Why success will come from your Supply Chain By Alex Rotenberg Supply chains are a dramatic way to double, triple, even increase your profit margins tenfold. Unfortunately many supply chain professionals look at the wrong side of the equation. When targeting cost reduction one must look at service, not at costs to improve the business situation. Below is an explanation of the reason why. Businesses globalize and technology spreads. This is nothing new. New suppliers from low-cost countries invade new markets as patents expire and cheaper versions can be offered to the customers. Whole markets become commodities and once loyal customers jump to cheaper options. Many would have a spontaneous reaction to cut costs. What if I were to tell you that a much better solution is to do the exact opposite? Instead of trying to analyze cost-base and try to match the competitors’ costs, my advice is companies should completely review their service offerings. Supply chains are a balance of service and costs but the larger chunk of these costs are hidden in the term 'service'. The lesson today: the fastest way to cut costs is by understanding the services you offer! By challenging the service offerings, new opportunities to reduce costs and generate extra revenue quickly emerge. The battle for service in many companies still has many unwritten rules, and unless you talk with customers you are doomed to work on cost-base only and miss these enormous opportunities. There is indeed a much better option than poor service at a low cost... and that is the right service at the right cost! The great news is that the more competitive your market is the more it pays off to review your service offerings. The math is very simple. Service reviews typically lead to 10 to 15% cost savings or extra revenue. If you still enjoy a 40% profit margin, a service review can increase this margin to 49%. You only make 20% margin? No problem, make it 39%. If you say 10% margin, I double it to 19%. A 5% margin triples to 14.5%. If you would only have a 1% margin, even better. You would get a tenfold increase of your margin: 10.9% after the review of your service offerings. The business case for a herbicide producer, my previous employer, which sells in large volumes in Brazil is exemplary. We could have implemented a traditional cost saving programme and we would have succeeded to cut costs with 1 or 2%. Nothing spectacular. Instead we started a cross-functional customer-driven initiative. And in 3 years time we made 15% cost savings a reality, or 5 to 7 million each year depending on the sold volumes! Because Supply Chain engages with the business, we started to understand what customers value and what they don't, and as a result, we saw ways to save USD 24 cents per litre in different areas like packaging, duties, logistics and pricing. Each cent in cost reduction we implemented gave the business 300,000 USD saving per year. This showed that review of the service offer led to millions of USD in savings per year. So, are we really able to separate the needs and wants for each customer and product? That is what customer-driven approaches are about. Unless your business understands how to eliminate lots of hidden service costs (Over-availability, Over-quality, Over-flexibility, Over-reliability and Over-delivery), your company will be doomed to scratch the surface of potentially huge cost savings. So why not explore all extra fee opportunities of generating new sources of revenue thanks to your supply chains? This is why success will come from your supply chain!
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Source from: http://sembadapratama.com/en/news-detail/49/why-success-will-come-from-your-supply-chain
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