Why companies are leaving money on the table in their supply chain

Money-on-the-Table

Would you ever leave money on the table if you were aware of it?  Of course not!  However, if you do not think of your supplier base as an asset in your business you are leaving money on the table in your supply chain.  Businesses have a tremendous amount of money invested in their supply chains from direct costs such as inventory to indirect costs such as maintenance.  Unfortunately most organizations fail to think this way.  The direct effect is that they are leaving money on the table and in most cases they don’t even realize it.

Below are a few areas examples where companies leaving money on the table:

  • Considering only your in-house talent
    • If you only consider the expertise within your own 4 walls as part of your business competence, think again.  Every company has their core business they are good at, but what about tapping into the skills of your supplier base? I have seen many times a company dictate irrelevant requirements that add costs and lead time with no added value.  This is the equivalent of asking your supplier to count every grain of salt in a recipe when you just need a couple of shakes. In cases like this, the supplier may often be incentivized to follow strict requirements that are not needed and because their only stake in the relationship is to make money, guess what they choose to do? Globalization is forcing all companies to find cost effective solutions that go beyond their in house talent.  The time is now to give suppliers incentives to change the process and use the skills they bring to the table.  You do not need to know every skillset, instead use your supplier base to expand your capabilities.  They are not the enemy and should be considered an asset and given incentivizes to provide solutions that add value.
  • Marketing opportunities
    • Partnering with the right supplier not only helps you find cost effective supply solutions, but can give distinct growth opportunities.  For example, restaurants and grocery retailers may have opportunities to build campaigns around local fresh ingredients that supply their businesses.  This can also be used to help reduce carbon footprints, reduce emissions in the supply chain and help promote local partners. “Made in the USA” is a slogan frequently used with US manufacturers to help identify companies sourcing components within the US.  Even the opportunity to provide the exclusive distribution offerings can be incorporated with the right partner.  What was the iPhone worth to AT &T when it was first introduced?
  • Collaboration to drive innovation and cost reduction
    • What is it worth to be first into the marketplace, have favorable payment terms or have your suppliers invest in product development costs?  Giving the right incentives and an environment that fosters innovation, suppliers will often find ways to offer unique advantages not afforded to the others in the industry such as cost reduction projects.  These incentives give suppliers the trust needed to take risks to provide solutions such as vendor managed inventories, favorable payment terms, product innovation and much more.  These solutions can provide opportunities to be first in the market, increase innovation and drive down cost.  Costco for example uses their suppliers to develop packaging solutions that increases volumes but at the same time lower cost per unit.  That’s not by accident.

Don’t limit potential advantages to just your within your own team, it will cost you in the end through higher costs and less distinction.  Creating a supply chain advantages is a must for those companies looking to differentiate from the competition.  If you or any organization you know are looking to develop supply chain strategies that create marketplace advantages contact me for a no-cost assessment.

Question: what unique supply chain solutions have you experienced that gave your business a distinct advantage in the marketplace?

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