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Companies use multiple tactics to generate economic profit, including introducing new products, launching marketing campaigns or undertaking acquisitions. Supply chains offer an effective, though less understood, path to creating value through growth, driving down working capital, improving cash flow and lowering cost.
Surprisingly few companies understand the importance of the supply chain, and few have a formal strategy in place for managing global supply chain risk in the years ahead. This is especially dangerous given the volatility and uncertainty in trade relations between the U.S. and China, as well as other scenarios around the world. Besides geopolitical uncertainty, having the right talent, a holistic perspective and appropriate technology may all figure into the supply chain risk factor.
Use the following best practices to optimize your supply chain and minimize risk.
1. Redefine The Supply Chain
Best practices begin with redefining supply chain excellence and broadening its scope. Rather than seeing the supply chain as having a primary focus on procurement and logistics, it is about optimizing the entire end-to-end supply chain, from the supplier’s supplier, to the four walls of the business, to the customer’s customer.
2. Create A Cross-Functional Team
Best practices for driving shareholder value through supply chain optimization can be easily implemented in any company for concrete results. The supply chain is important to every bucket of economic profit, defined as profit less cost of capital needed to generate a profit. Best practices begin with seeing the impact. This process begins with identifying a cross-functional team, a task that will help in visualizing the entire supply chain, its complexity and its impact on financial metrics. This will help link supply chain decisions to company financials and create conversations with both internal and external stakeholders that will lead to benefits that go far beyond simple cost reduction.
3. Focus On The Right Metrics
Following increased visibility and cross-functional team-making, focusing on the right metrics is the logical next step. Supply chain management generates an overwhelming number of metrics, but many of those metrics do not speak to how supply chain optimization impacts the company’s financial performance. Making that connection will allow the supply chain manager to better visualize how supply chain decisions impact the entire company.
4. Connect With The C-Suite
Another essential best practice in supply chain optimization is building relationships throughout the entire company and starting conversations with the CFO and other key executives. This may be a challenge because some supply chain managers may feel too far removed from the executive level, but getting past that resistance and offering insight and creative solutions will help to forge key allies in supply chain optimization efforts and to better create and execute strategic supply chain initiatives that go beyond basic cost-cutting measures.
5. Manage Risks
Long-standing supply relationships have value, but disruption of those relationships can be devastating. A fundamental building block of supply chain excellence is risk management. There are plenty of examples of a single catastrophic supply chain event — such as a trade war, tariffs, weather event or shipping disruption — having a major negative impact on shareholder value. Companies that have not yet adapted best practices have no formal documented risk management process and are missing out on key opportunities for value creation. Those that have begun to mature have started to identify risks in the supply chain and do a risk assessment at the beginning of every major supply chain project. Those with the most mature levels of supply chain best practice have a formal, documented and implemented process to identify, prioritize and mitigate supply chain risks looking years ahead.
6. Total Value Optimization
The Total Value Optimization (TVO) framework promotes greater collaboration, integration and transparency. The framework focuses on finding value drivers for cost, cash and growth, and building an action plan to achieve those drivers by leveraging the end-to-end supply chain, implementing supply chain excellence and building on long-term risk management. This framework represents a pragmatic step-by-step approach to transforming the supply chain into a competitive weapon.
May 17, 2019 at 01:10PM
Forbes – Entrepreneurs