Wednesday 21 February 2018

Companies are only as strong as the weakest link in chain

Mark McKeever, PwC
Mark McKeever, PwC

Mark McKeever

One of the key findings from a recent PwC Global Supply Chain survey was the direct correlation between superior supply chain performance and superior financial performance.

When designing a supply chain strategy, companies typically tried to find a balance between investing in a high-performing supply chain and being lean and efficient.

The findings from the PwC survey suggest that today leading companies "want it all": a low-cost high-performing supply chain that in turn drives superior profitability.

For example, the study highlighted how companies with relatively low inventory levels are achieving higher customer service levels than their competitors.

This is typically achieved through leveraging advanced planning systems, collaborative forecasting with suppliers and customers, vendor managed inventory, etc, as opposed to investing in inventory to drive customer service levels.

Critically, the survey also suggested that the gap in financial performance between companies with leading edge supply chains and their competitors is widening. For example, companies with leading supply chains typically achieve:

• 50pc higher average annual sales growth

• 20pc higher profitability

• 15pc lower supply chain management costs

The survey noted three key areas where leaders are focusing their supply chain improvement initiatives: perfect order delivery, cost reductions and supply chain flexibility.

Typically, most companies today have implemented the basic capabilities required to deliver efficiently and cost-effectively.

However, leaders have gone much further than only mastering the basics.

They've also introduced differentiating processes, such as integrated real-time demand and supply planning with key suppliers and customers, effective supplier and partner management or tax-efficient supply chains.

They've invested in new tools and technologies, built extensive supply chain networks to maximise the flexibility and responsiveness of their supply chains and simplified their processes wherever possible.

In terms of how companies structure their supply chain activities, it was found that the leaders typically outsource about 60pc of their warehousing and logistics activities and nearly 50pc of their manufacturing and assembly activities - which provides them with a greater degree of flexibility and responsiveness.

But they keep core strategic functions such as sales and operations planning, strategic procurement and research and development in-house.

However, despite these impressive findings on how supply chain performance can drive financial results, it was surprising to note that fewer than one in 10 companies indicated that supply chain is helping them outperform their peers and only 45pc of companies treat their supply chain as a strategic asset.

This might reflect a lack of supply chain presence in the boardroom of many companies - suggesting that supply chain executives need to do more to promote the value that they add to their organisation.

Mark McKeever is Supply Chain Leader, PwC

Indo Business

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