Contact: Erica Chomsky
Deloitte Services LP
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Ogilvy Public Relations
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New York, October 7, 2003 — Deloitte today released the second report from its global manufacturing benchmarking initiative, entitled "Mastering Complexity in Global Manufacturing: Powering Profits and Growth Through Value Chain Synchronization." The study reveals that only seven percent of companies surveyed are effectively managing their supply chain.

These "Complexity Masters" profit margins are 73 percent greater than other manufacturers with poor supply chain performance and less complex environments. In contrast, 84 percent of manufacturers with more than US$200 million in revenue rated themselves with average-to-poor supply chain performance and are struggling to effectively manage their complex supply chain, with more than half of the largest global manufacturers not meeting their cost of capital.

The results of Deloitte's study, which includes responses from nearly 600 companies in 22 countries around the world, clearly indicate that effectively managing a complex, global supply chain has a positive impact on a company's financial performance. Deloitte found it is not simply supply chain initiatives that manufacturers deploy that make the difference, but that the key to generating financial performance is synchronizing the supply chain and managing it from a holistic, rather than fragmented, view.

"In today's highly competitive environment, as companies are under intense pressure to reduce costs, expand into new markets and develop new products, every manufacturer's supply chain is expanding and becoming increasingly complex. However, complexity is not the enemy to the supply chain — effectively managing complexity can be a manufacturer's greatest asset," said Doug Engel, Partner, and one of Deloitte's National Manufacturing Industry leaders. "Based on our research, we uncovered several differentiating factors that separate the winners and the losers — elements that separate the Complexity Masters from the vast majority of manufacturers. Surprisingly, it was not the obvious list of supply chain initiatives; rather, the secret was in how the Complexity Masters managed the supply chain."

One of the key goals of the study was to reveal best practices of managing a complex global supply chain that can benefit manufacturers of any size — from US$50 million operations to multi-billion dollar giants. These practices focus on integration and synchronization of activities that have historically functioned independently of one another — with the goal of creating growth and maximizing profitability.

Three critical differentiating factors that Complexity Masters synchronize across the entire global supply chain are:

• Customers  Collaborating with customers, rather than only with suppliers. Undertaking customer profiling, customer loyalty and customer segmentation initiatives.
• Products  Increasing performance through managing products and introducing new products. Managing mass customization of parts; reducing cycle time; improving time to market.
• Technology  Implementation across customer, product and supply chain operations, including Product Lifecycle Management and Advanced Planning Systems that focus on long-term planning and forecasting, in addition to more tactical technology, including warehousing management systems and transportation management systems.

"Complexity Masters have developed an overall process view of their supply chain, rather than a functional view. This end-to-end approach enables them to optimize the supply chain process across the entire organization and generate significant profit and returns," explained Deloitte's Scott Akman, Global Supply Chain Leader for Deloitte's Manufacturing Practice.

"Complexity Masters have synchronized key activities both within and across their customer, product and supply chain operations —- moving from sub-optimization to creating a profit cycle. Learning from Complexity Masters is valuable for all manufacturers — from small, fast-growing business units to multi-divisional, global operations — as they continue their quest for growth and profitability."

Other key findings from the report include:

The vast majority of manufacturers are falling short financially

• In the last year, one out of three manufacturers failed to achieve their goals for return on capital/assets;
• 38 percent of respondents have operating margins of less than five percent or are losing money;
• 36 percent missed their goals for return to shareholders;
• 35 percent fell short of their profitability targets and 40 percent did not achieve their revenue goals.

Supply chains are increasingly becoming more global

• 80 percent of manufacturers have marketing and sales operations outside their home regions;
• More than half have moved some production and manufacturing to lower-cost regions, such as Mexico, China and Central and Eastern Europe;
• Approximately three out of five outsource segments of engineering and manufacturing.

Product innovation and new product introduction is a key revenue driver

• 35 percent of manufacturers' revenues will come from new products introduced in the three preceding years — up from 21 percent in 1998;
• Average product development time today — 16 months from concept to launch — is 12 percent less than in 2000; by 2006, it is expected to be another 18 percent shorter.

Deloitte's study analyzed the supply chain synchronization of nearly 600 manufacturers in every major industry segment across North America and Europe. Industries represented in the study include aerospace and defense, automotive, life sciences, manufactured consumer products, process and chemicals, high technology and telecommunications, as well as other general manufacturing segments such as metal fabrication, industrial machinery and equipment.

The complete results of Deloitte's global manufacturing study, "Mastering Complexity in Global Manufacturing," are available at www.deloitte.com/globalbenchmarking.

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