Supply Chain as the Means to an End: Sustainable Cost Reduction
Pick any cost model, and guess what will be at the core – supply chain productivity.
As a case in point, consider the Dupont model in which every ratio is directly
impacted by supply chain efficiency: profit margin, asset turns, debt to asset ratio.
Gaining productivity in the supply chain through reduced working capital and
COGS, as well as improved asset utilization, yields valuable market and financial
results. These areas hit
the bottom line of
both income
statements and balance
sheets, necessary steps
in moving market
capitalization.
Now, consider a
popular cost-cutting
measure: workforce
reduction. In the
Dupont model, the
only ratio impacted by such an action is profit margin. Even if margin is the
deciding factor, which tactic yields stronger results – workforce reduction or
supply chain productivity? Given that a product supply chain makes up a
consistently higher portion of costs, supply chain efficiency yields greater returns
in margin optimization. Furthermore, additional performance measures like asset
utilization and liquidity are directly impacted by one’s supply chain.
Supply Chain Blocking and Tackling
In the realm of cost reduction, value can be defined as short-term realization
coupled with sustainable results. Five areas that represent key components in
reducing supply chain costs in any organization include:
• Inventory reduction
• Product rationalization
• Customer segmentation
• Supplier base management
• Network optimization
These key components are basic supply chain blocking and tackling maneuvers
but are rarely given the attention deserved. In fact, in recent years, they have
often been overlooked as companies struggled to meet the demands of a growing
economy. Efficiencies in these functions can drive an organization’s market
positioning and be leveraged to achieve strategic objectives. Even without the
strategic perspective, these efficiencies can ensure the viability of an organization
during tough times as well as during growth years, as experienced in the 1990s.
The following sections highlight the concept, describe the value proposition and
provide a case example for each of the above five recommendations.
Supply Chain as the Means to an End: Sustainable Cost ReductionPick any cost model, and guess what will be at the core – supply chain productivity.As a case in point, consider the Dupont model in which every ratio is directlyimpacted by supply chain efficiency: profit margin, asset turns, debt to asset ratio.Gaining productivity in the supply chain through reduced working capital andCOGS, as well as improved asset utilization, yields valuable market and financialresults. These areas hitthe bottom line ofboth incomestatements and balancesheets, necessary stepsin moving marketcapitalization.Now, consider apopular cost-cuttingmeasure: workforcereduction. In theDupont model, theonly ratio impacted by such an action is profit margin. Even if margin is thedeciding factor, which tactic yields stronger results – workforce reduction orsupply chain productivity? Given that a product supply chain makes up aconsistently higher portion of costs, supply chain efficiency yields greater returnsin margin optimization. Furthermore, additional performance measures like assetutilization and liquidity are directly impacted by one’s supply chain.Supply Chain Blocking and TacklingIn the realm of cost reduction, value can be defined as short-term realizationcoupled with sustainable results. Five areas that represent key components inreducing supply chain costs in any organization include:• Inventory reduction• Product rationalization• Customer segmentation• Supplier base management• Network optimizationThese key components are basic supply chain blocking and tackling maneuversbut are rarely given the attention deserved. In fact, in recent years, they haveoften been overlooked as companies struggled to meet the demands of a growingeconomy. Efficiencies in these functions can drive an organization’s marketpositioning and be leveraged to achieve strategic objectives. Even without thestrategic perspective, these efficiencies can ensure the viability of an organizationduring tough times as well as during growth years, as experienced in the 1990s.The following sections highlight the concept, describe the value proposition andprovide a case example for each of the above five recommendations.
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