5 Reasons Your Supply Chain is the Catalyst to Business Success
Fortune doesn’t only favor the bold, it favors the structurally sound and organized as well. Whether you are part of an emerging growth company, middle-market, or Fortune 500 enterprise, one commonality remains – the collective performance of your company’s supply chain is undeniably linked to the success of your business.
What are the reasons your supply chain directly affects the success of your business? Supply chain strategy and design, performance of supply chain services, supply chain costs, performance of individual suppliers, and comprehensive warehousing management are all vital components woven into a supply chain and directly reflective of the longevity and strength of a business.
Proof by numbers: “79% of companies with high-performing supply chains achieve revenue growth superior to the average within their industries. Conversely, just 8% of businesses with less capable supply chains report above-average growth. That figure highlights [exactly] how critical the interrelations are between an enterprise and its supply chain. Given that something like 50% of businesses, regardless of their size, fail or close down within five years of launch, it can be deduced that poor supply chain performance commonly contributes to corporate or business failure. Similarly, one can assume that in many cases, businesses that fail do so because of financial problems – a fact that makes the following statistic also worthy of consideration:
Companies with global supply chains – a category which includes a fast-growing number of corporations, medium-sized companies and even small businesses – can be standing on a cost base of which 90% is attributable to supply chain expenditure.” [Survey by Deloitte from 2014 – expanded on by Logistics Bureau, Source]
Supply Chain Strategy and Design
Unfortunately, the majority of business owners and C-Suite executives or other high-level decision makers neglect to see any comprehensible correlation between generalized business strategies and their supply chain. This is a crucial disconnect.
Designing a strategic and fully optimized supply chain is the driving force behind commercialized success and achieving a business’s predetermined goals. Your supply chain should align with your forecasted goals and should flow on a near automated and process driven course. Mediocre supply chain management was the number one factor involved in the 44% of companies that failed in Australia in 2012.
While the strategy of your supply chain can be looked at in detail during the initial phase, it’s essential to take a comprehensive approach on your network design next. Simply put, design, in this reference is identifying and grouping outbound distribution sectors including warehouses and other storage facilities. Understanding that these entities play a vital role in the success or failure of your business is crucial to achieving a fully optimized and efficient supply chain, end-to-end.
Does your business want to make money? Seems like a rhetorical question with an obvious answer, right?
This question is loaded and here’s why. While 100% of businesses enter the market with an initial goal of succeeding with a profit, 80% of those businesses neglect to take care of the one thing that generates the profit – the customers providing the money!
You are ultimately offering services to a customer or client base. The customer must be the primary focus when strategizing, designing, planning, marketing, and targeting. This isn’t a new revolutionary tactic; this is business 101. To better put this into precedented perspective, Gartner conducted a study in 2014. “The study found that by , 89% of companies expected to be competing primarily on the basis of customer experience.”
Any business owner knows that performance issues can be nuanced and critical. The following problems can all individually and comprehensively have a negative impact on your business’s bottom line:
· Delayed production to market time on newly promoted products
· Prolonged delivery times
· Delayed customer service response times
· Negligent order fulfillment
· Poor on-time deliveries
· Inventory missed calculations and frequent shortages
· Poor product quality
· Poor service
Recognize these problems immediately and solve them even faster. Operational performance is one of the things we have complete control over. Take procedural implementations seriously to further mitigate risk within your supply chain.
Overall Supply Chain Costs
Too much stocked inventory ties up too much capital and plugs the cash flow. As a generalized rule, successful companies with optimized supply chains have 15% less cash tied into their supply chains.
CLN Worldwide Case Study: We were handling the international transportation and business of a company distributing food products to Europe. The company was shipping product on the ocean to the final destination of Dublin, Ireland, but with a stop first in Rotterdam.
The time on water was consistently 6 weeks thus causing the company to keep an excess of stock in their inventory.
Our solutions team proposed a direct route, which cost a couple of hundred dollars more per container, but would cut transit time in half, to three weeks. This allowed for the company to stock less inventory and freed up $500,000 of previously stifled cash flow that they could then reinvest in another product.
The company worked on a 40% profit margin which allowed them to pocket $200,000. They were then able to move the new product on a quarterly basis, resulting in an $800,000 profit from the minor shift in their previous transportation management plan.
The extra cost initially incurred on the shipping containers were drops in the proverbial bucket in comparison to the near 1M extra dollars in profit as a direct result.
The cruciality of having or partnering with a knowledgeable supply chain solutions team is drastically understated and underutilized within the industry. The oversight in minor alterations could be the difference in a major profit or major loss.
You know the deal, you’re only as strong as your weakest link. While your ability to oversee and control the predominance of your operational components, suppliers aren’t one of these. All the more reason to prioritize supplier relationships, contracts, and collaborations to moderate risks and ambiguity.
This supply chain uncertainty we’re referencing here directly impacts customer service and satisfaction, bottlenecks, stock issues, and a list of other problems outlined in the Service Performance header two sections prior to this one. So, as you can see, performance cuts both ways – through your company’s services and your company’s suppliers.
“Supplier performance and relationship management today though, extends beyond maintaining availability and streamlining the flow of materials through your supply chain. There is also the question of ethical procurement and purchasing to consider.” [Logistics Bureau]
Does your business rely on the sale of tangible products? If yes, so too does the majority of all the other businesses. In any case, this section is for you.
Inventory, in general, is just as important to your business as your active customer base. You have a product to sale and people to sell it to – you can’t have one without the other.
If you will momentarily reflect back up to the case study from above, the importance of proper inventory processing and management to cash flow and working capital becomes clearer.
· Is your warehousing and inventory forecast accurate? How can it be improved?
· How can you reduce storage costs?
· Are your suppliers giving you short lead times?
· How can you speed up deliveries to customers?
· Is inventory shrinkage causing you to lose money?
Ensure your working capital is at its peak by optimizing every possible scenario within your control. Decrease risk with proactive procedures.
If most companies are being completely honest, no matter the size, few if any could unequivocally check the details from this article off with no exception and with complete confidence. You’re not alone. Logistics and supply chain optimization are complicated and nuanced subjects. One question leads to three others. Our team will help you through the maze.
As a cross-functional team of logistics experts, we help clients navigate areas of transportation, distribution, customs and regulatory compliance. CLN’s focus is not on an individual product group or service offering but rather a comprehensive approach to effectively managing and optimizing the supply chain.