(a) Understanding impact on profitability
Supply chain management plays a strategic role in the success of a business, but there is often an awareness gap at strategic management and boardroom c-suite level over the benefits of optimisation.
Firstly, what is supply chain management and why is it important? The Council of Supply Chain Management Professionals (CSCMP) defines supply chain management as encompassing the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities; as well as including coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers.
Supply chain management is important at three levels: strategic, tactical and operational. This article focusses on the strategic level, which requires strategic management and C-Level executives to make high-level strategic supply chain decisions that are relevant to the whole company, the long term and the big picture.
Does your top management understand what strategic supply chain management and supply chain optimisation can do to improve your profitability?
As supply chain management consultants at New World Business Solutions, we have found that many businesses need to be more aware of their supply chain management strategies and more proactive about optimising supply chain performance to gain a competitive advantage. But to date, we’ve witnessed little progress since the findings of a 2012 survey commissioned by Greybeard Advisors (USA), which showed that awareness of the potential of strategic supply chain management to increase business profitability appeared to have diminished.
Survey participants were mostly high-level supply chain executives at the top and middle quartile companies and only 38% of respondents believed that their strategic management and C-Level executives really understood the potential of supply chain management. In fact, their survey proved that interest from executive level management in strategic supply chain matters was significantly declining.
Reasons given for the lack of priority from strategic management and C-Level executives in strategic supply chain management matters included:
- Budgetary issues – an overwhelming 70%+ of respondents felt they were not supported by management financially
- Lack of proactivity from supply chain staff members when presenting supply chain opportunities to upper management
- Lack of willingness by staff to undertake supply chain assessments and measure its impact on other areas of the business
- Global economic issues between 2008 and 2012 resulted in many people investing their effort and money into business areas that would yield quick, high profits
Through completing over 500 supply chain and logistics projects, New World Business Solutions have first-hand knowledge and experience that these strategic issues still exist.
Let’s now explore the impact of making supply chain management issues a strategic business focus, and how that can positively affect your bottom line.
(b) Securing boardroom backing
To recap, Greybeard Advisors’ 2012 industry survey findings indicate that strategic supply chain management, across all areas of a business, can make a significant difference to its overall financial position and performance.
The survey that showed the potential of supply chain management was often overlooked by upper management.
- 60% of respondents who reported having a Return on Equity (ROE) or Return on Invested Capital (ROIC) greater than their capital investment, said supply chain initiatives played a strategic role in cutting costs, right across their organisation.
- Of the respondents reporting a ROE or ROIC lower than their capital investment, only 30% said their supply chain initiatives had a strategic role in reducing expenditure across all areas.
This indicates untapped potential for strategic supply chain management to help reduce unnecessary expenditure and significantly impact business profitability.
The survey also found that one of the main barriers to implementing an effective supply chain strategy was creating a comprehensive long-term roadmap.
More than two-thirds of the respondents (high-level supply chain executives at top and middle quartile companies) were not confident that their top management could successfully create this type of supply chain strategy in order to achieve the full potential.
Supply chain management still has a long way to go until its full strategic potential and full impact on the bottom line are realised, with the boardroom table’s top-down endorsement.
How’s business for you? Are you going great guns, or do you feel you’re going backwards rather than forward?
New World Business Solutions help strategic management personnel and C-Level executives take back control of their supply chains and costs with total supply chain optimisation strategies, including a comprehensive long-term strategic supply chain roadmap, that improves the bottom line, ROE and ROIC.
We help you to address what keeps you awake at night so that you can:
- Consistently achieve performance targets for revenue growth
- Better manage supply chain risk to reduce revenue fluctuations
- Reduce capital spend by developing cost effective and customer focused supply chain strategies
At New World Business Solutions, we help our clients to model, design and optimise a supply chain network that is difficult for competitors to copy.
Supply chain and logistics management consultants are available at New World Business Solutions to provide you with expert assistance. Contact us today:
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