©2009 AMR Research, Inc.
Industry Value Chain Strategies | August 2009
Industry value chaIn strategIes
Don’t Drain the Supply Chain Bank
by Lora Cecere, Jane Barrett, and Heather Keltz
Supply chains have been built to focus on costs. But in a
recent AMR Research study of 164 multi-national com-
panies, costs are the greatest gap in supply chain perfor-
mance, ranking the highest in six out of seven industries.
Why the paradox? We’ll share insights on what drives
the gap and what to do about it.
What drives the gap?
Supply chains are architected to manage supply.
Although no two are exactly alike, the development of
processes, such as plan, source, make, and deliver, is the
focus. Cost reduction programs are active at 90% of
our clients, but they’re focused only on supply.
This is not sufficient. Product mix is changing as
companies sell fewer high-end products and encounter
greater competition. Demand volatility has never been
higher. We’ve entered a new era of customers wanting
more affordable products.
Supply chain processes aren’t equal to the challenge,
though. With this traditional approach, companies are
saving pennies but losing dollars. Supply chains need
be about more than supply—they must drive value and
turn on a dime. To do this, the design must start with
the customer, not with supply. The focus should be on
waste minimization and value maximization from the
The lowest-cost supply chain can’t be designed from
the inside out. Why? Most dollars are trapped in the
cross-functional barriers built around supply chain
processes. The pennies get stuck in the walls between
functions, and the rewards systems are inadequate.
Unless we design cross-functionally from the point
of purchase back (or outside in), the opportunities
can’t be seen. For this reason, we need to rearchitect,
and the greatest challenge to doing this is change
We once worked with a European supply chain team
on defining supply chain excellence. The discussion
became heated on the evol