7 signs profits are dipping because of poor supply chain management

When it comes to increasing profits, most middle market companies focus on sales. While certainly important, the fastest way to increase profits is actually through better pricing and cost control. In fact, a $1 cost reduction for most companies offers the same bottom-line benefit as a $10 revenue increase. Most middle market companies, however, don’t have someone on staff with the necessary expertise in supply chain management to recognize when the supply chain is causing an issue. Supply chain optimization is an incredibly complex puzzle that many companies don’t have the time, resources, or knowledge to tackle.

So how do you know if your money troubles stem from an underperformingor even broken supply chain? Here are the top seven signs.

1) You lack a C-suite inventory owner

supply chain managementWho on your executive leadership team is responsible for inventory? If the answer is “no one” or “it depends on the day,” that’s a problem. You need someone on the C-suite who’s solely responsible for inventory. When no one is responsible for inventory management, no one is held accountable for it. Without a dedicated inventory manager, inventory optimization and SKU rationalization never occur. And it’s likely you don’t have a sales, inventory, and operation planning (SIOP) process, which is vital to the growth of a company. By putting someone in place to manage inventory and develop an SIOP process, you can correct the costly inefficiencies that are cutting into your profits.

2) Inventory costs increase faster than sales

If the cost of building and managing your inventory is growing at a faster rate than your sales or if your supply and demand are out of balance, it’s time to stop and fix the problem. Middle market companies need a combination of people, processes, and technology to manage suppliers and inventory orders. Otherwise, salespeople rely on reactionary tactics that lead to unmet demand or a warehouse full of excess inventory.

3) Customer service agreements aren’t being fulfilled

Without clear inventory strategies for make-to-order, make-to-stock, and assemble-to-order products, the customer service team is unable to set and manage customer expectations. The process becomes inconsistent, which results in dissatisfied customers and profitability issues.

 4) Interdepartmental frustration

supply chain managementInstead of working together, sales, finance, and SCM (Supply Chain Management) view each other as obstacles to overcome. Each believes inventory should be the responsibility of the other and communication starts to break down between teams. That, in turn, results in the wrong quantities or the wrong items showing up at the wrong times.

 

5) Distribution and transportation costs are out of control

If you don’t have contracts in place with transportation services, you’re spending too much. Without a contract, you are forced to pay spot-market prices, which are almost always higher. You also might be getting hit with massive accessorial fees.

Distribution is another costly area that tends to get overlooked. But by crafting formal operations process and associated metrics, you can track distribution performance and costs and make changes based on hard data rather than employee observations.

6) Quality SCM personnel are difficult to attract or retain

When lower-than-average compensation and higher-than-standard workloads combine with obsolete technology and non-existent remote-working capabilities, it becomes difficult to attract and retain quality supply chain staff. However, with some simple improvements, you can attract, retain, and groom quality SCM personnel for leadership positions that can drive your organization forward.

7) You aren’t tracking metrics

In addition to setting up standardized processes for every element of your supply chain you need to set metrics to ensure performance. Without inventory, transportation, and distribution metrics, you can’t hope to improve any processes or motivate employees to perform better. And if you don’t have the data available, you may need to review your ERP setup immediately.

If you’ve identified several of these issues at your organization, you may feel overwhelmed. But you should know that an optimized supply chain in middle market companies is rare. Customer-facing areas like sales, customer service, and product development often steal the focus of leadership and the supply chain is constantly forced to play catch up.

If you’ve experienced any of the issues laid out here, take control and strengthen your supply chain for scalability and a stronger bottom line with the help of FortéOne.

With 20 years’ experience helping middle market companies with supply chain management, FortéOne developed our OneLink service. OneLink moves beyond a list of so-called supply chain best practices and assesses all areas of supply chain and operations to identify what works and what’s getting in the way. Our consultants then provide a proposal with ideas for rapid improvements that don’t put extra strain or stress on your resources.

Learn more about OneLink or contact the experts at FortéOne today.