Top 4 tools in managing a growing supply chain

Nov 01, 2017

Mark Coxhead

Blog

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Top 4 tools in managing a growing supply chain

It was my pleasure to host a round table session at the 2014 Supply Fest conference on ‘Managing the Rapidly Growing Supply Chain’.

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Sitting together with 8 supply chain leaders from organisations including McDonalds; Topshop ; Halfords; Kier Construction and Royal Dutch Shell, 4 key themes emerged.

  1. Selecting the Right SuppliersSelecting the right partners came top for our participants. All had formal supplier qualification processes in place with a strong focus on risk mitigation and for the retailers with suppliers in the Far East, naturally managing corporate reputation risks were high on the agenda. All companies carried out financial health checks of their suppliers, although despite this several had had suppliers either go to (or close to) the wall due to financial issues. Interestingly perhaps, despite the attempt to wrap supplier selection in ‘science’, many participants emphasised the importance of a trusting, personal relationship with potential suppliers….good news indeed for the salespeople out there!
  1. Supplier CollaborationSharing information along supply chains with 3rd party suppliers was seen as critical, but also a severe challenge. Whilst well established supply chains might have made the investment in collaboration, this was less common (and more difficult) in rapidly growing supplier networks. Seems there is a great opportunity for the right collaboration tool in this space.
  1. Agility and the ability to change rapidlyA key issue faced by all rapidly growing supply chains is the ability to react rapidly to demand. Whether caused by the TV ratings of this year’s Tour de France or the popularity of the summer burger promotion, building some kind of flexibility and adaptability into the supply chain was both a top priority and a challenge.
  1. Managing the last mile of a Long Supply ChainIt was no longer moving goods around the world that was keeping our thought leaders awake; it seems this is ‘old hat’. Rather it is managing complex local deliveries; with smaller store footprints and omni channel sales strategies and their daily ‘click & collect’ deliveries that is now the biggest challenge.

In the end, sadly it seems that even for the best organisations there aren’t any silver bullets to be found in supply chain management, it is about ensuring continual incremental improvement. That is, doing the hard work, day in and day out.
How can supply chain finance increase your margins?

Could paying your suppliers early make you more money?

Do your buyers use payment terms as a negotiation tool?

The oldest rule in the business book is still relevant today.

Profit = Sales – Costs

However, cash held in the business is often seen as a barometer of health and therefore the idea of paying early for products or services to improve margin is not top of the agenda for many Finance Directors.

A new finance program now sees the approved supplier invoice as an asset which can be leveraged.  The supplier who can draw down an early payment can reduce their own finance costs and pass these savings to the buyer.

We are seeing significant early payment discounts being made available across a number of sectors.

Sector Supplier Sector Early Settlement Discount
Retail Shoe Manufacturer 3.5%
PR and Marketing campaign 5%
Clothing manufacturer 4.5%
Packaging 3%
Construction Labour 2.5%
Reinforcing Steel 5%

 

Profit Example

Product Unit cost Sold for Profit Gross Margin
Shoes £28.50 £85.60 £57.10 66%
With 5% discount £27.40* £85.60 £58.20 68%

*Includes 30 day finance charge

PR Campaign

Product Unit Cost Discount for
early payment
Saving Cost of finance
60 days
TV Advert £650,000 10% £65,000 £17,550
£17,550
Total savings £47,450

 

We paid the advertising agent on contract signing and our client paid us back 60 days later.

If you are looking to improve your margins, then reviewing supplier payments can be a very simple way to achieve this. There are many buyers who have not had the option to make an early payment to the supplier, however with many new innovative finance products available this is now a reality.

Give your buyers the tools they need to maximise their spending power and make the best returns for your company

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