It also reveals a growing divide between companies that have taken the strategic decisions to achieve leadership in the industry, and the rest.
The survey, which takes place every five years and has been running for twenty years, is one of the largest of its kind, encompassing over 100 companies representing a broad cross section of industries and countries in Europe.
For the first time in 20 years, respondents do not anticipate being able to reduce costs in their business. The supply chain sector has been one of the most successful in reducing costs: as a percentage of sales, logistics costs today are 65% lower than in 1987. But we appear to have reached the end of the line, with over three quarters of respondents anticipating costs remaining fixed or increasing in the future.
The survey, conducted by global management consulting firm A.T. Kearney and the European Logistics Association (a federation of 30 national organisations) highlights three main reasons for the end of cost reductions:
1) Increased globalisation, with, for example, supply from Asia Pacific being predicted to triple by 2006 by the survey respondents, with the attendant increased logistics costs
2) The growing complexity of business, including increased product differentiation and customization
3) The trend of customers demanding increasingly value added service levels from their suppliers.
These three trends are common to all companies, and were cited almost universally in the survey as contributing to rising costs in the industry. While these trends help to drive down the cost of goods to the end-consumer, they also increase the cost to the logistics provider.
But some leading companies have been able to ride this storm, continue to control cost and drive profitability. The survey demonstrates that they have three key strategic differentiators:
1) Differentiation of supply chain - leading companies are segmenting their supply chains according to the service and cost needs of the customer. Thus a commodity will undergo a different supply chain compared to branded consumer goods, which in turn will receive different handling to IT products, for example. This is not rare: around 50% of European companies differentiate their supply chains in some way, and these outperform the remainder that adopt a "one size fits all" approach.
2) Collaboration - leaders are also better at collaborating with customers and suppliers. This may be IT driven (through increasing use of the internet, for example) or simply through better communication and information-sharing with customers and suppliers. Only one in four companies can be described as truly collaborative in this sense, leading to a distinctive leading group.
3) Cross Value-Chain Organisation - there is a major trend emerging of companies taking a holistic view from product design to sales to drive profitability and to manage the increasingly complex world in which they do business. There is a trend towards more integration across the supply chain, and a recognition that all operations from procurement to customer service are connected, rather than stand-alone or mutually exclusive. In a related finding, the use of outsourcing continues to grow, with companies becoming more sophisticated about their outsourcing strategies, and suppliers improving their capabilities and quality levels.
"The survey shows that corporate Europe appears to be dividing into leaders and followers. The leaders demonstrate a superior strategic understanding of their business, and of the central role that supply chain and logistics play in business."
Charles Davis, Senior Vice President, A.T. Kearney.
