an infrastructure and information handling capability that is transparent to the customer as they justifiably ask: 'Where is my order?'"

The difference between high visibility firms and low visibility firms in terms of the impact on the domestic supply chain is striking, according to this year' study. High-visibility firms averaged 14.6 inventory turns, 22.1 days sales of inventory and 26.1 average days sales outstanding compared to 9.8, 38.2 and 39.4 respectively among low visibility firms.

"The study shows that the next challenge for best practice logistics applications is to harness the value of latest best practice processes emerging globally, which includes integrated sales and operations planning, demand-driven supply networks and RFID," says Jeff Abbott, senior director of supply chain applications at Oracle. "The quest for event-driven supply chain management continues at a furious pace. Enterprises who invest in applications infrastructure have the best chance to lead their industries."

Other key findings from this year's report include:

Visibility: the quest continues. RFID promises to provide visibility to everyone in the supply chain at the item level, but that data could overwhelm and paralyze most organizations

Integration of supply chain solutions is what provides value, not the solution itself. A model must be built that takes into account functions/operations; decision-support; visibility; supply chain event management; agents/automated response; data collection; data synchronization; metrics & reporting; and people, process & technology.

The language of actionable information is metrics. Supply chains, and individual firms, should measure time and cost through three key metrics: integrated cash-to-cash metric, total order cycle time metric, and the perfect order.

"The survey responses indicate that the benefits of visibility are better availability of goods on the shelf, better fill rates for the retailer and better turns for the supplier," says Karl Manrodt, associate professor of logistics at Georgia Southern. "This should translate into greater value to the customer; it is effectively competing supply chain to supply chain."

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