We all—businesses and individuals—have experienced the impact of supply chains in some way. In particular, events that shake our world, such as natural disasters and pandemics, have shown the impact of supply chain disruptions—from a limited or absent stock of toilet paper in stores to long delays and higher prices from oversea shipping companies.
From over forty years ago until now, there has been some confusion around the concept of supply chain management. Keith Oliver coined this term in an interview with Arnold Kransdorff of the Financial Times on June 4, 1982, and since then, there has been little additional clarity. However, based on my experience, mastering the insights from these hidden supply chain gems can help companies have a competitive advantage and experience a positive impact.
1. Effects On Growth
When most companies think about the benefits of supply chains, they probably think of cost reduction. This is a very common metric that supply chain and procurement teams track. Indeed, teams usually set annual savings goals based on this data. Finance delights in this kind of metric because the effects are reflected in the Profit and Loss (P&L) statement. In addition to cost reduction that translates into a lower cost of goods sold (COGS) and/or lower operating expenses, the P&L will show a greater operating profit margin.
Nonetheless, the effects of supply chain management go beyond cost reductions. They may extend to revenue increase, also known as growth. Finance will see these effects on the top lines of the P&L.
In fact, looking only at the savings could be detrimental for your business. Take, for example, when a company is planning a special promotion for Black Friday. By considering the cost perspective only, the supply chain team would not expedite shipping; but this may result in significant lost sales, or in not having any sales at all if the delivery is late.
2. Improved Customer Service
Your supply chain also has an impact on customer service and thus on customer retention and satisfaction. It is critical that your supply chain has visibility to provide the ready dates of the customer’s goods and their estimated delivery dates. How many times have you heard, “When am I going to get my order?” Being able to answer this question can go a long way toward improving customer trust and loyalty.
Considering supply chain strategically for business growth leads us to the next hidden gem.
3. Analysis And Financial Perspective In Sales and Operating Processes
Sales and operating processes (S&OPs) has been around since the ’80s, and like the supply chain concept, there are different views of and names for it. The fundamental objective of this process is to balance supply and demand. Businesses in the consumer-packaged goods (CPG) industry, such as food, cosmetics and cleaning products, typically have a process in place to plan production based on the expected demand.
The S&OP process orchestrates the different moving parts in the supply chain along with other functions that keep the business running. While some companies have an S&OP process in place that breaks the silos between marketing, sales and supply chain management, there are challenges to achieving a mature level where this process can create a significant impact. Two of these challenges lie in analysis and in a lacking or limited financial perspective.
Companies may go through S&OP cycles without a thorough analysis of the deviations between plan and actuals. “Lessons learned” and root cause analysis are key components for continuous improvement of the S&OP process. For instance, they can allow the company to adopt a more responsive approach versus focusing on forecast accuracy. It is equally important to reflect these findings for future S&OP cycles with “updates” to the plan as you gather more information.
• Involvement Of Finance
Traditionally, S&OP falls under supply chain management, with supply chain planners playing a key role. I have seen Marketing and Sales teams participate in the S&OP process, but it is not usual for Finance to be actively involved.
Most of the calculations to balance supply and demand in simulations rely on measuring physical units, such as each case, pallet, truckload, etc. Another key aspect is considering monetary units. For example, if shipping is expedited for the Black Friday promotion, the lead time will be shortened by a determined number of dates, and the updated cost will be a certain amount. With the quantification of the impact of the financials, S&OP may become the integrated planning process that includes rolling forecasting and budgeting.
In varying degrees, supply chain impacts your business and impacts you as a consumer, too. Although the definition of supply chain is somewhat blurry, there is clarity on the significant impact. These two non-traditional perspectives of supply chain may increase your company top and bottom lines, resulting in greater profitable growth.
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