Have you noticed an increasing parallel between the list of best supply chain companies and lists of the best companies? ...
The same observation could be made of many great supply chain executives. When Jeff Bezos set out to create Amazon as an unrivaled retail force, he hired away Walmart’s best supply chain talent. When Steve Jobs set out to create the best supply chain in the industry, he hired none other than Tim Cook to build the Apple supply chain and fulfill the Steve Jobs vision.
Maine Pointe’s pioneering Total Value Optimization™ (TVO) model continues to show that most company’s supply chains fall far short of where they could, or should, be on the maturity curve. However, it would be unfair to automatically assume that your supply chain organization is uninformed, unskilled, or uninterested in your company’s performance.
The reality is that the vast majority of companies we have encountered through our combined decades of supply chain experience are led by bright, informed, and dedicated professionals. These skilled individuals are hungry to deliver meaningful value to the bottom line and constantly looking for ways to identify and release hidden value across the most visible and readily measurable elements of their company’s performance. They too often just don't know where to look.
Here are some key areas where, in our experience, organizations can often tap into vast amounts of unrealized value.
Relevant metrics versus many metrics
The majority of leaders understand that unearthing latent value in any aspect of their business performance can deliver significant competitive advantage. This is especially true in an arena that represents a significant portion of a company’s total cost structure, such as supply chain management. The buy-make-move-fulfill supply chain metrics that typically receive the most attention from leaders and managers are headcount, total labor costs, cost-per-unit manufacturing efficiency and procurement total cost of ownership (TCO) performance. Rightly so, as success in each of these metrics is vital to a healthy supply chain.
However, while a focus on universal metrics can drive measurable improvement, it also carries the risk of competitive convergence across industries. As a result, costs go out but profits remain flat as all competitors in an industry niche read the same books, hire the same consultants, focus on the same metrics, and progress along the same efficiency frontier.
A multidisciplinary supply chain
A clear and effective focus on right product, right place, right time and right quantity performance is the last unchartered company terrain within supply chain management. This is where difficult-to-create, difficult-to-copy performance enhancement opportunities are most likely to exist.
There’s has been a good deal of research to support this view. For example, a study by the former AMR Research Inc, found that, compared to their peers, companies whose supply chain transformation efforts improve the end-to-end demand forecasting and operations planning cycle:
- Have a 5% higher profit margin
- Carry 15% less inventory
- Enjoy 25% shorter cash-to-cash cycle times
- Boast more than 15% better Perfect Order ratings
The same research showed that companies with higher Perfect Order ratings have higher earnings per share, a better return on assets, and higher profit margins—roughly 1% higher for every three percentage-point improvement in Perfect Orders.
Seven sources of latent value across the supply chain
At Maine Pointe, we are currently pioneering the discipline of a Total Value Optimization™(TVO) approach across the supply chain. With regards to right product, right time, right place, right quantity performance, we believe that there are at least seven critical building blocks of TVO:
- Value optimized transportation management
- Value optimized distribution operations
- Sales and operations planning
- Inventory optimization
- Distribution network optimization
- Order-to-cash fulfillment optimization
- Supply chain synchronization
Capitalizing on any one of the seven sources of latent value will require unique business capabilities, and an ability to drive transformational change throughout the organization. The sobering counterweight to the evidence that supply chain leadership can boost a broad range of financial measures is that, similar to most transformative initiatives, all the easy answers are wrong. Achieving superior financial performance vis-à-vis competitive peers will always present a major challenge. If it were easy, everyone would have done it long ago, and the latent value and opportunity for competitive gain would have vanished.
The implications for your organization are that, in a struggle for competitive advantage, break out right product, place, time & quantity supply chain enhancement initiatives may be a winning hand.
- If you would like to talk through the opportunities discussed in this article and find out how Maine Pointe's TVO™ approach can help you unlock the hidden value in your organization, contact us for a no-obligation chat:
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As specialists in procurement, logistics and operations, we know that there are cost savings to be found almost everywhere in the key areas of your value chain. Not only that, we have the experience, methodology and capability to deliver significant savings and help clients move up the maturity curve to achieve Total Value Optimization™.
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