Over the past several years, most “C” level executives have been focusing their attention on earnings per share as well as managing corporate risk from all possible contingencies. Today, those same corporate executives are looking at all possibilities to greatly reduce expenses as a way to improve profitability and for some companies, to guarantee survival. For many companies 2009 has been the year of “decision paralysis.” For those companies to survive in 2010, long term cost cutting initiatives must be implemented. Many “C” level executives are now hearing from their financial institutions that leaner and greener Supply Chains are essential to obtaining financing in the future.
One of the major areas for enhancing a company’s bottom line is Supply Chain Management profit improvement initiatives. Not only is this an area for tremendous potential cost cutting, it also presents a great opportunity for companies to reduce risk which is critical in today’s business environment. There needs to be a plan of action for the entire Supply Chain’s improvement in terms of cost reduction and process improvements. One of the key areas in this process is to identify strategic sourcing and business partners so the company can achieve its desired results.
The first step is to understand how the company’s current Supply Chain stacks up against the competition. This means understanding every facet of the operation including the company’s current product sourcing outlets, its transportation, warehousing and distribution network, as well as inventory control and customer service operations and expectations. Every company operates its Supply Chain somewhat differently and in many cases without a great deal of up-front analysis as to what is the best Supply Chain environment for the company. The way to start is to identify what’s best for the company’s customers! “World Class” Supply Chains are built from the back end, (the customer), to the front end, (the supplier) and throughout the Supply Chain process are constant checks and balances that focus on customer satisfaction, corporate controls and profitability.
The goal is to cut costs out of the Supply Chain, not on a one time basis, but continually. At the same time companies must keep focused on what their customer expects and must make sure it meets and ultimately exceeds their customers’ expectations year after year. Knowing how a company’s direct competitor’s Supply Chain functions is also critical.
Companies have to start identifying all of the costs associated with the Supply Chain by category. Identify all possible strategic sources of product supply and ascertain which option leads to the best sourcing partners with the lowest landed product costs. Once this information is identified, companies must place the Supply Chain logistics pipeline in place that assures prompt and efficient delivery of the goods to its customers again, at the lowest landed costs. But remember, cutting costs out of the Supply Chain without creating greater customer satisfaction is a recipe for disaster.
Take the time to analyze the basic operation as follows:
• Ascertain the true and actual costs for every category of the Supply Chain spend.
• Identify what the corporate wide spend currently is for each of these categories. Are there any opportunities to improve pricing leverage with any of the company’s suppliers?
• What are the top selling products? Will they be the same in the future? If not, what are the characteristic differences between the current top selling items and those of the future? How does the difference in product characteristics affect the cost of the product through every facet of the Supply Chain?
• Which suppliers represent the “BEST” overall “Partner” for the company and more importantly, the effect they will have on the ultimate customer?
This costing analysis is critical and will go a long way towards identifying ALL of the associated costs related to the complete Supply Chain. Unfortunately, it is a step that many companies overlook.
TRANSDIGEST-Volume XIV, Issue No. 140, October 2009