Do Companies in the Food Sector Measure Up? - a Case Study of Ireland
P McCormack, G McHugh, A Smyth, National Institute for Transport & Logistics, IE
Ireland?s geographical isolation in Western Europe is a challenge that most Irish business sectors must learn to deal with on a daily basis. By definition, our detachment from mainland Europe necessitates these businesses to be more efficient in the methods that they use to practice various business functions. Those companies that practice the principles of modern supply chain management have by far a better chance of overcoming the disadvantages of their location and in doing so, rise to the challenge of competing with their rivals in neighbouring markets.
The origins of this paper lie in a survey entitled ?An Assessment of the Logistics Capabilities of Enterprise Ireland?s Client Companies? published by the National Institute for Transport and Logistics (NITL) in December 2000. That survey unearthed serious issues of concern in the general area of supply chain management. These findings included:
* Companies in Ireland do not yet see logistics management as a broad based senior management responsibility, with less than 20% of companies having a logistics function and with the majority of companies having their logistics activities divided between three or more different management functions.
* When asked to compare their performance against their competitors, companies knew surprisingly little about their rivals, even in relation to totally transparent factors such as price, service, quality, etc.
* In relation to customer service, companies recognised the need to have product consistently available on time and felt they generally achieved this better than their competitors. However, 51% did not measure their customer service performance and those that did only measured on-time deliveries and the level of customer complaints.
* When questioned, 35% of companies did not know or could not account for their logistics costs.
* In relation to particular logistics functions:
- While companies are comfortable with their inventory figures, 44% admitted to holding obsolete inventory.
- 35% of companies do not produce forecasts at all, and of the 65% who do, 70% have a forecast period of less than 1 year, which would appear to be very short for logistics management planning purposes.
- Only 32% of companies had reviewed their warehousing costs and only 35% had considered the option of outsourcing their warehousing activities.
These findings relate to late 2000. However, given the ever changing nature of modern business and the challenges emanating from an enlarged EU, it is important for firms in peripheral areas such as Ireland to trace the extent of progress made by firms in particular sectors in the intervening period to 2003.
To this end, this paper reports on an in-depth study into the food industry in Ireland. It reports on improvements made in the supply chain operations of the Irish food industry over the past two years. The paper shows how the implementation of effective supply chain management principles has enabled these food companies to reduce their overall costs, improve their service and enhance their revenues.
This research into the improvements in the practices of the food sector through the adoption of supply chain management practices is grounded in the identification and definition of sector appropriate key performance indicators (KPI?s). Extensive fieldwork was carried out in order to facilitate the selection of meaningful and relevant KPI?s to the food sector. KPI?s included customer service, order cycle time, inventory levels, inventory turnover, inbound/outbound transport costs, IT support and supplier relationships. Once these KPI?s were identified, the performance of each company was scored and evaluated accordingly.
Based on the findings and the scores attributed to the various companies in 2000 and 2003, the research then identified where improvements and progress had been made by the companies in the area of managing their supply chain activities.
The paper then goes on to show how the performance of Irish food companies compared when benchmarked against International standards. In this section of the study, three KPI's were selected as relevant to the supply chain operations of food businesses internationally. Based on the three selected KPI's, the supply chain capability of each participating company was scored or ?benchmarked? comparatively to standards of international best practice in the food sector. This section of the study provides an insight into how Irish food companies measure up when compared to their direct competitors overseas.
In the final part of this study, all respondents from the 2003 survey were split into groups of small, medium and large sized companies. This offered an insight into how the three separate entities compared with one another in terms of their logistics development and capability. The results showed that all three groups had unique strengths and weaknesses in relation to the management of their logistics activities that were not present in the other two groups.
The results of this study are of relevance to those interested in knowing whether the supply chain cababilites of certain industry sectors are improving over time. The paper also offers insight into whether real and active supply chain management can result in positive knock-on effects throughout an organisation in terms of reducing overall costs, improving service and enhancing revenues.
Finally, the KPI's selected during the course of the study should give a sound idea of what activities within the supply chain need to be managed effectively in order to succeed within the sector.
This paper will be of relevance to not only current EU member states, but also those countries whose arrival into the Union is pending. Latvia, Lithuania, Estonia, Slovenia, Slovakia, Czech Republic, Poland, Hungry, Cyprus and Malta, will benefit from the findings and lessons of this paper given their own peripheral location in Eastern Europe and in the Mediterranean Sea.
Association for European Transport