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eBook
Avoiding Hidden Margin Erosion in Mid-Market
Supply Chain Operations
2
Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations
Content
Introduction 	 3
Planning and Forecasting A...
3
Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations
According to the Middle Market Indicator (MMI), 85 ...
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Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations
Mid-market companies often must focus so tightly on...
5
Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations
Inbound and Receiving Areas
Ordering and receiving ...
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Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations
Inbound and Receiving Areas (cont)
Carrier and deli...
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Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations
Evaluation and Inspection Areas
Inefficient RMA and...
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Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations
Accounts Payable Areas
LatepaymentfeesJust as late ...
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Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations
In today’s increasingly competitive business enviro...
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Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations
6805 Capital of Texas Hwy | Austin, TX 78731 | T -...
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Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations [eBook]

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This eBook explores hidden areas of supply chain operations that can eat into a mid-market company’s net margins.

Today’s combination of increasingly complex supply chain operations and the availability of more accessible/affordable technology means mid-market companies can and should take a deeper look into these areas as a means to maximize margins.

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Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations [eBook]

  1. 1. eBook Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations
  2. 2. 2 Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations Content Introduction 3 Planning and Forecasting Areas 4 Inbound and Receiving Areas 5 Evaluation and Inspection Areas 7 Accounts Payable Areas 8 Conclusion 9
  3. 3. 3 Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations According to the Middle Market Indicator (MMI), 85 % of middle market executives cite the ability to maintain margins as a somewhat to highly challenging issue. The MMI quarterly business performance update and economic outlook survey indicates that quarter after quarter, margin management is ranked as a top concern among middle market companies.1 This should be no surprise, considering mid-market companies are squeezed between large and small cap businesses: they must streamline product manufacturing and delivery operations as much as larger companies, yet be as nimble as smaller companies. As a result, they have a unique set of challenges and makes margin management even more critical. This eBook explores hidden areas of supply chain operations that can eat into a mid-market company’s net margins. Identifying and addressing these supply chain issues has historically been a challenge as it required diverting resources and capital away from other critical areas.Today’s combination of increasingly complex supply chain operations and the availability of more accessible/ affordable technology, means mid-market companies can and should take a deeper look into these areas as a means to maximize margins. Introduction
  4. 4. 4 Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations Mid-market companies often must focus so tightly on delivering quality products and services to their customers that investing resources into analyzing and fixing what appear to be minor supply chain issues might not seem practical or even feasible. It’s true that each of these less obvious areas does not cause significant margin erosion on its own; however, many mid-market companies can suffer from a number of combinations of these issues.When evaluated in that context, the impact on profitability can be noteworthy. Planning and Forecasting Areas Landed cost vs. Itemcost Evaluating materials based on landed cost instead of the item’s unit cost is a growing trend in planning and procurement. Materials planning based on landed cost allows companies to factor transportation and logistics costs into the contract item cost for more visibility into actual materials expense. Forecasting Forecasting in general is also an area that can impact margins. Without reliable forecasting processes and tools, a company can easily order the wrong quantity of materials.“Projecting heavy”unnecessarily consumes warehouse space, increases the risk of waste or loss, raises taxes, and impacts inventory turns.“Projecting light”drives up procurement and transportation costs, as well as increases the risk of materials run-out. Fortunately, there are a number of low-investment ways to increase accuracy, such as: • Increasing collaboration with customers to gauge future demand • Integrating marketing plans and projections to prepare for order spikes or lulls • Increasing forecast sharing and communication with suppliers via a collaboration portal or other automated workflow system Hidden areas that can eat into mid-market net margins 2016 1 http://www.scdigest.com/assets/on_target/13-10-31-1.php?cid=7534
  5. 5. 5 Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations Inbound and Receiving Areas Ordering and receiving inefficiencies Ordering and receiving inefficiencies, such as a lack of automation and collaboration in critical areas, play a quiet, yet potentially large contribution to reduced profits. Automating workflow tasks between buyers and suppliers—such as sending, receiving, acknowledging, and approving purchase orders—can enhance processing speeds by more than 80% while reducing costs by approximately 83%.2 But the benefits go beyond the initial savings. Automation also increases purchase order throughput and allows resources to focus efforts on quickly resolving issues that require human attention. Automated collaboration software helps ensure required order quantities are current with real-time buyer and supplier notifications. Configurable workflow helps to ensure compliance so what is shipped always matches what is ordered. Besides fees and penalties, there are alternative and perhaps more subtle ways that missing carrier and delivery windows can affect margins. Shipments that arrive at one part of the supply chain late often require expediting to make it on time to the next stage—which not only adds cost, but can adversely affect the entire build-to-deliver cycle. Expediting also increases the chances of selecting a higher carrier rate or sending the product to the wrong location, both of which quickly eat into margins. Automation is not only beneficial for increasing margin in current operations, it reduces the cost of scaling as the business grows. While studies continue to show that mid-market companies are behind the adoption curve in procurement automation, lower investment solutions are now available that can deliver ROI in just a few months. Today’s supply chain automation solutions give mid-market businesses the automation and visibility they need to nimbly collaborate with suppliers.With simpler implementation and more user-friendly interfaces, these solutions can consolidate product and order communications to help minimize disputes as well as empower planners to better forecast demand. Automated Workflow Tasks 80% 83% Enhanced Processing Speeds Reduced Costs 2 TAKE Supply Chain, 5 Key Criteria for Setting the Right Level of Supply Chain Automation
  6. 6. 6 Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations Inbound and Receiving Areas (cont) Carrier and delivery windows According to Refrigerated Transport,“Supply chain compliance is now a vital component of logistics transactions and supplier relationships. In 2014, access to visibility and execution data will advance both supply chain conformity and transparency to help minimize and mitigate environmental, performance, process, and intellectual property risks.”3 Requiring fixed materials delivery windows from suppliers is a growing trend in supply chain management that impacts margin on both the buyer and supplier side. Over the past few years, improvements have been made in receiving dock scheduling systems in an effort to help warehouse managers and supply chain professionals streamline operations and reduce unnecessary cost. As a result, more companies now require dock reservations for inbound orders, including financial penalties for suppliers who deliver off-schedule. For example, in 2010, Walmart joined other retailers in imposing a penalty on suppliers that failed to deliver products within the company’s prescribed four-day window. Under the policy, suppliers whose products arrive at Walmart before or after that period face a three-percent penalty based on the cost of the goods. Before the policy went into effect, Walmart requested delivery within the four-day period, but suppliers had no incentive to actually adhere to that schedule.4 Although it was not the first to adopt this policy,Walmart’s status as the world’s largest retailer prompted a domino effect that continues to affect supply chains to this day…as late/early delivery fees are now the norm for many industries. The margin benefits of more tightly managing materials delivery are numerous, especially as supply chains become far more complex and synchronized. As alluded to earlier, early and late deliveries can quickly drive up warehousing, manufacturing, and inventory holding costs. Below the surface, other costly occurrences, such as inventory misplacement and theft, can also increase with unexpected shipments. Installing a functionally strong shipment collaboration solution can help to reduce and/or eliminate these less obvious/hidden logistics areas that eat into margin.These types of solutions allow order fulfillment thresholds such as delivery windows, order quantity, and carrier selection/ mode to be configured and validated prior to shipment release. Advanced Shipment Notices (ASNs) and package/ container traceability are also typically included, along with pre-formatted, compliant labeling to further reduce receiving dock errors. As a result, all stakeholders across the buy side and the supply side have real time visibility for more accurate resource and materials planning through the rest of the supply chain. 2014 ! ! 3 http://refrigeratedtransporter.com/carriers/five-trends-logistics-supply-chain-industry-forecast-2014 4 http://asq.org/qualitynews/qnt/execute/displaySetup?newsID=8082
  7. 7. 7 Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations Evaluation and Inspection Areas Inefficient RMA and quality processes Often times, RMA and quality are considered on the fringes of supply chain and don’t receive the same level of scrutiny as, for example, procurement or accounts payable. Yet inefficiencies in these areas, usually in the form of manual inventory updates and ineffective notification and collaboration with stakeholders, can have a significant impact on net margin in the form of errors and delays. Inventory carrying costs, labor, and customer satisfaction are just a few of the areas impacted on the buy side of the supply chain. Yet another threat to the mid-market company’s bottom line are recalls.5 Even when inadequate supplier quality control causes a recall, the host company is ultimately the party that suffers. When a recall occurs, unplanned reverse logistics costs for tracking the recalled items and transporting all the recalled items from every end location back to the manufacturer warehouse could cost more than shipping those same items out the first time around. In fact, warehousing and return shipping costs for rejected materials alone can quickly eat into otherwise healthy profits. Automating and aligning QA and RMA processes can reduce unnecessary costs associated with planning and procurement discrepancies, as well as potential overpayment of invoices that reflect rejected materials.
  8. 8. 8 Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations Accounts Payable Areas LatepaymentfeesJust as late deliveries can incur small but not incidental costs on each delivery, late payments can also affect margins. Without proper automation systems in place, companies have limited visibility into invoices tied to various billing cycles, invoices that may incur fees for late payment (and how much those fees are), or how far each individual invoice has traveled through the payment system. Today’s solutions enable mid-market managers to group invoices based on payment terms so those batches that are approaching their due date can be flagged automatically, without clerks sorting through them individually. Invoices that meet three- or four-way match criteria are processed for payment. Invoices not meeting pre-established rules and criteria are sent to an exception queue for manual handling.This increases the timeliness of payments as well as expedites problem resolution. Earlypaymentdiscountsasawaytoincreasemargin One final hidden area of margin erosion is in the form of forgone early payment discounts.This is also a product of manual processes and poor collaboration. Often times, however, AP automation solutions are equipped with a dynamic discounting feature that allows companies to place invoices with applicable discounts into a separate, accelerated queue for faster processing and/or resolution. 2014 5 TAKE Supply Chain eBook, Hidden Transportation and Logistics Costs of Supplier Non-Compliance
  9. 9. 9 Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations In today’s increasingly competitive business environment, mid-market companies must keep margin management and supply chain efficiency at the top of the priority list. There are a number of points in the supply chain lifecycle where margins can be streamlined and improved, from forecasting and planning to returns and billing. Each of these points can be evaluated to determine where improvements can occur. In the not-so-distant past, mid-market companies might have required an entire department to monitor, analyze, and improve supply chain efficiency. Fortunately, that’s no longer the case.The current array of available supply chain management systems provide powerful, cost-effective technology solutions that not only fit into any budget, but can also help minimize or even eliminate many of the most common margin killers. A mid-market business uncovering the hidden problems highlighted in this eBook might discover a number of ways to improve margins—and the new technology available today means that systematically taking advantage of these opportunities is no longer a Herculean undertaking. Conclusion
  10. 10. 10 Avoiding Hidden Margin Erosion in Mid-Market Supply Chain Operations 6805 Capital of Texas Hwy | Austin, TX 78731 | T - 512 231 8191 | F - 512 231 0292 | W - takesupplychain.com A division of TAKE Solutions, Inc. ©2014 TAKE Solutions, Inc.

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