Businesses operate to make money – whether that money is reinvested in growing the business, for paying a shareholder dividend, or paying staff their pay checks – without profits businesses die.
Unsurprisingly then – a significant focus is placed on functions within the business that can impact profit. By controlling resources, materials and dealing with a multitude of external and internal stakeholders the supply chain function can have significant influence over profitability. It’s not uncommon, if you follow the financial news, to see companies placing the blame for lower than expected profits on their supply chain – this is increasingly more apparent given the ever complex nature that globalization has bought to medium to large companies. But how does the supply chain impact profitability?
Here’s our eight point guide to explain some of the key areas.
1 – Continuity of supply
Perhaps the number one cause or issues – without the materials coming through the door to make your product you face an uphill struggle.
2 – Excess inventory
Inventory costs money – if you’re going to turn it into finished product that sells then great! – However too many companies find themselves with materials sat on the shelf unused committing wasted funds that would be better utilized.
3 – Inadequate contracts with suppliers
When things go wrong contracts matter – for example if a key part supplied by a vendor does not meet the expectations where do you stand? Can you claim back any lost profit/revenue? If not your company is paying for your suppliers mistake.
4 – Accepting poor quality goods and materials
Without the correct controls in place your organization may accept materials that fail to meet specification and can cause problems with the manufacture of your product or worse than that impact levels of customer satisfaction.
5 – Inadequate Logistics / Transportation agreements
You can have a fantastic product that everyone loves – but if you can’t get it to market you can bet you’ll impact your revenues.
6 – Poor sourcing choices
Getting the right price for your materials is crucial if you’re going to maximise your profits – failing to compete commodities and get the best deal for your business can cost you serious dollars.
7 – Failure to embrace technology to lower transaction costs
Investment in the right technology can streamline your supply chain – lower your cost base and make you more profitable. Fail on this and you won’t only impact your bottom line but your competiveness too.
8 – Inadequate planning
Planning brings all areas of the business together – it joins the supply chain team up with the manufacturing/assembly plant it can be a significant area for developing inefficiencies costing more money in the long term, reducing your profitability.
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