Island-wide study reveals competitiveness of indigenous Irish firms under threat due to lack of Supply Chain Management skills

    • BMW Region and Northern Ireland falling behind on SCM skills up-take
    • NITL recommends the adoption of ?virtual supply chains? for Irish manufacturing to compete against low cost competitors
  • Dublin, October 3rd, 2005: The first ever major all-island study of Supply Chain Management in Ireland ? Competitive Challenges: Chain Reactions - published today by the National Institute for Transport and Logistics (NITL) warns that poor levels of Supply Chain Management (SCM) skills amongst indigenous Irish firms will undermine attempts to bolster Irish competitiveness in the medium term, particularly in manufacturing industry North and South.

    Businesses that are badly informed about key aspects of their own operations and lack effective SCM strategies are poorly equipped to compete in today?s global marketplace according to NITL, Ireland?s Centre of Excellence in Supply Chain Management.

    NITL?s two-year study reveals that less than one in ten manufacturing firms in Ireland use SCM effectively, while two-thirds of enterprises have a less than adequate understanding of the concept. In total, one in four Irish businesses has adopted the concept of World Class SCM but has failed to apply it in a consistent manner. The report highlights that firms in Ireland lack awareness of the scope of SCM and have not been able to integrate it into their everyday management practices.

    The Institute recommends the adoption of sophisticated ?virtual supply chains? in the Irish enterprise sector to counteract Ireland?s diminishing competitiveness. Under such an approach, all the physical inputs and outputs of a manufacturing process would happen off-shore in order to optimise key locational advantages such as lower cost and proximity to market. By effecting World Class SCM, and the use of broadband-based IT, Ireland would retain higher value functions such as R&D, design, marketing, sales and customer services while conducting the actual manufacturing processes at a remote location.

    The report reveals that the Border-Midlands-West (BMW) region falls some way short of the rest of the Republic of Ireland (ROI) in terms of the application of SCM principles.  The NITL report concludes that the difference in performance is at least in part due to differences in the industrial structure. Exports in the BMW region represent a smaller percentage of turn-over (32%) than in the rest of the Republic of Ireland (37%).

    Moreover, on average Northern Ireland firms are less aware of some key SCM costs, have been slower to measure their SCM performance in a formal way, and are more sceptical of the benefits of introducing the latest Information Technology systems to enhance efficiency. According to NITL, this is due to the fact that the average Northern Ireland company is smaller than its counterpart in the Republic. Furthermore, Northern Ireland has a smaller proportion of multinational enterprises.

    Commenting on the findings Prof Austin Smyth said, ?With the ongoing haemorrhaging of jobs in Irish manufacturing much has been made of the need for Ireland to move up the value chain and create a ?knowledge-based? economy?. The widespread adoption of World Class SCM is a prerequisite if we are to be successful in this.

    ?Rapid economic growth, fuelled principally by inward investment and an abundant skilled labour force, has taken much of the urgency out of public debate on competitiveness. Our report highlights serious deficiencies in Supply Chain Management skills and practices. Indeed, many firms are not even fully aware of the concept. For an island economy, based on the periphery of Europe, the ability to move goods and services efficiently is absolutely fundamental. The lack of knowledge in this area could seriously threaten future economic success of this island.

    ?Businesses are aware that they should be focused on customer service but they do not measure their performance in this area in a remotely scientific manner.  The gaps in their understanding of SCM are matched by the gaps in their awareness of key costs. This is illustrated by the key finding that 40% of ROI firms and 70% of NI firms do not know their transport costs.?

    ?Ireland must now compete against new EU market entrants such as Latvia, Lithuania, Slovenia, Slovakia and the Czech Republic which all share the same key attributes as Ireland but possess lower cost bases. Because we are vulnerable to low-cost competition, this reality forces Ireland to pursue an economic strategy that looks to position us higher up the value chain of enterprise activity. The increasingly competitive global race that Ireland has joined is the ?knowledge economy? and our future focus must, of necessity, be on advanced education and skills investment as one of the key stamina factors for that race.

    ?The challenge for Ireland is to make wise policy choices now about the kind of strategic supports we need to put in place to deliver higher skills in the medium term. It is through this critical investment that we can best leverage our position in the ?knowledge economy? and continue to attract inward investment and grow global market share for our enterprise sector.

    Professor Smyth argues ?There is room for optimism however. With the establishment of NITL in 1998, the Irish Government and Enterprise Ireland recognised the need for SCM best practice to be adopted as a core management skill for the future of Ireland?s enterprise sector. Given the foresight shown in previous policy decisions, and building on the progress achieved so far Ireland is already well placed strategically to promote excellence in SCM and thereby underpin its competitiveness both now and in the longer term.?

    The Institute believes that a virtual supply chain strategy must be matched by the necessary human capital investment ? the development of SCM skills both by industry itself and by the State. Harnessing of those skills, capturing new markets through ambitious marketing, and establishing international connections both physically and electronically, are vital elements of a newly engineered supply chain that can transform Irish manufacturing and prepare it for success.

    For the study NITL conducted a comprehensive survey of 1073 firms in 2004 and 2005, predominately small and medium size enterprises (776 in the Republic of Ireland (ROI) and 297 in Northern Ireland (NI)) to gain an insight in to current levels of awareness of SCM in the Island of Ireland and the potential impact SCM could have on the competitiveness of Irish business. The survey was completed with the support of Enterprise Ireland and Invest Northern Ireland.  Crucially, NITL?s investigation is in line with Irish and UK policy to encourage economic convergence between both parts of the Island of Ireland- North and South.

    Key Findings:

    • Nearly six out of ten companies do not know their total supply chain costs.
    • Only one in twelve companies has a specialised SCM or logistics manager to date. Most of the firms pay lip service to the importance of SCM elements and objectives but do not put in place the organisational structure to support the implementation.
    • Two out of five companies do not use forecasting.
    • Respondents own on average 82% of warehousing space and rent 18%. The total warehousing cost is on average 5.1% of turnover. With regard to cost, it emerges that over 80% of companies do not formally measure warehousing at all in terms of key performance indicators.
    • One in five companies accepts their Information
    • Technology systems are not well integrated across the company.

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