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Unlocking Value Through the Supply Chain

May 30, 2018
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If you were asked what the % of cost of goods sold [COGS] vs. sales was for your organization, you could probably cite a number with ease. In the same breath, are you able to express the supply chain (SC) costs as a % of revenue? If not, then it’s a metric to understand a bit more in detail. Some or all of the supply chain costs are embedded in COGS, so any improvement to the effectiveness of your SC results in a direct improvement to the bottom line. 

Typical SC capabilities

Core SC capabilities include SC strategy & design, inbound and outbound transportation, and inventory management. However, SC is not a standalone function; interfaces with other departments, such as Business Development and Finance for integrated sales and operations planning; and Design/Product Development for sourcing/procurement, etc., are required for true SC effectiveness.

Drawing the link between financials and SC capabilities

Whether it is sourcing practices that contribute to lower input material costs, transportation aggregation on inbound shipments that reduces freight and transportation costs, or improved inventory planning that minimizes working capital needs and warehousing costs, the better you manage your SC, the greater value you create. Below are examples of supply chain issues that erode business value, as well as the associated SC practice that can be applied to add value.

Using data to measure and manage your SC

As the age-old business adage goes, “What you measure is what you get.” So the question is, where do you start with measuring your SC? Firstly, it is important to understand what your business priorities are. - Are you striving for SC reliability, responsiveness, cost optimization, or asset management efficiency? If your goal is:

  • Reliability, then measure perfect order fulfilment
  • Responsiveness, then measure order fulfilment cycle time
  • Cost optimization, then measure total supply chain management costs
  • Asset management efficiency, then measure cash-to-cash cycle time

The metrics noted above are compound metrics, which means that a number of different measurement points throughout the process have to be captured and rolled up to obtain the final metric. Existing systems within the business may already contain the data points to derive the SC information you’re looking for. For example, between the accounts payable and warehouse management systems, there is a lot of information that can be accessed about lead times, fulfilment dates, order costs, etc.



If you’re unsure of where to place management focus, an option is to look to your financials for some hints – are there line items that have disproportionately changed year on year? For example:

  • If inventory turns have decreased, this may physically manifest as excess or obsolete inventory in the warehouse. This could point to the need to refine the forecasting and planning processes, or
  • An increase in days sales outstanding may point to an opportunity to review the collections process. 

SC trends to keep an eye on

As important as it is to address current operational needs, one also has to be mindful of industry trends that could change the way business is done in the future. 

Automation

Drones, warehouse robots, 3D printers, autonomous vehicles – these are some automation trends that have been emerging over the past few years. Though regulation may be impacting the public use of some of these technologies, there are cases of these technologies already in use. Take drones for example: In some parts of the world, drones are being used for inventory counts in warehouses. Equipped with RFID and barcode scanners, the drones are able to identify bin locations, and scan and count goods, while an operator remotely keeps an eye on things via a tablet PC connected to the drone’s camera feed to evaluate the physical condition of the products. On the robotics front, Washington D.C. was a pilot city for the use of robots for food delivery; delivery bots were autonomously navigating sidewalks, using GPS, onboard cameras, and sensors to control their motion and avoid pedestrians while transporting take-out orders to customers. Could the next application of the bot be small package delivery?

Internet of Things (IoT)

One of the most tangible applications of IoT analytics in recent times has been the ability to track the condition of food and pharmaceuticals through the cold chain; providing the ability to monitor and maintain required temperature control conditions for optimum safety. However, SC applications don’t just stop there – typical applications in business include asset tracking, fleet tracking and optimization solutions, using sensors and communication technology for predictive maintenance on equipment (saving costly breakdown-related production losses). 

Blockchains and the supply chain

How can the supply chain make use of a blockchain? 

In the world of Supply Chain Finance, cross-border payments could be an area that benefits from the concept of a blockchain quite easily. Currently, this landscape is a mix of companies, suppliers, banks, intermediaries, and clearing houses. Creating visibility is cumbersome and relies on relays of information between parties. This is where a shared ledger (blockchain) concept would be quite useful. Each party would update its portion of the transaction (PO placed, goods delivered, payments authorized, etc.) and everyone would have visibility and could proceed to the next step. Results include a faster process, a better relationship between the company and supplier, more transparency to the financier and overall reduced risk of fraud.


To get started in improving your Supply Chain, firstly measure your SC, assess what needs to change, and define a roadmap to drive down costs / increase efficiencies, and if needed, enable your organizations with the right systems and tools.