Research digest
SUPPLY CHAIN RISK
Two-thirds of business executives believe the amount of risk in their supply chains has increased in the past five years, against fewer than one in 10 who think it has fallen, according to a global survey by McKinsey.
Twenty-three per cent said supply chain risk had increased "significantly", with a further 42 per cent saying "slightly". A quarter reckoned there was no change. Respondents in the retail, manufacturing and energy sectors were the most likely to say risk levels had risen. Asked which specific risks had caused most concern during their company's most recent planning cycle, the availability, cost and quality of labour topped the list, at 43 per cent, followed by regulatory concerns (36 per cent), the reliability of suppliers (33 per cent) and commodity shortages/price fluctuations (29 per cent).
Four in 10 of the more than 3,000 executives surveyed said their capabilities for mitigating risk were poor and that insufficient time or resources were devoted to tackling it. Despite the concern about labour issues, actions to address these were largely absent. Performance contracts with suppliers were the most popular form of risk mitigation (see chart, below).
Around half of companies, said McKinsey, fail to conduct quantitative risk assessments, manage risk centrally or have corporate standards and practices in place. Of those that do have the latter, only 23 per cent believed they were very well enforced.
www.mckinseyquarterly.com
OFFSHORING
The biggest companies in North America and western Europe could each save an average of $116 million or €96 million, respectively, every year by maximising their use of offshored business processes.
Research by benchmarking firm the Hackett Group suggests that Fortune 500 companies are collectively missing out on $58 billion and FT Europe 500 companies by €48 billion annually by not offshoring more back-office work to countries such as India, China and Brazil. This is because fully loaded labour rates in these countries are, on average, around 60 per cent lower.
Half the savings would come from offshoring IT work such as application management and infrastructure, followed by finance, HR and procurement tasks (see table, above). But more than 2,600 domestic jobs per firm could be lost if such a strategy were fully adopted, Hackett estimates.
www.thehackettgroup.com
COLLABORATION
Eight out of 10 companies expect the number of collaborative relationships they have with third parties to increase over the next three years, and more than half believe such relationships will be important for either competitive advantage or survival during this period.
Research by the Economist Intelligence Unit found that the main reasons for collaboration were providing a wider range of products, meeting consumer expectations, keeping up with competitors and expanding global reach.
Information sharing was the most common form of collaboration. Forty-six per cent of respondents expected to participate in collaborative relationships with suppliers in the next three years, compared with 42 per cent that had done so in the previous three. But only 23 per cent thought purchasing and supply chain management would be the main source of collaborative benefits (see chart, right), far behind sales and marketing, cited by 63 per cent.
Nearly two-thirds said they had up to 10 collaborative relationships, while just 8 per cent had more than 50.
www.eiu.com
GLOBAL SOURCING
Almost half of companies that have established international purchasing offices (IPOs) say they are exceeding expectations in terms of the value they deliver, according to CAPS Research. Nearly a third of the 167 mainly US and western European firms that took part in its survey said their IPOs were meeting expectations, while a fifth said they were underperforming.
The support of IPOs is one of eight success factors for global sourcing identified by CAPS (others include centrally led or co-ordinated decision-making, and information sharing with suppliers). More than 85 per cent of companies rated their IPOs as an "extremely important" contributor.
IPOs' most important role, says the report, Effective Global Sourcing and Supply for Superior Results, is to identify potential suppliers, evaluate their capabilities and resolve quality and other problems. But three-quarters of firms also used them for supplier development and performance assessment (see chart, above left).
The most popular locations for US-based companies' IPOs were western Europe, followed by China, Mexico and Canada; while for European firms it was the US, China, Hong Kong and other countries in the Asia-Pacific region.
www.capsresearch.org
SURVEY IN PROGRESS... PAY
An international survey of CPO remuneration in major companies is being conducted by Professor Andrew Cox, head of the Centre for Business Strategy and Procurement at Birmingham Business School in the UK, in conjunction with executive search firm Odgers Ray & Berndtson and Newpoint Consulting.
Participants will receive a free copy of the findings, which are due to be presented at a best-practice forum in London on 1 March 2007.
To take part in the confidential survey, point your browser at:
www.newpointconsulting.com
