Seeking supply chain gains
Distributors can profit from helping customers realize supply chain efficiencies
By John R. Johnson -- Industrial Distribution, 10/1/1999
NEWTON, MASS.--Despite all the talk about streamlining the supply chain, it's evident that quite a bit of work still needs to be done. A study released earlier this year by Deloitte Consulting says that only two percent of manufacturers classify their supply chain as "world class."The study, Energizing the Supply Chain: Trends and Issues in Supply Chain Management, reveals that almost three-quarters of respondents rate their supply chain performance as average or below average, and that satisfaction levels actually dropped seven percent from last year. While that's bad news for the supply chain in general, it represents a wealth of opportunity for distributors. In fact, the study says that distributors can play an important role in optimizing supply chain efficiencies for their customers.
The survey reveals that respondents consider partnering with customers and suppliers most important. However, partnering with distributors was a close third, well ahead of the priority manufacturers place with third party service providers, for example.
The study also noted that many manufacturers just don't have supply chain policies in place yet, which is surprising given the fact that nearly 90 percent say it is very important.
"The thing that surprised me the most was that little less than half of the respondents said they have no formal supply chain strategy," said Bob Derocher, senior manager for Deloitte Consulting. "If you consider that nine of 10 say this is really important, yet less than half have a formal strategy, it's shocking.
"Companies tend to have marketing strategies, product strategies and an Internet strategy, but they are still lacking in this supply chain area. It tells you that supply chain is a very cross-functional effort and lot of companies haven't broke through those barriers. To come up with a supply chain strategy you need a variety of people in the room discussing what's important, and those are very difficult decisions."
While the automotive industry is furthest along with its supply chain initiatives, the pharmaceutical industry ranked lowest in terms of overall satisfaction, with two thirds of respondents less than satisfied. The study further stated that only 27 percent of respondents feel their supply chain capabilities are above their industry's average.
"If most customers are so down on the supply chain, why are integrated supply and programs like that taking off so much," said Jay Drummond, president of the industrial division of Turtle & Hughes. "Customers are looking to MRO distributors to outsource more responsibilities to."
Indeed, outsourcing is a major emphasis when it comes to the supply chain. This is probably most evident with auto manufacturers, a sector that Deloitte says is most advanced when it comes to the supply chain. Nine percent of respondents from the auto sector have completed supply chain initiatives, while another 87 percent are in progress or expect to finish by year end. The study notes that the Big Three are outsourcing many manufacturing and assembly activities that traditionally have been performed in house.
However, the ability of distributors to capture more of that market depends on their ability to communicate with manufacturers, and vice versa.
"I think that is an area that our industry in the MRO side is pretty weak in, as far as how to help each other take costs out," said Jim Zechmann, owner of Warner Industrial Supply, which was purchased by Cameron & Barkley last year.
"The perception is [the channel] doesn't have world class distribution, but it needs to be a two way street. We're tied to the manufacturer, and the manufacturer is tied to us. There's the potential for tremendous cost savings there, but it will take a lot more persuasion from our side if we're going to get anywhere."
Frank Lynn, principal at Frank Lynn & Associates, and a well known industry analyst, thinks distributors who can offer product support and document cost savings for manufacturers stand the best opportunity to benefit from the focus on the supply chain.
"The reason that most manufacturers don't think distributors are delivering is out of concern on the product support side," said Lynn, who thinks distributors will derive more revenue from service than inventorying product in the not-too-distant future. "There's a fairly good opportunity there to increase the value add by the local distributor. Manufacturers would like a distributor salesperson to be as good as their factory trained salespeople, which isn't going to happen very often."
According to both Lynn and the Deloitte Consulting study, cost reduction is the focus of many supply chain initiatives, so distributors that document cost reductions stand to gain an edge with customers. However, the study says "the attention has been refocused from traditional functional and labor cost reduction to total supply chain cost reduction."
These initiatives range from sourcing to lean manufacturing to streamlined distribution operations.
"Distributors could easily take that on, but it's different than going in and saying 'I can save you money,' and then never having to prove it," said Lynn. "So it puts a lot more structure into the cost saving efforts of distributors."
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