In the midst of eroding margins and growing pressure to react rapidly to the competitive landscape, it is more important than ever for businesses that want to sustain current business—more importantly to grow—to get the basics of their supply chain management right. Avoiding these five common mistakes can go a long way toward differentiating your business.
Tying the supply chain to the bottom line
The supply chain is the number one cost driver for manufacturing organizations. It encompasses the working capital and the cost of goods sold (COGS), thereby directly impacting a firm’s net profit, financial efficacy and leverage. Reducing elements of the COGS is more effective in increasing profits than increasing revenue because variable costs increase as revenue increase. Therefore, comprehensive and accurate understanding and measurement of a supply chain’s cost to serve is the first step in improving your financial performance.
Unrealistic evaluation of the supply chain
More frequently than not, when asked to describe and map the perceived “as-is” state of their supply chain and compare that with their actual process flow, most companies find that there are many gaps between the perceived and actual states. Underestimating the existence of such gaps and the subsequent impacts can significantly undermine the performance and efficiency of your supply chain.
Overstating level of supply chain maturity
Most organizations believe their supply chain is more mature than it really is. Gartner describes a five-stage demand driven maturity model for supply chains, ranging from companies that are merely reacting to companies that are orchestrating their supply chain. According to Gartner, when asked to rank their supply chain, many classify their supply chain 1-2 levels higher than they really are. Here again, building strategies based on an inaccurate perception of your supply chain is a sure route to frustration.
Leaving it up to faith
We can all agree that there are many risks embedded in any supply chain, though they vary in probability, characteristics and impact. Nevertheless, only few companies take proactive measurements to map the risks, rate them, prepare mitigation plans and have financial backing to preemptively prepare their supply chain for these risks. Guess which companies are the heroes when a supply chain disruption occurs – as they inevitably do?
Inadequate supply chain performance evaluation
Finally, many organizations either lack metrics to measure their supply chain performance, or they have existing metrics that are outdated and/or not tied to the business and supply chain strategies. Supply chain performance metrics must be aligned with a firm’s strategy, maintain consistency across the organizations’ business units and use leading indicators on which they have control. Remember, you can’t manage what you don’t measure.
Benchmark's supply chain organization is structured so that customers feel close to the team working on their products at the site level while providing access to a strategic, worldwide support network. For more information you can contact us here.