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Supply Chain Management – Improving Your Bottom Line

You may be missing out on valuable revenue if you haven’t developed a proactive supply chain management program.

A key to an effective business is running an efficient supply chain. Successful companies use this strength and knowledge to drive their revenue, as well as minimize their costs – more about that later.

Become a supply partner, rather than just a supplier. Know how to satisfy your customers’ current expectations and understand their plans for the future. The more you develop a partnership with them, the more it will assist with your business planning and increase your responsiveness.

Learn how to develop a good supply chain team which has a real focus on the customer – and in fact, an equal focus on the customers’ customer – the real consumer of your product. By meeting the demands of the real consumer, you can relieve a lot of the price and cost sensitivity.

Use your Supply Chain Resource
Fundamental to supply chain management is the intimate understanding of both the cost and revenue drivers. From a revenue perspective, knowing who buys what, for how much, and what costs are associated in servicing that customer or product line. Use tools to show margin, by any measurement, and the price and cost elasticity.

By putting this knowledge into an effective sales & operations planning (S&OP) environment, coupled with both historical and current market intelligence you have a very potent formula to make some pretty fundamental revenue-orientated decisions.

This planning resource can readily assist in assessing “what if” scenarios, like “if I reduce my sales price…” “Will I sell more?”, “Can I buy better with increased volume?”, “What happens to my average cost per order?” and probably the most important, “What’s the bottom-line impact?”.

A good example of this is in supply to retail, particularly the major retail organisations. At the time of negotiating the sale of a product to a retailer, supply timeframes are agreed (i.e. the time from order receipt to delivery), commonly called the “delivery window”. Typically a number of factors are taken into consideration in determining the delivery window, just one being the time taken, from order receipt to physically pick and dispatch and order. If the delivery window is agreed to be 14 days, logically there would be 26 sales cycles in the year. If through an improved supply chain the window is reduced to 10 days, potentially the number of annual sales cycles can be increased to 36.

By developing the “what if” scenario, of going from 26 to 36 sales cycles per year, (in conjunction with sales & marketing) the supply chain team can calculate the net benefit. If we get our product to the retailers earlier and more often, there is a higher likelihood that more products will be sold over the year. Alternatively, it is likely that the average order value will decrease, which will more than likely have an impact on the “average supply cost per order”.

When using the supply chain effectively, the net benefit of increased revenue versus increased cost can be readily calculated.

Dynamic Cost Control
In a similar vein, the supply chain must manage their costs by really understanding the factors behind the costs. Issues like reduced inventory holding, reducing supply chain service problems and understanding where the cost reduction opportunities lie are fundamental to effective supply chain management.

But like most issues within business, supply chain cost control and cost minimization opportunities need to be under constant review. In a dynamic business, fluctuations in volumes can have a dramatic impact on cost, or the opportunity for cost reduction through achievement of synergies or just sheer buying power.

Companies who have invested in their supply chain and undertaken improvement projects, such as Woolworths’ Projects Refresh & Mercury have used the opportunity to better understand their customer and improved their relationship – reducing supply cost and giving them preferential treatment over their competitors. Sadly, other companies see such projects as cost burdens and a further impost to doing business.

Understanding where the business and the real consumer is trending will greatly assist in positioning the business to cost effectively meet the demand.

Managing the Resource
The key to any to achieving better utilization of an organisation’s resources be they people, property or plant is in its management. Setting clear objectives and managing them through appropriate KPIs will increase revenue, decrease cost and deliver a more satisfied customer.

Similarly providing clear lines of responsibility and “ownership” and tying that to some form of performance incentive, can often crystallize people’s focus. Some companies give “ownership” of the inventory to the supply chain team measuring them against days’ inventory and average inventory holding costs. Maybe the true owners are the sales & marketing teams, who after all, stimulate and motivate the demand chain, provide forecasts of the demand and are integral in the type and nature of the products sold.

People tend to complicate matters, thinking that by making a task more complex or increasing levels of technology must be the smarter way. By thinking outside the square and providing a fresh perspective – invariably by breaking it down into its component parts and focusing on the real issues – and simplifying the task achieves a more sustainable result.

Size Really Doesn’t Matter
It is surprising the number of small to medium businesses who believe that they are not “big enough” to warrant some structured level of supply chain management in their business – such as sales & operations forecasting and planning, average days’ inventory and the need to have some structured level of supply chain management in their business.

The principles of supply chain management apply equally across all businesses, from the sole trader importing and distributing, through to the largest global corporation. In fact, some contend that it is more important for the small to medium enterprises to have a proactive supply chain management program so that they have are truly aware of the cost of doing business, and what the likely costs will be as they expand.

Many of the basic Enterprise Resource Planning (ERP) and accounting systems have a number of good tools to assist in managing your supply chain and with training and guidance can differentiate a well informed and well run business from the others.

To develop a proactive supply chain management program, remember to:

• Understand your customers’ expectations & become a supply partner
• Develop a customer focused supply chain team
• Understand your supply chain team can assist in increasing revenue by being proactive as well knowing where to look to reduce supply chain costs – it’s not the freight rate

About the Author
Clive Stillman is a Principal in the Sydney based Professional Logistics Consultants. PLC is a supply chain consultancy that focuses on adding value through improved supply chain processes and practices. Clive can be contacted on (02) 8850 5099 or for more information, go to PLC’s website www.plci.com.au

© COPYRIGHT
All articles are copyright. These articles may be used for publication in magazines and newsletters with prior permission from the author and Samperi Consulting Group Pty Ltd. Please contact Samperi Consulting Group Pty Ltd for further information at karina@samperi.com.au.

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