There are two bits of research that I believe are the best kept secrets in business today. First, according to Boston-based AMR Research, the average total return of companies in AMR's "Supply Chain Top 25" in 2007 (which included companies like Apple, Walmart, IBM, Johnson & Johnson, etc.) was 17.89%, compared with returns of 6.43% for the Dow Jones Industrial Average and 3.53% for companies in Standard & Poor's 500 Index. The second bit of info is from a Georgia Tech study that show supply chain glitches can all but destroy shareholder value. They indicate the total shareholder value loss associated with a glitch can be as high as 25%.
To my core, I feel that companies who ignore these two truths are leaving themselves wide open to a ton of risk. And in this day and age with so many tools at our disposal, there is no excuse not to have achieved some proficiency within the supply chain. There has never been as much talent, technology, reporting tools or partners to outsource to than today. However, there are a lot of companies who are all but ignoring this vital part of their business.
To help illustrate how powerful focusing on supply chain can be to a company's bottom line, I am going to highlight seven different pieces of business intelligence that allow companies to instill meaningful change. For those readers who want to use their supply chain as a competitive advantage, here are the metrics that must be a part of your company's DNA.
1. Freight as a Percentage of Invoice Report
This is the report of all reports that every single company in the world that ships anything must be looking as a front line metric. What's more important than knowing how freight relates as a percentage of invoice? Having this data allows companies to focus on the least profitable geographic areas, shipping lanes and customers so corrective action can immediately be put in place. Once a company creates this visibility, they will question how they ever were able to stay in business without it.
2. Cost Per Pound Report
If generating the "freight as a percentage of invoice" report is too difficult, then a cost per pound report is almost just as powerful. The output is similar in that it identifies where it costs the most to ship to. Either one of these first two reports will ultimately suffice in being the report every company needs to analyze the most meaningful areas of opportunity. All the other reports will work in concert with either of these first two.
3. Lost Opportunity Report
Having visibility to where the least cost carrier option was not used every time is a great way to thin down transportation costs. Knowing where premium shipping options were used, creates a culture of accountability from employees, customers and suppliers.
4. Consolidation Report
Even the most efficient companies in the world leave gobs of money on the table by not combining orders that ship on the same day or to the same geographic area. By identifying instances where consolidating shipments or building full truckloads with stop-offs would have made more economic sense can melt away excess freight expenditures.
5. Network Optimization Report
Companies who ship from multiple warehouse locations can usually shed loads of costs by shipping via the most optimal shipping location. Inventory management is key to optimizing distribution networks, but unless there is a report show how painful NOT being diligent is, change never comes. Companies are usually shocked at how much money is lost in freight each year by not shipping from the most optimal location.
6. Pool Distribution Analytics
A terrific way to immediate boost profits is by identifying areas where a pool distribution channel can be built. This might sound complex, require a ton of collaboration and hurt delivery times. But this is much easier than most people think. Typically pool distribution networks are easily put together while improving delivery time and allowing for more production time. A pool distribution network can be as simple going from multiple small shipments to a state to a once a week truckload to a regional carrier who can do the final leg of delivery. Again, shipping costs erode when done the right way.
7. Inbound Management Report
With the right information, purchasing people can be deadly if they know what quantities to buy in to maximize their freight costs. Considering freight costs can be buried in prepay & add terms or delivered price programs, it is vital that companies arm themselves with data that can bring visibility to this area. There is so much money tied into inbound logistics that I actually wrote a free five day e-course called Finding Hidden Money In Inbound Logistics that helps shippers unbundle this murky area. It all starts with the right reporting tools.
According to the authors of The New Supply Chain Agenda (Harvard Press 2011), less than 15% of companies today even have a supply chain strategy. That number, coupled with the mounting evidence that proves higher share holder for companies that focus on supply chain highlights a huge competitive advantage that is there for the taking. I believe in the not so distant future, companies that do not take their supply chain's seriously will leave themselves open to major financial risk.