Avoiding risk in the supply chain

An unmanaged supply chain can compromise customer service and significantly affect profitability.

Australian retailers are also guilty of putting pressure on manufacturers when it comes to supply chain management, with some threatening to cut contracts with businesses that don't streamline their processes.

And while it's easy to overlook this aspect of manufacturing in favour of areas such as product innovation, food and beverage manufacturers in Australia and New Zealand have been accused of walking a tightrope of risk by neglecting their supply chain management.

A new study - Global Food and Beverage Supply Chain Management - has compared the working practices and processes of 200 leading food and beverage manufacturers in Europe, Australia/New Zealand and Asia.

Lawson Software, which commissioned the research, believes that the continued use of manual methods when it comes to forecasting and planning is resulting in widely publicised data errors, particularly in relation to seasonal peaks of supply and demand.

"The food and beverage industry has very small margins and is very dynamic," Olin Thompson, vice president of strategy for Lawson, says. "As such, accurate supply chain management is absolutely key, not just for planning, but also for operational efficiency."

For example, spreadsheets are currently the most popular method by which Australian and New Zealand food and beverage manufacturers forecast and plan their sales. The results of the survey showed that 56% of Australian/New Zealand businesses are using this method.

Another 36% of businesses are currently employing planning software packages, while at the other extreme, 6% are relying on paper for their sales forecasts.

It is, however, the Asian food and beverage manufacturers who have come out worst in this area. According to the study, one out of every four companies in Asia still uses paper for its sales forecasting and planning compared to just one in 100 in Europe.

The findings of the survey suggest that companies relying on paper and spreadsheets as their method of choice for dealing with sales, production and purchasing planning will routinely have to cope with excess inventory in the supply chain and empty store shelves.

In a worst-case scenario, this will lead to lower sales and impact the bottom line performance for both the manufacturer and the retailer.

One area in which Lawson believes no region in the world is streamlining its processes is in order taking. Telephone and fax orders are still the preferred method for receiving orders, with electronic data interchange (EDI) not far behind.

The internet comes in a poor third place as order taker. In fact, only 6% of the Australia/New Zealand companies surveyed receive more than 40% of their total orders via this medium.

Interestingly, this is the one area in which food and beverage manufacturers in the Asian region surpassed both European and Australian/New Zealand results. Around 14% of Asian companies surveyed receive more than 40% of their sales via the internet, compared with just 2% in Europe.

Australian and New Zealand food and beverage manufacturers face a number of challenges, not least of which is the fact that 38% of businesses rely on between one and five customers for up to two thirds of their business.

The top challenge that was cited by local manufacturers in the survey is forecasting and promotion management. This was closely followed by product/material wastage and PLM/product innovation.

Lawson believes that many of these challenges can be traced back to a lack of use of advanced planning tools. Ultimately, this situation could be felt in high inventory costs, wastage and unsatisfactory promotions.

According to the survey, Europe is a more mature market in terms of its uptake of supply chain technology. The results suggest that European supply chains have already enjoyed improved efficiency by squeezing out much of the operational waste and are moving on to the next challenge - looking for an opportunity to drive demand.