Businesses are always looking for innovative ways to reduce costs and increase their margins. One of the most effective ways to make it happen is by improving supply chain management.
Supply chain management is the management of the flow of goods and services and includes all processes that transform raw materials into products. This article will explain the relationship between supply chains and profitability and some of the benefits your business can enjoy by achieving effective supply chain management.
- What is the relationship between supply chains and profitability?
- What are the benefits of effective supply chain management?
What is the relationship between supply chains and profitability?
Businesses with strong supply chains are more likely to generate revenue and higher profits. An exceptional supply chain can create efficiencies across departments and processes, as well as build a sustainable competitive advantage.
By creating efficiencies, businesses can also dramatically reduce costs across the supply chain. There are typically five main drivers of supply chain costs and by implementing effective supply chain management, you can cut costs across all of them. These drivers include:
- Investment costs
- Transportation costs
- Procurement costs
- Production costs
- Inventory costs
For example, production costs are particularly prevalent in the manufacturing industry and, if they are not managed properly, can hinder a business' chances of building a profitable operation.
These costs can include various expenses, such as labour, raw materials and consumable manufacturing supplies. By embracing certain strategies and solutions, your business can begin optimising certain elements of its supply chain to reduce production costs.
Discover what these strategies include and how you can begin optimising other operating expenses in our supply chain profitability playbook.
Effective supply chain management can reduce costs and maximise customer value by eliminating various types of waste and ensuring orders are received promptly.
Optimising your supply chain will help keep a consistent and steady flow of materials to minimise delays in manufacturing and delivery. This will also ensure materials do not go to waste, which can also lead to further negative impacts on your profitability.
So, now you better understand the relationships between supply chain and profitability. But what other benefits can your business enjoy from effective supply chain management?
What are the benefits of effective supply chain management?
As well as supporting businesses when it comes to increasing profits, effective supply chain management can also offer many other benefits to help you achieve a competitive advantage. These benefits include:
Better collaboration with suppliers.
Supply chain collaboration can provide many benefits in itself. By effectively managing different supply chain elements, your business can achieve goals set out together, such as improved communication, more collaborative execution and better information sharing.
Improved quality control.
Quality control problems can be detected earlier when you and your suppliers work to the same standards. For example, if a supplier knows raw material will not arrive at your site on time, improved communication will mean the issue is spotted earlier and you have more time to find a solution.
A more agile business model.
An effective supply chain also enables your business to adapt and be more flexible when embracing new opportunities. You may have a supplier who is using certain software that is improving their operation and having an agile business model, it makes it much easier for you to get processes in place to trial software for yourself.
Better visibility and data analytics.
A Warehouse Management System (WMS) has a key role for businesses operating in the manufacturing industry. By embracing such solutions, you can utilise data to discover weaknesses in your supply chain and plan to rectify them.
Improved risk mitigation.
By having rich and accurate data to leverage from a WMS, your business can quickly detect any supply chain issues. This allows you to mitigate risks that may damage your brand reputation and business profitability.
Making big changes to your supply chain might seem quite daunting. There is always the worry that you will cause major disruptions and ultimately put your operation at risk.
To help you learn more about the value of effective supply chain management and also some of the impactful strategies you should consider embracing, we have created a supply chain profitability playbook for you to download today.