I often call this….
3 Things a CEO needs to Know about their Supply Chain. I hope you find it useful.
“For those who don’t know much about Supply Chain or Logistics Management, I’d like to highlight 3 key areas to keep an eye on. I often call this my 3 things a CEO needs to know about their Supply Chain. But first, let’s understand why a company’s supply chain is so important. A recent study focused on identifying the impact of supply chain glitches on over 800 companies over a 9 year period, these were things like shipping delays, production delays, stock outs and the like. The average fall in shareholder value is 8 percent or 180 million dollars, how could that happen? You might well ask. Well sadly within many businesses, the key performance indicators being used often don’t tell the whole story. So let’s move on to the three things. And these are:
1. Is our Supply Chain Efficient?
2. What Does our Supply Chain Really Cost our Business?
3. Where Can We Improve our Supply Chain to gain competitive advantage and improve the bottom line?
Simple questions I know but many businesses don’t know the answers, so be prepared to ask them or maybe it’s you that needs to have the answers ready.
Question 1, is our Supply Chain Efficient?
Many people think, they might need more buzz words such as Lean, Agile, CRM, CPFR, Collaboration, more IT Systems, and sure, these maybe needed but a lot can be achieved by getting the right people focused on the right processes. Quite simply, your supply chain needs the right products at the right service at the right cost. Quality is a given. You really need to understand your customers’ service needs, they’re not all the same. Most companies over service some customers and under service others. So your customers’ service requirements need to be identified and measured. We also need to make sure that the customer service offer is realistic. Because as we all know in most businesses, once the customer service performance reaches 90 or 95%, service costs increase exponentially. So getting customer service right is really about understanding your different customer needs, the needs of your products and services in terms of how they’re delivered and the underlying cost drivers. If you hear some of these types of comments in your business, get worried, these are real examples. All customers get 2 deliveries per day, why? I’m sure they don’t all need it or want it. We deliver to the North on Monday, the West on Tuesday, the South on Wednesday, and the East on Thursday and on Friday we do emergency deliveries. Just don’t have an emergency on a Monday that’s all I’d say. Only accounts that spend over a thousand dollars per annum get free delivery, but if anyone complains about poor service, we give them free delivery.
Question 2, what does my Supply Chain cost?
You probably know the high level numbers but you could be losing money on certain mixes of customer, product and geographic location, or certain processes may have a much higher than expected cost. Costs can be measured in terms of supply chain cost as a percentage of sales or cost per order per pallet or carton, and cost need to be visible as total supply chain costs, inbound costs and storage costs. As an example, I have a customer who is a distributor. They have 10,000 stock keeping units and lots of small orders. They found 30% of their orders leave the warehouse with a negative margin. That’s just taking sales, minus cost and warehouse handling costs. So some simple questions to ask within your business might be: what’s our cost per pallets? Per item? Per case? Or whatever unit you use? In terms of total supply chain cost, what’s our storage cost and our delivery cost? What’s our average cost per order? And does this vary much by product group or customer group? What are our stock turns?
Lastly, question 3, where can we improve on supply chain?
Let’s look at the revenue side first. Can we improve our delivery in full on time? If our products are not on the shelf we’ll generally lose a sale. Can we get our products to market faster? Perhaps to extend the shelf life. Can we improve our service offer? In terms of the cost side of the equation, procurement and inventory management are big ticket items. Many companies don’t buy with the total cost of you particularly now in so much overseas sourcing, they just focus on cheaper unit cost, not the end to end total supply chain cost. And of course warehousing and transport costs are the areas to focus on.
So to finish off, I suggest the 3 key things you need to know about your supply chain are:
1. Is our Supply Chain efficient?
2. What does our supply chain really cost our business?
3. Where can we improve our supply chain to gain competitive advantage and improve the bottom line?
As a start point, try asking some of these questions around your business. How do our products influence how we buy, manage and deliver them? How do our customers differ in their service needs? What do our customers really value that our supply chain can influence? And lastly, what customer behaviours can we influence to improve our supply chain costs and asset utilization?
So I hope that gives you a few ideas on where to look to improve you supply chain. ”
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