Exclusive: Risk-averse industry misses opportunities

Despite pushing a technology-savvy image, Australian supply chain professionals are actually highly conservative, new research finds

Exclusive: Risk-averse industry misses opportunities
<b>Exclusive:</b> Risk-averse industry misses opportunities

By Anna Game-Lopata | November 29, 2011

Research released exclusively to SupplyChain Review this month finds just 13 percent of Australian supply chain professionals are willing to explore new technology to differentiate the supply chain.

Meanwhile 40 percent prefer to stick with "tried and true" technology and 47 percent will only deploy maturing solutions with manageable risk.

The Supply Chain and Logistics in Australia study, conducted by Gartner in partnership with the Supply Chain and Logistics Association of Australia (SCLAA) surveyed 197 Australian professionals online over October and November this year.

While Gartner Lead Analyst Marcus Blosch says it’s pleasing to see a strong focus on operational excellence, with customer service and visibility high on the agenda, the results suggest Australians still have some way to go to pioneer the kind of innovative supply chains required to manage future uncertainties.

"One of the things that stands out in the findings is that professionals are very happy with their supply chains," Blosch tells SupplyChain Review.

"Fifty six percent of respondents state they are either industry ‘leaders’ or ‘above average’."

Blosch, who developed and implemented the survey, says although 46 percent cite operational excellence as a corporate focus, this aspect of supply chain is the "bread and butter" rather than the cutting edge of supply chain management going forward.

"It’s good to see 17 percent of professionals prioritising an outside-in, or demand driven approach, as optimising the supply chain around customer service is the first step," Blosch says, "But there’s definitely scope for improvement."

In terms of technology, 41 percent cite warehouse management and procurement solutions to be fully deployed in their operations while an alarming 35 percent are doing nothing to deploy reverse logistics solutions.

A further 25 percent are doing nothing to deploy supply chain event management solutions.

warehouse management, Sales and Operations Planning (S&OP) at 34 percent, Order fulfilment (34 percent) and transport management (33 percent) are the most common applications to be fully deployed.

Despite this, Blosch says Gartner, a leading industry research body, observes 60 percent of companies are currently just at the ‘developing’ stage when it comes to matching supply and demand.

"Most Australian companies haven’t really made the jump to using S&OP as a strategic planning tool to find profitable trade offs they could make," he says.

The findings also show nearly 60 percent of professionals say their company either has formalised risk management strategies or is in the process of implementing them, despite evidence to the contrary during the recent spate of natural disasters this year.

"Supply chain risk mitigation procedures appear to just be on paper, most companies aren’t really doing anything about it," Blosch says.

As an example Blosch points to the pride companies expressed
over the heroic efforts made by their staff during this year’s disasters in Queensland as "nonsense".

"Risk management is about having real mitigation strategies complemented by real disaster recovery plans where staff know what the procedures are and there is a recovery team that knows what decisions it is empowered to make," he says.

"I have seen no evidence of that kind of planning.

"Rather, companies are just scrambling in response to disruptions. And this can also be seen with 40 percent of the world’s hard disk suppliers knocked out by floods in Thailand and the earlier problems caused by the Japanese Tsunami."

Interestingly, concerns about the carbon tax were relatively low, with less than one percent of respondents ranking preparing for the carbon tax in the top three priorities this year and just five percent listing it in the top three business priorities for 2013.

Of the 36 percent who say the carbon tax will affect their business, 17 percent say they will have systems in place by 2014 and a further 5 percent say they will not. Thirty seven percent say they do not know if they will be impacted by the tax.

While Blosch puts this down to timing, as the survey was being undertaken before many details about the Carbon Tax regime had been released, he says it will become more of a concern in the coming year.

"One of the big things next year will be how do we monitor our carbon emissions, especially in relation to scope 1 (direct) versus scope 3 (indirect) emissions such as the business activities of a service provider,’ Blosch says.

"I think there would be a lot of activity early in the new year around frameworks to do this effectively."

While Blosch warns the conservatism and tendency toward overconfidence highlighted in the survey may mean Australian supply chain professionals are left behind, he points out the motivation for real innovation may well be forced upon companies by the carbon tax.

"Australians are good at the solid basics of supply chain operations but there’s no evidence of really thinking differently to utilise digital technology for example, to innovate with the customer through the whole lifecycle of the product," he says.

"We’re seeing leading international companies finding big opportunities in supply chain around thinking differently from a technology perspective.

For example both digital and cloud technologies are opening opportunities for 'orchestration' where digital and physical supply chains can be brought together to achieve real time end to end visibility.

"The resulting advanced analytics and planning tools can be used to make very quick decisions and very quick resource allocations to optimise the supply chain end to end," Blosch says.

"This is the new frontier where we see leading companies heading, so being overly conservative isn’t a good thing."

While Blosch says he’s not advocating betting the house on new technologies, he says companies should think about having a bigger budget for research and development (R&D) and having innovation projects in the portfolio.

"We are probably entering a time of more of uncertainty," he says. "And one of the characteristics of supply chains is they never stand still. They’re constantly changing.

"We need to constantly look for opportunities to keep the supply chain constantly moving forward."

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