Thought Leadership

Supply Chain and the Bottom Line

A Well-Run Supply Chain Improves Your Bottom Line

Supply chain management best practices continue to evolve and provide businesses and manufactures with ways to increase efficiency, go greener, and drive profits, but there are many holdouts who haven’t adopted processes designed to help.

While some managers feel overwhelmed with their current workload and others look at supply chain management software as too costly, SCM platforms actually present options to reduce our burdens and give us an optimized operational plan to save money.

Adopting an SCM platform can help brands secure some relatively quick wins by streamlining operations and giving your company the ability to monitor work and react to what’s happening.

Integration of Business Planning

One of the first wins from an SCM platform is getting everyone to talk with a common language. In manufacturing and logistics, that language is metrics.

Supply chain management practices include developing a shared set of metrics that allow all of your business units to align. Some of the most standard metrics include total landed costs, inventory turns, sell-through projections, and measures the gauge customer service and satisfaction.

When you’re able to bring your sales and operations planning, finance, and supply chain groups to the table, you can start proper discussions about the state of your business. Each unit has a specialty around core metrics and a joint effort lets you target weak points with the right group.

Visibility and Vendor Management

Developing a strong supply chain management protocol helps you increase visibility in your operations. Visibility isn’t important just for our main concerns, such as inventory and demand, it also improves the way supply chain professionals can protect their operations.

The chief improvement is visibility in your suppliers and vendors for two main reasons: their harmful actions and their geographic locations.

Every year there are major world events and natural disasters that shock the supply chain world. Whether it’s flooding that hits IT critical areas or labor unrest that shuts down production of components and shipments of raw materials, the supply chain is global and proper management takes this into account.

When you adopt a strong SCM platform, you’re getting a system that has options to extend this visibility throughout your supply chain and even to some suppliers. If your SCM tracks global levels of a raw material, for example, you can either use that knowledge to ensure you’re getting the best price from a supplier or to help suppliers find alternative sourcing strategies when disaster strikes.

Visibility around your vendors also allows for better tracking. You’d be shocked at the number of supply chains around the world that don’t track to see which vendor is always late or which delivers the most goods that have to be replaced.

Working with honest, reliable partners is an easy way to increase your bottom line by reducing delays, unusable goods, and ensuring you’re getting a fair price where they enter your supply chain.

The Proof Is In the Statistics

Strong supply chains correlated with higher profits. It’s something that feels true and earlier this year we were handed proof in a study from Deloitte.

The April report found that 79% of companies considered to be supply chain leaders reported growth that was significantly above the industry average. Only 8% of companies listed in the “weak” supply chain performance categories reported a higher-than-average growth.

One key factor that set these leaders apart was the willingness and ability to adopt new technologies and routinely integrate best practices into their work. More than half had a senior-level executive running their supply chain, and many of these individuals place a high emphasis on proper supply chain management.

Aligning yourself in a similar fashion doesn’t mean shifting major budgets to the latest technology craze. It’s about honed investment that you can tie to a business case. Most of the supply chain leaders guard their investment dollars and spend them only when technology can be shown to improve their processes and networks, speed up service, or expand channels of their business.

Improper Management Increases Costs

When supply chain management goes awry, you end up spending more than you need to on your inventory levels, excess storage, transportation, and labor.

Unsuccessful management often plays a direct role in a supply chain that is stumbling on its optimal inventory levels. Perhaps the most common error is not sending orders out on time. Not only does this hurt your reputation with your business partners, but it presents a big opportunity for someone to miscount your inventory.

Most of us have automated order tracking and inventory management, but we also know that people who see more inventory than is listed will trust their eyes over a dashboard. Delayed orders that keep goods in your warehouse longer not only cost you more in storage but they create the potential for you to not re-order and resupply at the right moment. With the holiday shopping season fast approaching, no one can afford to be playing catchup on a grand scale.

The other major source of increased cost that cuts against your bottom line is an increase in your transportation. Improper management and delayed shipments often means paying extra for a faster lane. That’s a cost the supplier has to eat, and every time you’re forced to choose air over ocean or rail, that’s a hefty price to pay.

Your Supply Chain Bottom Line

Mitigating risk and introducing more success into your supply chain means taking a hard look at management practices. While software can make the tracking of metrics easier, a new system doesn’t mean much if there’s not a push from management.

The buy-in for proper supply chain management can’t be simply throwing a few dollars at a problem. Companies need to find an internal advocate who can make the case for change and how it will improve the overall company performance in a short order.

Start with a small use case and work to quickly deliver a positive return. A good ROI is perhaps one of the easiest bits of data to understand, especially when company leads are considering a system or change that will impact their suppliers, markets, capabilities, and daily operational readiness.

By Philip Odette, 2014