New study shows dawning of segmentation strategies

4 Mar 2015

A new JDA study has found that manufacturers and retailers recognise that their global supply chains have become complex, yet most still rely on outdated tools and ineffective processes to manage complicated end-to-end value chains.

New study shows dawning of segmentation strategies

There is, however, keen understanding of the challenges and opportunities and, while the gap between where they are today and where they need to be in the future to meet their customers' expectations and thrive in highly competitive environments remains large, most companies are exploring advanced techniques, such as segmentation, this year.

"Executives in the study are acting to leverage more effective tools and practices to support optimal operations," says Kevin Iaquinto, chief marketing officer at JDA. "Fifty-eight percent of respondents named "integration of a best-in-class S&OP process" as a strategic priority for the next 12 months, while 46% reported that their strategic priorities included "increasing agility in production planning processes."

The findings stem from JDA Vision 2015 Supply Chain Market Study, a new report prepared for JDA Software Group by Talant Research Group to help understand the pressures faced by retailers and manufacturers in supply chain planning. The study is based on a global survey of 255 executives from 17 countries that represent a wide range of retailers and manufacturers.

"It's no secret that retailers' and manufacturers' supply chains have become increasingly complicated, often spanning thousands of miles and dozens of trading partners. Our new report demonstrates that while executives acknowledge that complexity, they have been slow to adopt best practices and best-in-class technology solutions to manage their increasingly sophisticated challenges in key areas including production planning and scheduling, supply chain planning and execution, demand management and transportation. Until they improve their utilisation of technology, and their adoption of proven best practices, both manufacturers and retailers will continue to struggle in optimising their end-to-end supply chains."

Supply chain planning and execution

Here, innovation is needed, but is not supported. The top two reasons for prioritising optimal inventory management are improved service levels for 93% of respondents and moving inventory closer to demand by 88%. However, organisations lack a clear means of measuring and improving efficacy in these aspects; they provided at least 25 different metrics they apply to measure inventory management performance.

Additionally, most companies are not implementing advanced technology tools in this area today. Fifty-nine percent of executives cited deploying automation to manage inventory as a key initiative for the future. The top three supply chain planning and execution goals of all respondents can be addressed by advanced software solutions: integration of a best-in-class S&OP process with the inventory planning process, cited by 100%; improving planner productivity through better exception management and increased automation, cited by 93%; and rationalising the product offering portfolio, cited by 90%.

Demand management

Product launches and promotions require more accurate forecasting. Both retailers and manufacturers have invested heavily in more frequent product launches, as well as more aggressive sales promotion to meet the needs of today's price-conscious and innovation-driven consumers. However, the survey reveals that companies lack a scientific way to forecast the effects of these expensive initiatives. Fifty-nine percent of companies either develop no forecasting at all for new products or rely on a backward-looking forecast developed by the sales and marketing team. Even more surprising, only 3% of executives report that their organisation uses any sort of algorithmic technology to forecast the effects of sales promotions.

Transportation management

Cost overruns can be addressed via partnerships or technology. Transportation is literally where the rubber meets the road in terms of profitability yet, on average, the survey's respondents report that 33% of all customer orders require expediting, which significantly erodes margins. A surprising number of companies fail to employ the powerful tools and best practices that can address this issue. Only 26% of transportation organisations employ a shared services model for centralised transportation management, and only 46% have created a core carrier programme. In addition, just 43% of firms employ commercially available software solutions to optimise their transportation moves.

Survey methodology

Of the executives researched, 20% of their companies had revenues over $10 billion; 14% had revenues from $5 billion to $9.9 billion; 30% had revenues between $1.5 billion and $4.9 billion; 22% had revenues of $500 million to $1.49 billion; and 14% had revenues of less than $500 million. Forty-three percent of respondents are manufacturers, 24% are retailers, 28% are wholesalers and 5% are 3PLs. The survey included respondents from North America (52%); Europe, Middle East and Africa (33%), Asia Pacific (13%) and Latin America (2%).

The full report is available via registration online at www.jda.com/jdavision.