Insights

Reducing Supply Chain Costs Could Mean You’re Missing Out!

Many companies see supply chain as a tempting area in which to cut costs. A simple view is that reducing costs here leads to increased profits without the hassle of increasing sales.

What companies may not have considered, however, is the hidden cost of NOT serving and delivering true value to your clients through this supply chain. There are significant opportunities which companies are missing out on regarding the positive impact which supply chain can have on the top line as much as the bottom line.

Today, customers are in control. Never before have they been so informed about your products and they have the power to demand what they want, where they want it or how they want it delivered. Technology (and, in a way, retailers) have facilitated this power shift by opening up a world of possibilities at customers’ fingertips. But as customer demands get more sophisticated, so does the complexity in delivering value to the client.

And here is where the supply chain kicks in. You may have the best intentions in meeting customer demands but without an aligned and flexible supply chain you’ll be letting your customers down time and time again. Simply focusing on cost reductions won’t help here; if anything you might even increase Cost to Serve.

So, what can you do?

For starters, you need to align supply mission and strategy to the overall business strategy. The overall strategy should be looking to address main external forces and drivers in the industry, such as changing customer requirements, government regulatory changes and technology advancements.

Take Zara, for example. The Spanish fast fashion retailer is very focused on anticipating customer needs and has efficient process quality controls that allow products to be available quickly, allowing constant product rotation and delivering higher client satisfaction. Retailers claim they want to be more customer-centric but still CxOs are pushing supply chain executives to focus on managing total expenditure and achieving higher supply chain savings. Whilst these are all valid points, they are not really aligned with customer-centric goals.

You should consider investing in supply capabilities that grow the top line, such as supply network optimisation, analytics and collaborative planning. Retailers need to break the mould to fulfill new business models and changing customer demands – and not just once.  To stay nimble they need to keep breaking the mould, time and time again, so flexibility is key.

organizations need to treat their supply chain team as a strategic partner.

Retailers need to build flexible supply chains that allow them to react quickly, take advantage of new trends such as uberisation, and quickly change to meet customer needs. For example, Amazon’s ‘Vendor Flex’ programme has seen them set up dispatch operations in the warehouses of consumer goods suppliers such as Procter & Gamble. This creates a win-win situation; Amazon doesn’t need to fill up a big chunk of their fulfillment centers with bulky items such as tissue paper; whilst vendors can supply Amazon without incurring transport costs as they only need to move stock from one side of their warehouse to another.

Initiatives such as these will increase your top line whilst having a positive impact on your bottom line, through changes such as holding less stock and reducing product handling.

You need to organize and resource to make your plans successful. Remember: strategy and systems are worth nothing if you don’t have the right people to implement them or use them. Supply chain professionals’ roles are shifting to that of integrators / informers, not only within your business functions but also externally, sharing and taking information from suppliers, customers and even competitors (Yes!  Sharing information with competitors!)

McDonalds’ philosophy is ‘None of us is as good as all of us’ and it’s a great example of how collaboration helps achieve success. Coming in at number 2 in Gartner’s 2017 Supply Chain Top 25, the fast food giant attributes its success as much to its employees as to the effectiveness of their internal management. Supply chain professionals should take advantage of their unique position in the future, recruiting talent that can strategically analyze information to maximise benefits both for the customer and also for the business.

organizations need to treat their supply chain team as a strategic partner and work together with them closely to achieve their goals. It will fast become the hub where business and customer information collide, and whoever is capable of managing this information, transforming it into insight and proactively acting upon it, will be better prepared for future shifts in market demand and more able to meet customers’ needs.

Becoming more efficient and reducing costs through supply chain will always be an essential part of what supply chain executives should focus on, but the message here is that now there is more to it. Technology is allowing companies to use their supply chain as a strategic advantage, to differentiate from their competitors and help their products or services stand out.

You can either stay behind and focus solely on how to reduce costs, or you can grab the opportunity to stand out and bring growth through supply chain. Which path will you choose?

CMG Staff
the authorCMG Staff
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