Supply Chain Management Increases Performance
The study “Global Supply Chain Management Excellence” by Roland Berger Strategy Consultants, in collaboration with WHU (Otto Beisheim School of Management), Stanford University and ETH Zurich shows: supply chain management significantly impacts company performance.
The study is based on a survey of 234 companies mainly from the European and US manufacturing industries, many of them blue chips with sales of over EUR 1 billion. Companies with an optimized supply chain structure may achieve a ROA figure that is 4 to 6 percentage points higher than that of companies without supply chain fit, their sales growth and EBIT margin is between 2 and 8 percentage points better. Measuring return on capital employed (ROCE) the values are even 14 to 17 percentage points higher.
These are the key findings of the Roland Berger “Global Supply Chain Management Excellence” study. The study concludes that it is crucial for supply chain management (SCM) to adapt the supply chain structure to the company’s product characteristics: Standardized products need a more efficient supply chain structure, customized products a more responsive one.
“Especially in the consumer goods and electrical equipment industries, companies with supply chain fit achieve higher performance values. In electrical equipment, for instance, ROA are up to 10 percentage points better than the average,” says Robert Ohmayer, author of the study and Partner at the Operations Strategy Competence Center with Roland Berger Strategy Consultants. “Through strategic decisions on their supply chain structure, companies directly influence the two main drivers for ROA improvement: the productivity of a company’s asset base and the EBIT margin,” Ohmayer says.
A company’s specific needs depend mainly on the characteristics of its products: Standardized products, for instance, are characterized by long life cycles, low cost fluctuations, high forecast accuracy and few customer order changes. This calls for an efficient supply chain structure with low costs, high inventory turnover and a high utilization rate. In contrast, customized products are characterized by short product life cycles, more product variants, lower forecast accuracy and more frequent order changes. They therefore need a responsive supply chain structure with high delivery reliability, large buffer inventories and capacities as well as a high level of customer service.
“Bayer Schering AG, for example, strategically optimized its supply chain by ensuring that it is highly responsive. This allows the company to achieve for example outstanding ROCE values of 25.2% on average with a compound annual sales growth of 7.5% (2004-2006).”
The range of companies with supply chain fit varies from 36% in the process industry to 78% in consumer goods. “Obviously, there are still many companies in all industries that have not yet strategically optimized their supply chains,” says Steffen Kilimann, author of the study and Project Manager with Roland Berger, “in spite of the fact that the average ROA of companies with supply chain fit was 11% for companies with standardized products and 9% for companies with customized products in the period from 2004-2006. That is 4 to 6 percentage points higher than companies without supply chain fit generated.”
Comparable results were found e.g. for sales growth and EBIT margin: Companies with standardized products and an optimized supply chain achieved 14% sales growth (vs. 6%) and 10% EBIT margin (vs. 6%). Manufacturers of customized products had a sales growth of 13% (vs. 8%) and an EBIT margin of 10% (vs. 8%).
While over the last two years companies focused mainly on cost savings when optimizing their supply chains, the study indicates a growing need for improved demand planning and forecasting. “We found that most companies that have not yet optimized their SCM are well aware that they need to do so,” says Robert Ohmayer.
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