The need to contain costs in all aspects of business is now more crucial than ever for most companies. Many challenges lie ahead in these uncertain economic times; input costs, particularly raw materials, are on the rise again, and the search for greater cost reduction in business is intensifying. But after years of significant cost-cutting programmes, there is very little low-hanging fruit left, says visionary supply chain thinker Martin Christopher .
UK-based supply chain thought leader Martin Christopher will be in South Africa in October to participate in the Chartered Institute of Logistics and Transport: South Africa’s ‘Meet the Gurus – Global Supply Chain Update’, taking place on 22 October in Cape Town and on 24 October in Sandton, Johannesburg.
The only remaining aspect ripe for trimming is actually outside the company – in its interfaces with other partners in the supply chain. Companies focus on internal efficiency but are unaware of the significant layers of costs in badly managed supply chain interfaces.
Supply Chains Compete – Not Companies
Some companies still try to reduce costs or grow profits at the expense of their supply chain partners. But transferring costs upstream or downstream does not make them more competitive; all costs filter to the final marketplace as the price paid by the end user. Smart companies strive to make the supply chain more competitive using the value it creates and the costs that it reduces as a whole. The real competition is supply chain against supply chain. Three related key drivers of costs at supply chain interfaces can be eliminated by collaborative working: transaction costs; process costs and uncertainty costs.
Transaction costs include the costs of placing orders, progress chasing, raising invoices, confirming delivery arrangements, handling queries and many other activities of companies doing business with each other. However, these can be dramatically reduced using collaborative working arrangements supported by modern B2B e-commerce tools.
Today’s information and communications technology makes it possible to connect supply chains from one end to the other. The availability of ‘Software as a Service’ (SaaS) over the web means the cost of communications across networks is relatively low.
Removing Barriers to Collaboration
The barriers to improving supply chain collaboration are not the technology, but rather the mindset of people in business reluctant to work as partners and share information. The benefits far outweigh the risks; shorter cash-to-cash cycles, and improved supplier/customer relationships.
Process costs arise because suppliers’ processes do not always align with customer processes. Different product codes and unitisation requirements; discontinuities and duplications; manual or multiple or erroneous data entry can all add to costs. Process alignment can be achieved using joint process teams with people from both sides of the customer/supplier interface.
Uncertainty costs arise through a lack of confidence in forecasts and a lack of knowledge about customers’ precise requirements. This can create buffers of duplicated inventory at the interfaces between supply chain entities, as well as at the manufacturer and retailer or end user.
The key to reducing unnecessary buffers of inventory is improving supplier/customer communication – by giving suppliers immediate information about their rate of usage or sales of product using e-commerce tools such as Vendor Managed Inventory (VMI).
Martin Christopher has been at the forefront of the development of new thinking in logistics and supply chain management for over thirty years. His contribution to the theory and practice of logistics and supply chain management is reflected in the many international awards that he has received.
For more information on CILTSA’s ‘Meet the Gurus’ Global Supply Chain Update, email Catherine Larkin at CILTSA firstname.lastname@example.org.
About Martin Christopher
The science of supply chain management has its own alchemist; Martin Christopher, a visionary thinker in supply chain excellence. He believes effective development and management of any supply chain network is a sustainable advantage in today’s global marketplace. Christopher is renowned for recognising that the real competition is between supply chains, not companies and created a number of guiding principles for supply chain managers to gain a competitive edge. These are summarised as the ‘4Rs’; responsiveness, reliability, resilience and relationships.