Every business owner dreams of a quick fix that could double company profits. According to research carried out by the Logistics Bureau in the US, it’s an achievement that is within the reach of any business – simply by getting a grip on its supply chain costs. The maths assumes that net profit on sales is five percent and that the supply chain accounts for 12 percent of costs. Reduce that to seven percent, and you double net profits. The same applies if you start at nine percent and reduce it to four percent.
The bigger point here is that even reducing supply chain costs by a couple of percentage points can have a profound impact on overall profitability. That just leaves the question of how to go about making it happen.
Digitised supply chain management
In a 2017 study, McKinsey Group found that only two percent of businesses consider supply chains a focus of their digital strategies. That could be an expensive mistake made by the other 98 percent, given the impact that supply chains can have on revenue and profits. A digitised supply chain management system adds resiliency to the supply and improves visibility, allowing for faster identification of weaknesses and faster adoption of best practice.
Slicker logistics
The more time products take being transported from point to point, the more inventory is needed and the greater the likelihood of wastage or damage, especially with perishable goods. Be prepared to think outside the box and monitor what is happening in the logistics industry. A good example is the rail sector, which has enjoyed significant investment over the past decade and is now offering a viable alternative to road freight.
Continuous improvement
Most businesses carry out routine assessment of their supplier networks from time to time. The problem is that it can be seen as a “set it and forget it” exercise, and just another internal controls check box to be completed. Ideally, supplier appraisal should be embedded within a business’s quality management system. That way, a recognised system, such as Carter’s 10 C Model, can be properly adopted and supply chain efficiencies and best practices will naturally float to the top.
Individually, each of these measures might bring small benefits. But bring them together, and the impact is too important to overlook, especially in today’s perilous economic climate.
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