Product quality is the most important supply chain initiative for manufacturers and retailers in 2010, according to a recent survey conducted by analyst firm IDC. The survey was designed to identify the top business and supply chain issues, as well as how manufacturers and retailers expect to leverage IT resources to address those objectives and challenges.

Reducing costs was the top supply chain priority for respondents, and there was significant interest in improving forecasting capability and accuracy as well as improving responsiveness to demand changes. As companies begin to recover from the recession, managing the ability to respond to change and prepare for the return of demand is increasingly critical for business success.

When asked about the top three supply chain IT application investments planned for the next 12 months, Sales & Operations Planning (S&OP) topped the list for both retailers and manufacturers. This acknowledges the supply chain's need for better coordination with customer-facing departments.

For manufacturers, investment in strategic sourcing was the second most frequently selected application investment, as many manufacturers plan to use this application as a means of controlling costs. Retailers selected advanced inventory management or inventory optimization (IO) as second most important. Of note, among manufacturing companies with more than 10,000 employees, manufacturing execution systems (MES) was the second most common response after strategic sourcing, which reflects the renewed interest among large manufacturers in standardizing how they run their factories.

According to Leslie Hand, research director, IDC Retail Insights, "The IT investment priorities for retailers reflect the current requirement to more effectively manage top and bottom lines, as well as sales growth in the web and mobile channels, making better synchronization critical in the coming year. It's also clear from our results that retailers have received the consumer message that quality, value, and transparency are all equally important by ranking product quality as the most important initiative this year."

The survey also revealed that there is an "IT satisfaction gap" among manufacturers and retailers, particularly in their expectations of how IT can enable them to respond to unanticipated change. The results do not reflect dissatisfaction with IT departments, but rather underscore the need for IT vendors to do a better job delivering on their value propositions.

"These application investment results confirm our prediction emphasizing manufacturers' increasing interest in S&OP," said Kimberly Knickle, practice director, IDC Manufacturing Insights. "In addition, product quality will continue to be an important initiative in the wake of significant recalls to strengthen consumer trust and loyalty in the market."

The survey included 415 manufacturers and 179 retailers in the United States, with respondents from various roles across the organization, including Procurement, Supply Chain, Manufacturing/Operations, Merchandising, and IT.