How More Effective Sourcing Could Double Your Margins
|james.brodgen 16/10/2015 15:27:29
The great supply chain opportunity: don’t miss out
There is growing evidence that companies that focus on improving their supply chain performance achieve much better financial and operational results than their competitors. The companies that came top for optimising their supply chain in a 2013 Price Waterhouse Coopers survey perform 70% better, on average, than the companies at the bottom. They:
- Deliver ‘on time in full’ (OTIF) at 96% compared with 79% for the bottom companies
- Average 15 inventory turns a year compared with 4
- Make an average profit margin of 16% compared with 7%.
Despite this, only 45% of companies overall said their companies view the supply chain as a strategic asset, and just 9% said the supply chain is helping them outperform their peers. So why are so many companies missing out on this opportunity? Perhaps it’s because managing the supply chain is hard.
Operating in the distributive trades, you know that sourcing the right product at the right cost is key to achieving margins, sales and service. Your business depends on product quality, price, differentiation and availability. But you also know how challenging it is to get the supply chain right.
The top four sourcing challenges
1. Accurate forecasting of demand. Critical, because overstocking ties up capital and takes up space, but understocking has the potential to lose customers. There are many ways of forecasting demand, but the most effective depend on having the right data and analytics. If you have visibility of how sales vary by season or geography, by product or category, or by branch or customer type, you can uncover trends and adjust your predictions accordingly. Lacking accurate data, many firms have to rely on educated guesses, or on replicating past orders.
2. Managing margins. Competition is fierce and margins are tight so it is vital to negotiating the best pricing and rebates for your business. Again, accurate forecasting is essential if you are to influence suppliers in your favour. If you can’t commit to predicted sales volumes with confidence, you may be leaving money on the table.
3. Managing suppliers. You probably have an instinct for which of your suppliers are the best – but wouldn’t it be great to know, at a glance, how each is performing? Which suppliers give you the best prices and offer the best lead times? And how are they doing against SLAs such as OTIF, or quality metrics? Additionally, if a supplier fails to deliver, where do you go next? Trusting to instinct isn’t enough when it puts your own customer service at risk.
4. Managing the purchasing process. When you are managing the complexity of hundreds of products, multiple branches and numerous suppliers across varying geographies, anything you can do to cut down on administration will save you time and money. Whenever there is a manual process involved in linking sales orders to purchase orders, stock and the accounting system, risk of error increases as well. This can be costly and damage customer relationships.
Effective sourcing solutions
There is currently a huge opportunity to differentiate by optimising your supply chain – but as more and more competitors wake up to the possibilities, the advantage will dwindle. It is not easy to overcome any of these challenges, but without investing in effective business processes and technologies it becomes even harder. The right trading and business management solution is one that gives managers complete and accurate visibility of business operations and enables them to take control, improve performance and delight customers. And investing in delighted customers will give additional returns; when your customers optimise their supply chains too, it’s the highest performing suppliers that will make the cut.
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